The world's largest home improvement retailer, The Home Depot (HD), released the results for its most recent fiscal year, the 12 months to 31 January 2021, on 23 February 2021.

As expected, the company showed strong growth in both sales and profits compared with the previous comparable period (pcp), which was the year-ended 31 January 2020. Sales came in at USD132.1 billion, an increase of 19.9% on the pcp, while gross profit was USD44.9 billion, up by 19.4%. Operating income (EBIT) was USD18.3 billion, an increase of 15.4% on the pcp, while net earnings rose by 14.4% to USD12.9 billion. Diluted earnings per share increased by 16.4%.

One reason why earnings growth did not keep pace with sales growth was that HD chose to invest in its staff - much as Australia's Wesfarmers' owned big box home improvement retailer Bunnings did. As Craig Menear, chairman and CEO of HD stated in his prepared remarks at the results conference for investment analysts:

During fiscal 2020, in addition to record success sharing payouts, we invested a total of approximately USD2 billion on enhanced compensation and benefits for our associates. As we announced last quarter, we transitioned from temporary COVID-19 benefits to permanent compensation enhancements for our frontline, hourly associates.

Richard McPhail, executive vice president and chief financial officer, added some additional details during his remarks as well:

In fiscal 2020, we incurred approximately USD2 billion of expense related to enhanced pay and benefits for our associates. Last quarter we transitioned away from our temporary support programs in response to COVID, and increased permanent compensation for our front-line, hourly associates by approximately USD1 billion on an annualised basis.

Commenting on the sales results, Ted Decker, president and chief operating officer, pointed to the ongoing increase in demand from customers:

During the fourth quarter, we continued to experience unprecedented levels of demand across our business. For the third quarter in a row, comps in the US have been approximately 25%. With remarkable consistency, comps in the US were at or above 20% for 36 of the past 39 weeks. And as you might expect, this level of demand pressured our supply chain, but our supply chain teams and supplier partners responded and continue making progress.

Results for the fiscal year saw customer transactions increase to 1756 million, up by 8.7% on the pcp. Average ticket (receipt) size grew from USD67.30 to USD74.32, an increase of 10.4%. Commenting on selling space, Mr McPhail said:

During the year, we opened five new stores and ended the year with a store count of 2,296. Retail selling square footage was approximately 239 million square feet [22.2 million square metres]. For the fiscal year, total sales per retail square foot were USD544 [USD5856 per square metre], the highest in our company's history.

Mr Decker commented that the popular sales categories had been somewhat constant throughout the year:

During the fourth quarter, our customers exhibited a lot of trends similar to what we saw throughout 2020. For instance, we saw continued strength in outdoor living categories like patio furniture, grills, and outdoor power equipment, as our customers tried to extend the outdoor living season. We also saw strong performance from popular interior project categories like vanities, faucets, mouldings, and interior lighting.

Mr Decker is particularly optimistic about the growing market share for cordless outdoor power equipment.

As we've discussed, the cordless outdoor power market continues to outpace growth of the gas [petrol] market. Cordless tools are easier to use, more environmentally friendly, and have the power and run time to get most jobs done. Like we have done with our tool department, we are resetting our outdoor power equipment bays by branded battery platform. Customers can now shop our leading and exclusive line up by platform, including Makita, Milwaukee, Ryobi, Toro, and DeWalt. We are thrilled with the results and expect these resets will be complete in the first quarter.

DIY customers

As with Australia, HD saw increased involvement and expenditure from DIY customers, as Mr Decker described:

We continue to benefit from heightened engagement from both new and existing customers. As our customers continue to spend more time at home, they are telling us their project lists are growing. After completing a project, we see many of our DIY customers take on additional, and often times more complex, projects with a renewed sense of confidence.

That said, however, HD remains uncertain how much of that sales growth will prove to be structural in the longer term. In response to an analyst's question, Mr Menear remarked:

I think the thing that is really interesting is the fact that on the DIY side, we've seen the acceleration of the millennial generation engagement with home improvement and home ownership. And over time, the thing that will be interesting to watch is, has that in fact expanded the market? That's an interesting question that we don't know the answer to, but we're watching carefully. So we think there's a lot of opportunity as we go forward.

Pro customers

On the Pro (tradie) side of the business, Mr Decker noted that overall sales growth had continued into the fourth quarter, with conditions improving for the larger Pro customers as well:

Sales to our Pro customer continued to accelerate, posting the best quarter of growth in 2020. As we've mentioned all year, our smaller Pro customers maintained consistent growth and posted strong, double-digit growth in every month of the quarter. Growth from our larger Pro customers continued to accelerate, also growing double-digits each month of the quarter. While the operating environment is still recovering for many of our larger Pro customers, we're encouraged by what we are seeing and hearing, as backlogs are growing.

Karen Short, an analyst with Barclays asked for more detail on the Pro and DIY markets:

Is there any way to quantify the Pro backlog, and then is there any way you could frame how you think about the DIY versus the Pro comp in 2021?

Mr Menear responded to her question:

Karen, it's really difficult to try to quantify a Pro backlog. The only thing we can share with you is what our Pros tell us and that their jobs are building. We've seen an acceleration of the Pro business from quarter to quarter. And as it was called out in the fourth quarter, we actually had our best quarter ... with the Pro.

That backlog would also have a seasonal component in the US market. With a moderately cold winter in the Northern states, and an extremely cold winter in the Southern states, it's unlikely that larger construction work can get underway until later in March. However, in the Southern states there will also be an increased need for repairs, both to plumbing and areas such as roofing.

Digital

HD has long been a leader in digital retail, not just for home improvement, but for all categories of retail in the US. In his prepared remarks, Mr Decker stated that:

During the quarter, our interconnected and digital assets continued to perform well. Over the last several years, we've rebuilt our website and invested across our platforms to upgrade our infrastructure and improve the shopping experience. These investments allowed us to handle the enormous growth in web traffic and convert more of that traffic into sales. During fiscal 2020, homedepot.com had more than 3.6 billion visits, and our conversion rate increased double-digits across all platforms, including our app, mobile, and desktop.

Strategy

Perhaps the most interesting element of this results release was that HD permitted a deeper view of its strategic thinking. Mr McPhail introduced the topic near the end of his prepared remarks:

As we look back on our investments from 2018-2020, we believe that we focused on the right areas, improved the customer experience, and grew significantly faster than our market. As we move forward, we are committed to investing in our business to stay ahead of customer expectations and further enhance the customer experience, with two main objectives in mind:

First, to deliver returns by driving growth faster than the market in any environment. And, second, to further strengthen our position as the low-cost provider in home improvement, with a relentless focus on productivity and efficiency.

This approach will result in a steadier level of investment in both capital and expense going forward. For fiscal 2021, we estimate capital expenditures of approximately 2% of sales. It is our intent is to make those investments on a steadier cadence, and drive operating expense leverage, while preserving the ability to adjust our investments as needed.

In response to a question by Morgan Stanley analyst Simeon Gutman, Mr Menear expanded further on this strategy:

Number one, we wanted to be able to grow faster than the market, gaining share in the marketplace, and then accelerate our incremental op margin dollar growth. Since we started the program in fiscal 2017, through 2018 to 2020, and market share is a little elusive in our market. But based on the best data we can get, we believe that we've captured about 275 basis points of share growth during that timeframe. And so that has - during the whole investment we were taking share.

And so going forward, our approach is to make sure that we are investing on a more steady cadence what we need to in the business to make sure that we can stay ahead of the customer and we can continue to gain those kind of accelerated share growth opportunities going forward. And our focus is around really optimising [operating] margin dollars. And if we can do that and drive incremental [operating] margin dollars, we'll let rate fall where it falls.

Mr McPhail extended those comments:

Just to add to Craig's comment about market share capture, if you take that 275 basis points and translate that into dollars, that share gain represents USD10 billion of incremental sales annually to our top line versus where we were in 2017. So as you heard from Craig, scale matters. Our position as low-cost provider matters, and our investments put us in position to extend both.

Analysis

As with the Australian hardware retail market, the US market finds itself in something of a difficult position. On one hand, sales have grown and seem set to continue to grow, at least until June 2021 or so. The question that looms in the background is whether the current relatively rosy economic conditions are the result of various stimulus packages, or whether recovery from the COVID-19 pandemic is already underway, and a future lack of stimulus will have some effect, but not enough to create a recession.

One economic theory suggests that what we are seeing, in both Australia and the US, is that economies are performing a little better than expected because the upside of the COVID-19 pandemic is that it has enabled some technological transformations that had been resisted for more than a decade. Both virtual meetings and work-from-home practices have the capability to reduce stress on infrastructure, reduce expenses and to improve overall productivity - as one example.

The core question, really, for hardware and home improvement retail is to determine what the correct level of risk should be to match the current environment. One reason why traditional retail has been dying, in both Australia and the US, is a reluctance to take on an adequate amount of risk. Time and again, we've retailers collapse and fail by taking too "safe" a path into the future.

With that as a background, we would have to say that The Home Depot has probably managed to take on just enough risk over the past three to four years for it to stay viable. If that sounds like "damning with faint praise", it really is not. The many abandoned malls and empty storefronts in the US are testament to a high level of failure to understand the need for risk and transformation. HD has done well, but it also really needs to do still more.

US big-box home improvement retailer Lowe's Companies released its results for its 2020 fiscal year ending on 31 January 2021, on 24 February 2021. Sales revenue for the company was USD89.6 billion, up by 24.2% on the previous corresponding period (pcp), which was the 12 months ending on 31 January 2020. Operational earnings (EBIT) came in at over USD9.6 billion, a substantial increase of 52.8% on the pcp. Diluted earnings per share increased by 41.2% to USD7.75.

As with the company's main rival, the company has invested in supporting its sales reps, spending USD900 million for the year.

DIY

As with most home improvement retailers through 2020, the increase in sales was driven mainly by an expansion of the DIY business. According to Lowe's CEO, Marvin Ellison, in his prepared remarks for the results announcement conference for investment analysts:

Once again, DIY comps outpaced Pro comps in the quarter, driven by consumer mindset that remains focused on the home. During the pandemic, the home has come to serve four primary purposes: a residence, a home school, a home office and the primary location for recreation and entertainment.

Lowe's estimates that the DIY market makes up between 75% and 80% of its sales.

Pro

While Pro (tradies) constitutes a smaller market at the moment for Lowe's, the company sees regaining this market as key to its expansion plan. Mr Ellison said:

Our continued focus on the Pro is a very important component of our total home market share acceleration strategy. And Pro continues to show strong momentum, evidenced by the mid-20s comp in the quarter and nearly a 20% comp for the year. Part of our Q4 success in Pro was driven by our steps to tailor our service offering for these busy customers, even redesigning the footprint of our stores to facilitate a fast, intuitive shopping experience for our small and medium-sized Pro.

Later in the presentation, Joe McFarland, Lowe's executive vice president - stores, detailed some of the steps the company is taking to expand its Pro business.

[In terms of] our performance with the Pro, as Marvin mentioned, we delivered mid-20s comps in the fourth quarter. We continue to enhance our Pro Loyalty offering by providing Pros with the tools they need to get the job done. This time of year, our Pros are focused on not only their project pipeline, but they also need to close their books just like any other business. As a true partner to the Pro, we are now providing our Pro Loyalty members with a USD100 discount on TurboTax. Our Pro Loyalty members can also export up to 24 months of transaction history, expediting their year-end close process. It's value-added offers like these that truly differentiate our Pro Loyalty offering.

Throughout 2020, we continued to raise the bar on our offering for the Pro with better service levels, the right brands and products and the job lot quantities they need. Every day, we are demonstrating that Lowe's is executing our commitment to be the new home for Pros, which is reflected in the strong repeat rates that we're earning from new and existing customers...And one way we will drive greater Pro penetration is through our newly launched Pro Customer Relationship Management, or CRM tool.

Rolled out to all stores in late January, this new technology provides our Pro desk with the tools to manage grow and retain Pro accounts through consistent and data-driven selling actions. We will also be able to associate any transaction regardless of tender type to a specific Pro account, allowing us for better record-keeping for their business.

Store associate training is currently underway, and we expect that the targeted outreach enabled by this tool will facilitate stronger and more personal relationships with our Pro customers.

Asked by the analyst Seth Sigman of Credit Suisse about how he saw the Pro and other markets developing, Mr Ellison responded:

We feel great about the mood of the customer. We feel great about the trends relative to big ticket, small ticket, Pro and installations. And all the work that we put in place the last two years in our retail fundamental strategy just gave us a good position and platform to service the customer effectively across all those different categories.

Responding to a question by analyst Kate McShane of Goldman Sachs, Mr Ellison went into some detail as to why the company remains focused on the Pro market:

One of the key things that we focused on arriving at Lowe's a little over two years ago, is one of the main reasons why we had a gap relative to sales per square foot productivity and operating income by store was because the Pro penetration was significantly less than what it should have been. Pros drive productivity in multiple product categories throughout the entire store. And so part of our focus on the Pro is because we know it's going to be critical for us to improve overall productivity from a space perspective as well as driving operating income throughout the store... The key is we're going to be focused on it, and we think we're making great improvements.

Categories

Bill Boltz, Lowe's executive vice president - merchandising, reported on the category performance at the retailer.

Lumber was, once again, the top performer, driven by strong unit demand across Pro and DIY customers, as well as commodity inflation. Our merchants and our supply chain teams did an exceptional job in working with our vendor partners to keep up with demand and to ensure that our stores were stocked with job-lot quantities.

Several other categories posted comps above 30% [for the fourth quarter], including building materials, which was driven by strong demand for roofing and gutters. An improved level of in-stock and an exceptional customer service have allowed us to continue to grow our Pro business in these pro-focused building product categories. Our seasonal and outdoor living, lawn and garden and paint categories also delivered comps above 30% in the quarter, reflecting the consumers' continued focus on the home.

The team also leveraged our selection and key brands to drive strong sales in grills, patio heaters and fire pits. As these categories were strong throughout the quarter as consumers continue to enjoy their outdoor spaces. Outdoor power equipment was driven by sales of chore-related product, such as snowblowers, generators and pressure washers as customers navigated the weather and worked to maintain their outdoor areas. Continuing the theme of enhancing the outdoors, we saw strength in lawn and garden, with notable outperformance in holiday-related live nursery, along with growth in hardscapes, outdoor planters and cleaning products. And finally, our paint category also continued its strong performance with both interior and exterior stains delivering strong comps as the weather early in the quarter remained favourable.

One factor driving category performance, according to Mr Boltz, was the ongoing process at Lowe's of resetting layouts in its US stores.

We have been resetting the layout of our US stores with approximately 95% of our resets now complete. We expect to drive greater sales productivity per square foot by achieving three key objectives with this investment. First, driving Pro sales through a more intuitive and faster shopping experience as we've now placed relevant products adjacent to each other and added a Pro flex area for grab-and-go products at the front of the store.

Second, increasing our localized product assortment by eliminating unproductive bays without planograms or what we call junk bays, which now opens up space for new products, better tailored to the local market. And then finally, third, driving more transactions by moving the basket-building category of cleaning products to the main power aisle of the store.

We're confident that our stores are now easier to shop for both Pro and DIY customers, which positions us well to accelerate our market share gains.

Mr Boltz also pointed to improvements in brands and products.

We are continuing to build on our position as the leading appliance retailer in the US with the addition of Midea and Hisense appliances to our stores. And Lowe's will soon become the exclusive home improvement provider of Mansfield Plumbing Products. This addition will make Lowe's the only home improvement retailer to offer customers the top three toilet brands in the US: Kohler, American Standard and Mansfield.

Other brands that he listed as important to Lowe's included EGO battery-powered OPE, John Deere, Craftsman, Husqvarna, Honda and Aaron's.

Digital

As with most home improvement retailers, 2020 saw an acceleration in the growth of online sales. According to Mr Ellison:

On Lowes.com, sales grew ... as customers shifted more of their shopping online, especially over the holiday season. We continue to enhance our omnichannel retailing capabilities in store operations, on Lowes.com and across our supply chain, with our goal to meet customer demand to shop, however, whenever and wherever they choose.

Mr McFarland expanded on that:

2020 changed the way the customers shop with Lowe's. Nowhere is this more evident than the 111% sales growth on Lowes.com for the year. And with roughly 60% of these online orders fulfilled in our stores, we needed to dramatically expand our ulfilment capabilities to support this increased demand.

Mr Boltz pointed to changes to online that helped to boost those sales:

We continued to enhance the user experience as we simplified the search and checkout features to speed up the process for customers shopping online. And we are also now working on replatforming LowesForPros to the cloud to be completed in the first half of this year, which will significantly enhance the features that we offer to these time-pressed customers and then further build out our loyalty with the Pro.

In response to an analyst's question, Mr Ellison also commented on how fulfilment had changed to cope better with the digital marketplace:

We opened up a dot-com fulfilment DC in Southern California this past year. It gives us the ability to have two-day delivery from an e-comm perspective to every US location. We're also opening up three additional e-commerce fulfilment centres. That's relatively new to our strategy, to answer your question, and that's going to give us the ability to create more same-day next-day delivery opportunities.

And we're aggressively building out our bulk distribution centres and our cross docks to help with the market delivery. In addition to that, we're going to be leaning into Pro job site delivery, and we have a couple of initiatives underway that we're working on to make that a reality.

Mr McFarland noted that the company is also enhancing its technology backend for fulfilment, to deliver a better service in a more productive way:

This quarter, we began rolling out geofencing technology that alerts our stores when customers are on their way to pick up their orders, enabling quicker fulfilment when they arrive at the store. Last quarter, we announced that we were standing up dedicated fulfilment teams to handle all in-store fulfillment orders.

All of these enhancements, from the easy to use BOPIS [buy online, pickup in store] lockers and the new geofencing technology to the focus on the fulfilment teams, have already driven improvements in customer satisfaction and speed of service.

Importantly, the fulfilment teams are also improving productivity as they leverage enhancements that we've made to the picking app. This is evidenced by a dramatic reduction in the number of hours needed to fulfil orders for pickup. In fact, we can now fulfil orders six times faster on average than one year ago.

Total Home

One of the initiatives that Lowe's has launched is its "Total Home" concept, where the company is seeking to supply more goods to both DIY and Pro customers. Mr Ellison quickly outlined how that program works:

Our Total Home strategy will drive market share acceleration by enhancing our investments in pro, online, installation services, localization and elevating our product assortment. We are confident that these initiatives will allow us to drive sustainable market share growth as we deliver a total home solution for our Pro and DIY customers.

Mr Ellison sees that as developing well during 2020:

We're gaining traction with our new Total Home strategy, which is our commitment at Lowe's to provide everything a customer needs for their home. As an example, during the quarter, we quickly pivoted from a successful holiday "Season of Savings" event to launch two events to support our Total Home strategy in January: an Home Organization event and a Bath event.

During the Home Organization event, we provided our customers with storage solutions for their home and garages, freeing up valuable space for other activities. The Bath event helped our customers find everything they need from paint to fixtures to toilets and tubs and even towels to upgrade their bathrooms. And for the customers who didn't want to do-it-yourself, we provided installation services, truly a total home solution for a dream bathroom.

Both events helped us to close out the fourth quarter with very strong sales in January. Looking forward, I am confident we're making the right investments to leverage our total home strategy, while we shift our focus from retail fundamentals to accelerating our efforts to gain marketshare.

The future

Impressively, Lowe's was also very down-to-earth about future prospects, and how it sees the market in 2021 playing out. David Denton, Lowe's executive vice president and chief financial officer painted a cautious view of where Lowe's is likely going:

Like many companies, we have limited visibility into future business trends. It remains unclear when there will be a widespread availability of the COVID vaccine and whether there will be additional COVID-related restrictions like we're experiencing in the Canadian business today. Given the near-term uncertainty at our December investor update, we outlined three different market-based scenarios on how the mix-adjusted home improvement market might perform, be it weak, moderate or robust performance levels. Keep in mind that our business is more heavily weighted in DIY and less penetrated in online than the broader market, both of which create modest downward pressure on the Lowe's home improvement market outlook.

These three market scenarios would result in total sales expectations ranging from USD82 billion to USD86 billion for the year. While each scenario represents a top line decline from 2020 as we cycle this unprecedented industry growth, we continue to expect that our sales result will outperform the market as our initiatives are focused on delivering marketshare gains.

That said, however, Mr Ellison was very clear that Lowe's does not see its 2020 results as a kind of "one off", and based purely on work. He sees it instead as the reward for several years of hard work:

What I'll add to that is, we'll go back to the same theme that you'll probably hear us say all morning. Obviously, we can't predict with any high degree of precision what 2021 macro will look like. But we're confident in two things: number one, that we're going to take market share; and number two, we're going to improve operating income.

And I think for us, we're just planting our flag on those two things. We believe that 2020 was not an anomaly. We believe it's a reflection of a lot of hard work and retail fundamental implementations we put in place across Lowes.com, pro, merchandising, store operations, IT infrastructure. And we believe that those initiatives and our Total Home market acceleration strategy is going to allow us to continue to take market share and, at the same time, improving operating income.

Analysis

While Mr Ellison is no doubt right, and the company has improved greatly over the past couple of years under his stewardship, it still does face considerable problems. Its work on delivering better fulfilment is taking place perhaps five years behind its chief competitor, The Home Depot, and Lowe's must be considering how, as Home Depot continues to build out its systems, it can catch up.

That said, Lowe's has always been slightly more willing to experiment with more edgy technology than Home Depot - though sometimes in a more distracting than substantial way. But the development of what amounts to a predictive system based on geofencing - and yes, it likely features everyone's favourite two-letter acronym, "AI" - indicates a more practical and useful bent.

The real challenge for Lowe's, perhaps, is in working out how to build its strategy so that it takes account of both a very broad strategy and a very precise implementation. At the moment, it's not clear how sharp that focus really is.

A Mitre 10 store in Warrnambool (VIC) wins top award; NSW-based Flower Power is reportedly looking for a partner to grow the business; and Beacon Lighting delivered a 133% profit rise in the half year to December 31.

Mitre 10

Pontings Mitre 10 recently won the prize as Independent Hardware Group's number one medium sized store in Australia. Director John Ponting said staff received the "totally unexpected" award during a live-streamed ceremony. He told The Warrnambool Standard;

It was a great honour to get the state award and then to go to the next level and get the national award, it says a lot for the staff behind us and the support we have from the community.

It would be one of the standout achievements that we have accomplished as a family.

Director Pam Madner (nee Ponting) said the prize was the first national award the family had won in its 98-year ownership of the store.

We grew up as kids and this was always part of who we were. Probably a lot of it is the climate at the moment, lots of people are doing building, [and] interest rates are low.

But it's also the relationship we have with our customers. That is what differentiates ourselves from non-family businesses.

The hardware retail business, started by Walter Ponting and brother Len, is now owned and operated by the third generation.

"I think they would be proud", Ms Madner said of her parents and grandparents. "One that it still exists, and two that we're recognised Australia-wide."

Related: Pontings Mitre 10 won IHG's 2020 award for the best medium-format store in Victoria and Tasmania.

Flower Power

Flower Power chief financial officer Michael Spiteri confirmed to the Street Talk column in The Australian Financial Review (AFR) that the company is searching for a new investor. He told the AFR:

We're looking for a partner as long as it's the right business partner that can help us to grow.

It is understood the family-owned Flower Power would like to sell a stake in the business, rather than sell out entirely.

Sources said Flower Power was generating $15 million to $20 million earnings before interest, tax, depreciation and amortisation before the pandemic struck. However, it is understood the business had performed well through COVID-19 because of the home improvement/DIY boom that resulted from people staying home during lockdowns.

Flower Power has 10 stores across NSW mainly around Sydney's outskirts, with a presence in western Sydney suburbs such as Penrith and Prospect, as well as north of the city in Warriewood, Terrey Hills and Glenhaven. Its stores include cafes and playgrounds for kids.

Mr Spiteri is Flower Power's only shareholder not related to company founder Nick Sammut, according to documents lodged with the corporate regulator.

Mr Sammut founded the business in 1968 and it is now run by his son, chief executive John Sammut with support from his brothers Mark and Collin. The brothers are all shareholders in the business, as well as two other Sammut family members.

Beacon Lighting

Bumper sales from the lighting retailer's bricks-and-mortar stores along with building and renovation activity throughout the pandemic lockdowns contributed to its 132.8% rise in first-half net profit of $22.2 million.

Sales across the business increased 23.5% to $151.3 million. Its online sales grew 111.1% to $14.4 million.

Profit margins climbed to 14.6%, from 7.8% a year earlier. A large part of that stemmed from the retail group not needing to have promotional sales and specials because the demand was so heavy from customers.

The retailer also shifted to early opening hours - 7.30am - in an attempt to gain a bigger slice of the tradie market, and this helped trade club customer sales jump 50% in the first half. Beacon's trade club now has at least 39,800 customers, up almost 7000 from December 2019.

The retailer never took JobKeeper payments. "Sales never reduced to a point where JobKeeper was necessary", said chief executive Glen Robinson in the AFR.

The cooling and lighting retailer admitted that many customers' unfamiliarity with pricing on lights would continue to improve its gross margins, according to CFO David Spiers in The Australian. He said:

Most people don't know the price of lighting products because they shop infrequently.

Beacon Lighting opened new stores at Virginia in Queensland, Camperdown in Sydney, Tweed Heads in NSW, and at Belmont in Perth.

The lighting company still sees its future in bricks and mortar despite the major boost to its online sales. It has acquired sites in Molendinar, on the Gold Coast in Queensland, and Traralgon, in regional Victoria. It is looking at 69 new store opportunities over the coming years.

Beacon remains 55% owned by the Robinson family after going public in 2014.

A five-storey Bunnings Warehouse is planned for Sydney's northern beach suburbs and a petition has called for a stop to the Bunnings development in Dubbo (NSW).

Frenchs Forest

Bunnings has gained approval from NSW planning authorities for a store to be built at the corner of Warringah Road and Allambie Road in Frenchs Forest.

The $48million store will offer customers three levels of shopping and include a large outdoor garden centre, kid's playground and hardware and building supplies. The 20,000sqm development will also have two levels of parking to accommodate 400 vehicles.

An Australia Post distribution centre and a two-storey office block will be knocked down to build the store.

Bunnings regional operations manager, Alan Harvey told The Daily Telegraph the company was pleased to receive approval for the new multi-level Bunnings Warehouse.

While it is too early to confirm an opening date, we look forward to providing a wide range of home and lifestyle products to the Frenchs Forest community.

Northern Beaches Council was initially worried about safe vehicle access to the store because of its close proximity to the busy Warringah and Allabie Road intersection. Its concerns related to "potential road safety issues with merging vehicles and conflicts with pedestrians". The main driveway will be moved to Rodborough Road once traffic lights are installed at the Allambie Road intersection to combat safety concerns.

The exterior of the warehouse will also change as a result of council complaints regarding the size of the Bunning's logo and colour scheme. Bunnings will limit the amount of green paint used on facades, have fewer hammer logos visible and reduce the size of the logo by 33% on Rodborough Road.

Dubbo

A petition to stop the construction of the proposed Bunnings store in Dubbo has been launched by locals. According to the Daily Liberal and Macquarie Advocate, it cited an increase in cars to the area, as well as trucks, and states:

...[T]he proposed development will create safety issues for residents, businesses (including child care) and schools in the immediate vicinity.

This huge increase in traffic threatens the safety of pedestrians, including children, and other local road users. The associated noise will destroy the amenity of the area for local residents.

However, Bunnings regional operations manager Robyn Hudson said access to and from the site has been designed by the developer's expert consultants and was "carefully considered to ensure a safe and accessible store".

Concerns have also been raised about the Bunnings Warehouse building being "totally out of character" for the area because it will be "on the front doorstep of many residents". The petition states:

The project delivers no benefit to the community as Bunnings is currently appropriately located on Sheraton Road in an industrial/commercial area, with room to expand if they need to.

Ms Hudson said:

Bunnings has been part of the local Dubbo community since 2008 and we're looking to move to a larger location that's expected to create over 40 new jobs for locals, in addition to our existing Dubbo team.

If approved, the new store would represent a significant direct investment in the local community and would provide residents with an even wider range of home and lifestyle products...

We value to views of the local community and we'll work with the developer and council to listen to and address community feedback as the application progresses.

The development application for the $30 million store is currently before Dubbo Regional Council.

Related: Building plans lodged for a larger Bunnings store in Dubbo (NSW).

Sherwin-Williams' sale of Wattyl to Hempel is expected to close during the first quarter of calendar 2021, subject to customary closing conditions. Going forward, Hempel said Wattyl will still be managed by current managing director Matt Crossingham. In a statement, Matt Crossingham, said:

The entire team and I are pleased to join the Hempel family, and we are looking forward to contributing to Hempel's growth and development - not only in Australia and New Zealand - but throughout the South East Asia region. We will gain access to increased know-how, experience and innovation as well as a broader product portfolio, which will benefit our customers. With Hempel's ownership, I am certain that Wattyl will raise to the next level.

According to a report in South Australian independent newspaper, In Daily, the 50 workers at Wattyl's Kilburn paint manufacturing site will be able to keep their jobs after the company's sale to the Danish multinational.

Hempel Group said it has no immediate plans to close the site or reduce employment numbers at the Kilburn location in Adelaide's inner-north, which also includes a distribution centre and retail store.

In addition to Kilburn, Wattyl has another manufacturing site in the Melbourne suburb of Footscray. It has five distribution centres and almost 100 company-owned stores across both Australia and New Zealand.

Mr Crossingham said it was business as usual following the acquisition. He told In Daily:

We are still the same Wattyl, proudly made right here in Australia for Australian and New Zealand conditions. Our heritage of over 100 years of locally manufactured protection and innovation continues.

The Wattyl business became part of Sherwin-Williams through its 2017 acquisition of The Valspar Corporation. Valspar bought the previously ASX-listed Wattyl in 2010.

The move to acquire Wattyl is part of Hempel's bid to double revenue to EUR3 billion within five years and take on "leadership positions in selected segments and geographies". Hempel president and CEO, Lars Petersson, said:

Wattyl is a leading brand with a strong distribution set-up with its own store network, key Independent Trade Centres and strategic distribution partnerships servicing the DIY and trade consumers.

Hempel was founded in the same year as Wattyl, in 1915. It has over 6,000 employees and generates revenues of around EUR1.5 billion. Mr Petersson said:

Hempel and Wattyl working together, not only within decorative paints but also within protective coatings solutions, will put us in a great position to deliver our strategic ambition, particularly in our decorative, infrastructure and energy segments, through combined expertise, industry knowledge and quality products. Consequently, our expectations for Wattyl as part of our family are high, and together, Wattyl and Hempel will create a strong platform for continuous growth for our entire South and East Asia region.

Together with Matt Crossingham and his great team, we will focus on being the trusted partner to all our current and future customers throughout Australia and New Zealand. All of our strategic priorities are about ensuring a better end-to-end solution for our customers. Our customers will experience a continuing focus on sustainability, digitalisation and innovation.

From a branding perspective, Hempel said it recognises the strengths and attributes of the Wattyl brand. The company intends to invest in and further develop these attributes and use as part of its tagline, "A part of Hempel" in its future branding and communication.

Cleveland-based Sherwin-Williams is the world's largest paint and coatings company. John G. Morikis, Sherwin-Williams chairman and chief executive officer said in a statement:

[The] announcement of our intent to divest Wattyl aligns with our ongoing process to evaluate all aspects of our portfolio, including brands, product lines, customer programs and businesses, for their ability to meet our performance criteria and for their long-term strategic fit.

While we've driven significant improvement in the Wattyl business, we believe company resources can be better deployed to other opportunities offering greater growth, more meaningful scale, and higher returns and cash flow. We thank the employees of Wattyl for their contributions to Sherwin-Williams.

Related: In mid-2020, there were reports that Sherwin-Williams was reviewing its portfolio that included Wattyl.

PPG Industries

Hempel lost out to PPG Industries in its pursuit of Finnish paint company, Tikkurila Oyj. Mr Petersson told Bloomberg:

It's the name of the game that you win some, you lose some. We are happy to land this deal with Sherwin and we're looking at other opportunities too.

In December, PPG announced that it entered into a definitive agreement to acquire Tikkurila in an all-cash transaction that it is expected to close in the second quarter of 2021, subject to customary closing conditions. Michael McGarry, PPG chairman and chief executive officer, said in a statement:

The combination of PPG and Tikkurila is extremely complementary, both geographically and from a decorative brand perspective. We have long admired Tikkurila's rich history of establishing very strong decorative brands and product offerings in several northern and eastern European countries where PPG has minimal decorative presence.

We will be able to provide customers with even more paint and coatings options by bringing together Tikkurila's high-quality and environmentally friendly decorative products and distribution capabilities in these countries with PPG's well-respected industrial and protective coatings. In addition, the combination will provide new cross-selling opportunities, growth opportunities for employees, and product solutions for new segments and customers...

Tikkurila was established in 1862, and is headquartered in Vantaa, Finland. The company has operations in 11 countries and more than 80% of its revenue comes from Finland, Sweden, Russia, Poland, and the Baltic states. Its premium brands include Tikkurila, ALCRO, and Beckers. Tikkurila's industrial paint business participates in the wood and protective coatings segments, among others. The company employs approximately 2,700 people globally and reported sales of approximately EUR564 million in 2019.

In addition to Tikkurila, PPG said it has completed the latest in a series of acquisitions to boost its coatings portfolio.

It recently closed on VersaFlex, a Kansas-based maker of coatings used in flooring, transportation, water infrastructure and industrial applications.

PPG bought the business from DalFort Capital Partners, a Dallas investment firm, for an undisclosed amount. VersaFlex, with 130 employees and annual revenues of about USD70 million, has manufacturing plants in Kansas, Oklahoma and Washington state.

PPG has purchased Ennis-Flint, a North Carolina company that makes coatings for the traffic and transportation markets, for USD1 billion purchase. It also has an agreement to buy Worwag, a German business that makes liquid and powder coatings for industrial and automotive applications.

Wesfarmers released its results for the first half of FY2020/21 (six months to 31 December 2020) on 18 February 2021. As expected, the results were highly positive for its retail operations, and especially so for its home improvement division, Bunnings.

For Wesfarmers overall, revenue for the half was $17,774 million, up by 16.6% on the previous corresponding period (pcp), which was the first half of FY2019/20. Earnings before interest and taxation (EBIT) came in at $2171 million, up by 25.2% on the pcp, while net profit after tax (NPAT) increased by 25.5% to reach $1414 million. Statutory NPAT, taking account of discontinued operations and significant items, was up by 14.9% to $1390 million.

For Bunnings, the headline numbers were revenue of $9054 million, an increase of 24.4% on the pcp, and EBIT of $1332 million, a lift of 33.9%. Total stores sales growth went up by 24.8%, and store-on-store (comp.) sales growth was up by 27.7%, a steep climb from the pcp number of 4.7%.

To put that growth in some perspective (in a way that Bunnings never would), revenue grew by $1778 million over the pcp, meaning that a cautious number for full-year revenue increase would be $2500+ million. Or, if you like, Bunnings is likely to grow the equivalent of all the revenue produced by the Independent Hardware Group (IHG) for the year.

Staff contribution

While there are some years when acknowledging staff as the source of success can seem a little pro forma (though it also really never is), this result really does rest firmly on the efforts of Bunnings' line staff to meet a series of successive challenges. Quoted in a press release Bunnings' managing director, Michael Schneider, said:

I would like to thank our team and our suppliers for their contribution to the result. They have done an outstanding job minimising disruption with changing rules and regulations, keeping stores stocked and looking after our customers, while keeping each other and the community safe.

That included not only creating processes and procedures to minimise the risk of COVID-19 infections, but also developing innovative ways of getting product to customers, including contactless curbside pickup and scaling up the whole process of online ordering.

In response to a question from investment analyst Phil Kimber from Evans & Partners at the end of the results presentation, Mr Schneider mentioned that at the height of the COVID-19 lockdown period, Bunnings in metropolitan Melbourne was cycling 30,000 online orders through 50 stores each day.

That's a real indication of the depth of line staff talent at Bunnings, both floor staff and store management. It is also likely a reflection of Bunnings choosing to continue paying staff through the lockdown period, providing vital support during a time of great vulnerability.

The company continues to grow in staffing terms. As Mr Schneider mentioned in his opening remarks:

We also recruited over 6,000 additional team members across Australia and New Zealand to service higher demand, and I welcome these team members to the Bunnings' family.

Developments

Mr Schneider stated (as usual) that growth had been spread throughout the Bunnings range, but also mentioned that gardening and outdoor living products had been doing particularly well. That included, he said, barbecues, furniture and lighting.

In terms of in-store presentation, garage organisation and kitchen design had received particular attention, and the website had also gained a number of design tweaks.

Bunnings has continued to develop its relationship with commercial customers, as well as expanding the product range on offer. That includes more facilities for builders, including support for retirement living refurbishment, building on support offered in areas such as kitchens, fast food retailers, insulation and staircases.

Trade business

In response to a question posed by Shaun Cousins of JP Morgan, Mr Schneider was clear that the ratio of sales between trade and DIY/consumer had remained at 35/65, with both growing more or less in step through the half. Going into more detail, Mr Schneider said:

I think that on the trade side, there's certainly a lot of activity both on new starts and on alts/adds, [alterations & additions]... So we're really well-positioned.

We've been working really hard over the last 12 months to improve the capability of the Trade team. We've got a new Trade chief operating officer, Ben Macintosh. He joined us last year, [along with] a number of new leaders across the three categories of Bunnings Trade, which is really helping us focus on sales and relationship management, alongside the technological developments [and] improvements in PowerPass.

It's great to see so many trades and small businesses using the [PowerPass] app. It increases convenience and speed and time in store. [There has also been] a lot of really good work on product innovation and the in-store experience. I think the new trade service desk that I touched on earlier creates a much better experience for tradies when they're in-store and on the way through.

And, obviously, during periods of lockdown, we're fortunate that the business can be open for the Trade to do emergency repairs and things like that. So that's been a benefit during the first half.

But yes, we've got a really positive outlook for what we can do in Trade in terms of improving the way we go to market and the quality of the service offer, and I think that will benefit us in increased sales.

Adelaide Tools

In his prepared remarks, Mr Schneider briefly mentioned developments at Adelaide Tools, the tool specialist supplier Wesfarmers has acquired:

The performance of Adelaide Tools was pleasing, and we're excited to be opening our newest format store in Parafield, South Australia. Our locally based Adelaide Tools team is doing a great job, and we anticipate more stores opening late in 2021.

In response to a question by Bryan Raymond of Citi, Mr Schneider went into some more detail.

So it's still very early days on Adelaide Tools. Adelaide Tools will be the brand in South Australia. It has good brand awareness and it has a fantastic family business history in that community.

Once it moves outside of South Australia, we'll have a different branding proposition. It won't be Bunnings at all.

This is very much in line with our strategy of trying to bring competition and customer value into sectors where we've got very low penetration. Industrial Tools is one of those. The Parafield store will open in about six weeks or so, it's really bringing some of our current thinking and sort of global research around specialist tool businesses to life.

Once we've sort of proved that up, we've got plans in a couple of different markets to get going.

Market shape

Perhaps the most interesting and nuanced response Mr Schneider had to offer originated with a question from Richard Barwick of CLSA. He asked about how Bunnings saw its development during the second half of FY2020/21, especially as sales were likely to fall off from March 2021 onwards.

Mr Schneider replied:

Yes, it's a good question, Richard, and certainly has occupied our thoughts. And I think one of the things that we've been cautious on all the way through in our own internal thinking and forecasting has been around what happens if something changes, and that doesn't just happen to be cycling strong growth. [It] could [be] further lockdowns or disruption, and we've seen a small burst of that already this half in a few jurisdictions. So the team has done a lot of really good planning.

I think one of the advantages for our type of retail business and in the home sector [in general] is going to be that at least until there's a widespread vaccine rollout, there's going to be an apprehension to travel domestically, and you certainly can't travel internationally.

So people being home, the housing market being strong, interest rates have been historically low, we think the attributes of the market for home improvement are positive.

I think also from an inventory point of view, one of the things that I'm particularly proud of both of the Bunnings team, but also our extended Bunnings team, our supplier base, has been the flexibility in accelerating stock into the business.

Also, a lot of those products don't have the sort of sharp seasonality that other retail businesses face into. So we've got the opportunity, if sales, for example, in barbecues were to come down - and they'll come off anyway because summer comes to an end - there is not the same sort of fashion or change in that product. So we can sell products through over a longer period of time. So we might end up with a little bit more stock than we want short term.

But I think the other piece is we've got good flexibility in the way that we roster and resource our stores. So we'll continue to invest in service, continue to invest in keeping our team and customers and community safe. We do have the ability to sort of flex that up and down as we need.

I think one of the things we're really just focused on is to do the basic things right, do them really, really well, make sure we've got stock availability, make sure that the website performance is where we want it to be, and we've got things in play that will see that improve in the months ahead.

And really just continue to invest in the customer experience. The customers are choosing Bunnings. They trust that when they come in that they're safe. They trust when they come they are getting the value proposition they're looking for because we do think that their interest in doing things around the home is going to continue for some time to come.

To some extent, this picks up on one of the points that was raised during the full year results announcement for FY2019/2020, which was how much of the retail spike for Bunnings was due to purchases brought forward, and how much of it was genuine new demand. Mr Schneider made the point that people who bought paint where unlikely to repaint their house twice in the same year - which was well taken.

However, it is evident based on the results numbers and Mr Schneider's comments, that we are seeing a genuine real increase in overall demand, as families repurpose funds that might have been spent on travel (for example) to making their homes more liveable.

Mr Schneider's point here is that even as that spike in demand fades, the after-effects - aside from the accounting factor of apparently falling sales - will likely be minimal. Suppliers have scaled up, but can also scale down. The products being sold do not rapidly go out of fashion, and so can be carried over from one season to the next.

Understanding EDLP

It's interesting that over the past three years there seems to have been a degree of drift when it comes to an understanding in the financial community about what everyday low price (EDLP) means, especially in relation to Bunnings. That might be, perhaps, because Coles is no longer part of Wesfarmers, and while EDLP principles might apply to the Kmart group and Officeworks, they are less prominent (as both deploy discounts more widely).

In his prepared remarks, Mr Schneider clearly stated:

To improve the customer experience, we continue to proactively lower prices across a wide range of categories and products.

Despite this, and the long history of EDLP at Bunnings, there were questions from analysts that pointed to what they regarded as "lost" profit opportunities. Some of them were understandable probes into what was going on, such as this one from Michael Simotas, an analyst with Jefferies:

You've given us some very useful commentary on margins for Officeworks. So I was just hoping you could give a little bit of qualitative colour on gross margin performance across the other retail businesses, please?

To which Mr Schneider replied:

For us, as I said in my opening remarks, for us, we've been continuing to invest in price as an EDLP retailer. It is something we are fixated on in terms of delivering for customers. So yeah, for us, it's been more about leverage than margin.

Other questions, however, went more to fundamentals, such as this question from Ben Gilbert, an analyst with Jarden:

[Y]our EBITDA was up pretty much in line with revenue. And even if you make the rental adjustment, it looks like you sort of grew about 1.3 times. It just suggested that there wasn't a lot of fixed cost leverage through the business. And I suppose my question there is, do you think you over-invested in projects or maybe put them into OpEx? Because you had the opportunity to give them the strength? Is it dilution from online? I'm just trying to understand, because, I would have thought you'd probably be comparable with JVs, which still managed to grow at two times, even with the gross margin decline?

To which Mr Schneider replied:

Yeah. Ben, we certainly don't compare ourselves to the other businesses. We focus on, what's right for Bunnings. And what's really important is to sort of look at the fact that with a top line growth in the mid-20s and a bottom-line growth close to 40%, when you back out property, we're happy with the leverage position, certainly investing in price. Nothing, you know, of note that we've sort of pulled forward or done differently, but we are very much as focused on that long-term performance. And that's what we sort of have stuck to through and through.

Mr Schneider later expanded on that answer:

But in terms of what we can do with cost going forward, there is always going to be opportunity for improvement, and there's going to be opportunity to reap the benefits of some of the investments we've been making into digital over time. So, I'm confident in the long run, we'll continue to deliver really solid results, both top and bottom line.

The part of EDLP that is not commonly understood by analysts is that it is really based on a particular approach to product acquisition. The alternative, High-Low pricing (HiLo), is more based on constancy of product, and the variable factor is stocking intensity. Under HiLo, the goal is to create a buying surge through discounts, which drives profit both through introducing scale in purchasing on a narrow range of products, and by creating additional incidental consumer purchases.

In contrast, every successful EDLP retail operation will eventually go further up the supply chain, with the goal of finding those products where there is either excessive profit-making, or a lack of consolidation, leading to diffusion of production diminishing the advantages of scale. Classically, this can be clearly seen in Bunnings' Tactix range of inexpensive storage containers and toolboxes. Bunnings consolidated its orders to a narrow focus from a single supplier, introducing scale. For suppliers, while margin might diminish, they receive the benefits of more certainty in the production/supply part of the business, enabling better planning, and the opportunity to innovate.

To put it more bluntly, EDLP requires a "whole of market" approach. With that perspective, the supply chain doesn't begin with a forklift and a truck, it begins with an engineer or a designer sketching a new design a year or more before production begins.

It isn't that analysts such as Mr Gilbert do not have valid points to make - they do. Bunnings could likely have made a higher profit if it had increased its margins in the face of restricted supply and increased demand. But that would have led to increased vulnerability when this surge in demand eventually diminishes.

Analysis

It is always difficult to read from the outside some of what is going on inside a company. However HNN would say that it seems to us there has been a profound change in Wesfarmers that took place over calendar 2020. We would have said that in calendar 2019 Wesfarmers was in some respect more Rob Scott's (and possibly Michael Chaney's) company than it was anyone else's. Coming into 2021, however, it's evident that Wesfarmers has absorbed the needed changes that Mr Scott brought, and now presents a very unified and confident (but not arrogant) team of managers.

What is marking Rob Scott as an outstanding CEO today is the sense of evident caution in Wesfarmers. There was a degree of disquiet among the analysts about whether Wesfarmers is making the best use of its capital. The half-year dividend, though numerically high, tracked to the low part of the range proportionate to earnings. Analysts pointed to capital reserves which should be, in their view, either invested in new ventures, or returned to investors.

That caution is in part about how the Australian economy is going to develop through to the end of 2021, but it is perhaps about a much larger issue. Even before COVID-19, Australia was stuck in a phase of very slow growth, and the issues that created that situation - in particular an inability by the government to incentivise a move to a more productive economic basis - have persisted. That caution is likely about waiting for the Australian economy becomes more biased towards growth before investing heavily.

Which is, of course, both pessimistic and optimistic. Probably 2021 and 2022 will be difficult years to get through, but beyond that there is a chance for a more modern and forward-looking economy to emerge. HNN's guess is that Mr Scott is focused on making sure Wesfarmers is in the best possible position to take advantage of that growth economy

A hardware store located in Bellingen (NSW) is set to close; a Toowoomba (QLD) based Mitre 10 building is for sale; and a Mitre 10 store is expected to open in a shopping strip in inner-city Melbourne.

Bellingen

Shaun Green, owner of Bellingen General Hardware has decided to shut the doors of his store for the final time. The closure will leave the small town with no hardware outlet.

For the last couple of years, Mr Green had been running the store on his own with some unpaid help from family under increasingly difficult conditions. He told The Bellingen Shire Courier-Sun:

I can't afford to pay wages. The last 12 to 18 months I haven't even paid myself very much.

He believes Bunnings is only part of the number of challenges that led to closure of his hardware retail business. He said:

It's a combination of things. There's the Bunnings advertising power. They've been doing it for 20 years and they've indoctrinated a generation. It's not just Bunnings, it's Big W, it's Kmart, it's the Reject Shop. All the big players.

On a local level, he believes the main street beautification process as the first of a series of disruptions that have caused permanent changes to shopping behaviours in the town. He said:

It wasn't just the loss of the parking, when they were doing the pavers you couldn't even walk down the footpath.

That's when it started going bad. Because people get into habits, they started going into Toormina and Coffs Harbour. And since then, you've had the drought. Bush fires. Before COVID started we had the water restrictions, which meant people weren't doing gardening.

Then COVID, which made a lot of things difficult to get. There was a limited supply of stock coming into the country. Things were harder to get, [and] more expensive. A lot of people started shopping online. Habits are formed, and they just keep doing it.

Mr Green bought the store from Jim and Kathryn Hunt at the end of 2015, after working with them for six months. Prior to this, he worked at Norco Rural in Bellingen for seven years. But he does not regret the purchase at all. He said:

I've learned heaps. I've made a lot of good friends and industry contacts. This has been part of my journey, everything happens for a reason.

He expects the final day for the shop will be February 23, and he will take a well-earned break following its closure.

Toowoomba

The Pittsworth Mitre 10 freehold property on Yandilla Street has been listed for sale through an expressions of interest campaign by real estate group Ray White.

In the online listing, lead agent Kathy Hohms said the hardware store held the lease on the property until the end of the year, with options until 2026. The listing said:

The property has free street parking available at the front entrance and also off street parking bays at the nursery entrance off Short Street.

The building, built circa-1950, comprises a large showroom and retail area with frontage display windows on both sides of the central entrance. The nursery [is] accessible from the showroom and it also has customer rear access.

The expressions of interest period will end on March 31.

South Yarra

The Chapel Street shopping strip precinct in Melbourne's inner suburb of South Yarra may soon have a Mitre 10 store after real estate agency Gray Johnson negotiated a lease with the new tenant.

According to a report in The Age, the retail space measures 201sqm and the retail business scored a five-year lease paying $60,000 (+GST) a year.

The hardware shop is leasing No. 356, close to the corner of Chapel Street and Malvern Road.

The exterior of the $30 million Bunnings store proposed for the former RAAF base in Dubbo (NSW) would pay homage to its past and be painted in a camouflage design; property fund Newmark Capital has bought a new Bunnings Warehouse being built in Preston (VIC), according to an exclusive report in The Australian Financial Review (AFR); and Bunnings has been granted an extension for its store development in Indooroopilly (QLD).

Dubbo

Applicant for the Bunnings development and director of Igloo 5 Pty Ltd, Mark Stanford, said as the former RAAF base site is being redeveloped for adaptive reuse, the project team want to design buildings that give a nod to the base's history. He told Dubbo Photo News:

The proposed Bunnings building with camouflage details complements the original large, isolated building layout and maintains the sense of scale and industrialisation of warehousing and construction.

According to Mr Stanford, the original igloo store buildings had jagged edge roof profiles and barrel-vaulted ceilings to cast broken shadows. The camo paint was to resemble hills. He said:

The site was a coherent 1940s cultural landscape that combined forestry remnants with the careful placement of large buildings to result in a site that was innovatively camouflaged to reduce the risk of aerial attack.

As the only World War II stores depot to remain in military service until the 1990s, the former RAAF [site] is important for its historic association with the development of Australia's defence over 50 years.

The site also has heritage significance for its association with Aboriginal relics, previous forestry uses of the landscape and its use as a makeshift camp during the Great Depression.

...

It is a big 38-hectare site, and it needs big business.

A development application for the 17,500sqm facility will include a 500-space car park and was lodged with Dubbo Regional Council (DRC) in January. If approved, it would replace the existing Bunnings, currently located on Sheraton Road.

Related: Building plans lodged for a larger store in Dubbo (NSW).

Preston

The AFR exclusively reports that Newmark Capital has struck a deal to acquire an 18,626sqm Bunnings store on completion. The warehouse store, being built on a 2.05 hectare island site on the corner of Bell Street and Chifley Drive in Preston, will be leased by Bunnings once finished on an initial 12-year term.

The new Bunnings is forecast to bring in $3.75 million in annual rent representing a yield of 4.4% on an $85 million acquisition price. Currently under construction, it is being developed by Bunnings at a forecast cost of $43 million with an opening that is scheduled in 2022.

The three-level Bunnings Preston will replace an existing warehouse at Northland Shopping Centre, approximately 700 metres away.

The AFR's Street Talk column earlier revealed that Newmark Capital was looking to float its Newmark Property REIT this year.

Indooroopilly

Brisbane City Council has given Bunnings an extension to a previous development application for its Indooroopilly store. Plans were originally approved back in 2017 for the development but work to extend the store had not begun.

According to the application made by RPS Group on behalf of Bunnings, "timing for construction of the approved extension to the store is dependent upon a variety of factors, including commercial considerations and customer demand".

The works would see the store expanding the warehouse floor space over three levels to include a nursery, bagged goods area, and building materials and landscaping yard.

Bunnings will now have until July 2023 to complete the works under the current approvals.

Makita has opened a second Queensland factory service centre; bathroom and kitchenware supplier GWA Group has its profit impacted as costs continue in the face of lower business; and a number of investments have been made in sawmills and timber production in different states.

Makita Australia

Makita's new warehouse and showroom in Mount Louisa, a suburb in Townsville (QLD), is responsible for the service and repair of the company's products in the region and is a training facility for staff, resellers and users. It also provides a base for its North Queensland sales and business development teams.

Makita Australia national operations manager Nicholas Poulos said the service centre was open to all customers who had bought tools, spare parts or accessories through Makita Australia's authorised dealer network. He told the Townsville Bulletin:

With our existing Queensland site in Brisbane, the distance and time taken to facilitate service and repairs to our customers in northern Queensland was unacceptable. It is expected the new Townsville site will service the North Queensland, Far North Queensland and Central Queensland areas.

Makita Australia has always had a strong presence in North Queensland with our sales team but we felt the time was right to open a factory service centre to support our growing sales in the region.

In addition to two centres in Queensland, Makita Australia has factory service centres in NSW, Victoria, Western Australia and Tasmania.

GWA Group

Half-year net profit at GWA declined 17% from its pre-pandemic heights to $20 million. This was a far deeper fall than overall revenue at the group which only declined 4% to $197.2 million.

Revenue growth continued in the UK and New Zealand but was offset by a weaker Australian market.

The Australian market declined 6.2% through the first half of the financial year and accounts for 77% of overall business for GWA. This compares to New Zealand which takes in 14% of group's business and grew 3.1% for the first half of the financial year.

Despite the resilience of the home improvement and renovations retail sector, the decline in multi-residential and commercial projects had a negative impact. Multi-residential business declined by 20% across the group, while commercial new build also fell 17%.

However, managing director Tim Salt said HomeBuilder and other government housing incentives projects would buoy GWA's business in the market throughout the remainder of the calendar year.

Despite the recent trade tensions between Australia and China, GWA recently launched new Methven showerware ranges in that country as part of its growth strategy.

GWA acquired Methven in April 2019, with Mr Salt reporting it was "performing to expectations". It is pushing cost synergies from the acquisition with the aim to save $6 million in the financial year.

Timber sawmills

Victoria

Wangaratta-based Alpine MDF, Benalla firms D&R Henderson and Ryan & McNulty and XLam in Wodonga have shared more than a quarter of the $40 million national Forestry Recovery Development Fund - bushfire recovery funding - to build competitiveness, invest in new technologies and lower energy costs following the bushfires in early 2020.

The fund provides D&R Henderson with $3.294 million for a new heat plant that will use waste products as a fuel source to power kilns, saving energy costs and reducing the amount of waste to landfill.

Ryan & McNulty was awarded $1.188 million for new technology to process smaller, lower-grade sawlogs and produce a quality, value-added product suitable for structural beams and furniture manufacturing.

Alpine MDF Industries will use $4.379 million for remanufacturing, using new plant and equipment to innovate and increase capability for the production of primed mouldings and painted flat panels.

XLam has received $1.529 million to update equipment, reduce production costs and improve competitiveness.

Recipients are required to match 50% of the project costs, according to the article in Australasian Timber.

New South Wales

A Bathurst-based sawmill has received a $5.3 million investment from the Federal Government's Forestry Recovery Development Fund program. The government's $5.3 million investment will be matched by AAM Investment Group (AAM), which has its Allied Timber Products (ATP) sawmill at Bathurst.

Member for Calare Andrew Gee said the grant for AAM will be put towards a new production line at the sawmill, allow new technology to be introduced, and see logs processed much faster and more efficiently.

–-

Following a devastating firestorm in October 2019, O'Connor Sawmilling Rappville has lodged a development application for the construction of a large shed for air drying timber, with an enclosed section for moulding machines, and a prefabricated solar drying kiln.

Moulded timber is deemed a "high value commodity". The application states:

Moulding uses machines to cut a profile into sawn timber. This 'moulded' timber is used for tongue and groove flooring, architraves, skirting boards and other applications in the building industry.

It is expected to have the moulding capabilities operational by late this year or early next year.

South Australia

Timberlink announced it is building a $59 million Cross Laminated Timber (CLT) and Glue Laminated Timber (GLT) manufacturing facility at Tarpeena. It will begin construction of the plant alongside its recently upgraded softwood sawmill next year with completion due in 2023.

The company said the state-of-the-art facility will be Australia's second major softwood CLT plant and the first combined CLT and GLT manufacturing facility.

The location of the project is supported by the commitment of the South Australian State Government's $2 million grant from the Regional Growth Fund.

Tasmania

Neville Smith Forest Products recently announced its Huonville Southwood mill would significantly expand production by July. The company is set to establish a full second shift at the mill to enable the doubling of production to 80,000 cubic metres annually.

It comes after the mill was damaged during the Huon Valley bushfires in 2019, from which the company took about six months to recover.

Resources Minister Guy Barnett said the expansion was "a show of confidence in the state's renewable forest industry".

In a pilot project for home improvement retailer Lowe's, fintech company Bumped found that customers who were rewarded for their purchases with shares of the retailer's stock increased monthly spending by USD47.82 and visited the store on average 0.84 times more per month.

The data also showed that customers who were rewarded in fractional shares of Lowe's stock became more loyal and shopped less at Lowe's competitors, according to the press release. David Nelsen, founder and CEO of Bumped, said:

In industries dominated by duopolies, like the home improvement category is, it's critical that brands look to build long-term, lasting relationships.

Bumped gives customers fractional shares of stock when they spend with their favourite brands, and has been piloting its software app over the past two years.

Ace Hardware

For the fiscal year, Ace Hardware posted net income of USD317.6 million versus USD140.4 million in the year before.

A 14.7% increase in average ticket and a 9.8% increase in comparable transactions versus the prior year drove Ace's 25.9% gain in comparable sales for the full year from the approximately 3,300 Ace retailers that share daily retail sales data with the parent company.

Full-year revenues were USD7.76 billion with retail revenues of USD751.5 million and wholesale revenues of USD7.01 billion compared to total revenues of USD6.07 billion with retail revenues of USD506.7 million and wholesale revenues of USD5.56 billion in the fiscal year previous. Operating income was USD333.1 million versus USD133.8 million in the year earlier.

Ace Hardware added 167 new US-based stores in fiscal 2020 and cancelled 76 stores. This brought the retailer's total US store count to 4,647 at the end of fiscal 2020, an increase of 91 stores from the end of fiscal 2019. On a worldwide basis, Ace added 201 stores in fiscal 2020 and cancelled 104, bringing the worldwide store count to 5,463 at the end of fiscal 2020.

It's a good idea with statistics to sit back from time-to-time, and assess exactly what numbers you are looking at, and what meaning you are seeking in them.

Overall, for business people, and especially retailers, you're actually looking for two slightly contradictory things. Firstly you are often looking for affirmation that your intuition - based on contacts with customers, suppliers and colleagues - is right. Secondly, you are looking for the anomalies, those sudden shifts or changes that are unexpected, but might indicate a significant change in a market or customer behaviour.

With the building approval stats supplied by the Australian Bureau of Statistics (ABS) what we're really looking at is both a response to immediate market demand, and an estimation of future market demand by property developers, home owners and the construction industry.

Chart 1 shows the general shape that we would likely expect from those market forces. After its peak in 2015, the market declined slowly, and then more rapidly into 2019 - triggering a couple of pre-pandemic interest rate cuts by the Reserve Bank of Australia (RBA). During 2020 we've seen the approvals recover somewhat, though not back to where they were in 2018, let alone 2015.

It is also evident which sector has seen the sharpest drop in approvals, which is the non-house market in the major cities. We can see this in more detail in Chart 2, which shows the same data as in Chart 1, but expressed as the year-on-year percentage change.

What we can see is that while housing approvals growth boomed somewhat in 2014, in 2015 it was detached and multi-unit approvals, in both major cities and regional Australia, that performed strongly. These then fell to close to no growth over the next two years with only regional non-house dwelling units show strong growth in 2018. There followed, in 2019, a strong collapse in the number of approvals. In 2020, approvals for houses in both major cities and regional Australia grew strongly, while non-house approvals improved for urban Australia, but drifted into further decline for regional Australia.

Finally, Graph 3 shows some nuances to this data. Housing approvals are showing strong gains on a month-on-month basis from September 2020 through to December 2020, and there is a surprise boost in non-house building approvals in regional areas for November and December 2020.

One of the major factors we're seeing is a decline in past seasonality, with higher rates of approvals extending into the last months of the year. The numbers for regional non-house approvals are also more likely to be volatile, as they run to fewer than 1000 a month.

However, we might also be seeing the signs of a maturing in the regional dwelling market, as well. The initial surge in regional dwellings came from people who could afford to buy houses, but it may be that, as both the pandemic and the situations created by the pandemic continue, people with less financial flexibility and fewer resources are also considering moving out of cities. For example, it has become increasingly evident that many employers will continue to support least several days a week of working from home. For younger families, this makes it more possible to buy a home in a less expensive regional area.

Non-house dwellings

It is worth "zooming" in a little to see exactly what is going on in the non-house building approval sector. Chart 4 shows this broken down into categories of height and type.

As is to be expected, the sector that has seen the sharpest decline is for those buildings that are four storeys and more tall. In fact, the only sector that has shown significant growth is for semi-detached, row or terrace houses and townhouses that are two or more storeys, with the same category but for one-storey construction also holding its own.

Overview

Finally, Chart 5 shows more of an overview of building approvals from a value of work approved perspective.

The only really outstanding category remains that for new houses at around 15% growth, though alterations and additions (renovations) is also doing well at around 10% growth. While those are good numbers, in terms of overall residential growth in approvals, that is still sitting at just around 6%.

Analysis

If there is anything that really comes through in looking at these numbers is that they indicate the building and construction industry is doing better than expected - but is very far from where it would be in more normal circumstances with a sub 1% interest rate and considerable subsidies for home construction in place.

As HNN was writing this article, the news came through that Victoria's Melbourne region is once again set for lockdown, with, once more, more stringent restrictions than those of other Australian cities. Many of us - including HNN - have predicted that the pandemic will remain a force through 2021, but it is possible it will be even more significant through this year than previously thought.

To repeat our ongoing concern here at HNN, the fundamentals underpinning the current high prices for real estate are really not there. If the market does go into retreat, without any means to reduce interest rates at all (negative rates create as many problems as they solve), that could mean we see a crash about mid-2021.

There is certainly cause for optimism - Australia has managed to radically improve its pandemic performance. But there is also cause for caution and even wariness. That's what is written into these statistics.

As the proprietor of Seymour Timber and Hardware, Alan Bower had mixed feelings when he sold the store. Although he's looking forward to retirement, Mr Bower is sad to see the end of the business he has owned for the past 15 years. He told the Seymour Telegraph:

On one hand I'm really looking forward to retirement, but on the other I really enjoyed my time with the staff and customers.

Mr Bower moved to Mitchell Shire 30 years ago to raise a family and was keen to work for himself after a career in the public service. He wanted to do something local in an industry he enjoyed and took the opportunity to purchase Broadford Timber and Hardware in 1996. Ten years later he purchased two hardware stores in Seymour and combined them into the current store on Anzac Avenue.

Mr Bower is also looking to part with the Broadford store and hopes to sell it as a going concern. He said:

It will be up for sale if a good price is offered. The stores are my superannuation, so I'm looking for the right offer.

I want to thank the community for their loyal support through the years. We haven't got a closing date yet, but the Seymour store will likely be trading until May or June. I also want to thank the staff I've had through the years. They have supported me and always looked after our customers...I will miss the two stores, but I've been thinking about retirement for a while and I think now is the right time.

A clearing sale will be held at Seymour Timber and Hardware before the store closes.

Sales for Boral dropped in Australia and North America for the six months to December 2020.

Revenue in Australia declined 8% to $1.61 billion because of lower volumes and pricing, especially in NSW and Queensland where major project work and multi-residential activity declined. Income at Boral's North America division also fell 3%, with strength in building products offset by a weaker September quarter and a lower contribution from its fly ash division.

Australian sales make up 53% of Boral revenue, while the US comprises 38%. Chief executive Zlatko Todorcevski said a decline in the building of units and commercial property in Australia affected results.

The company also said the outlook for its Australian business in the second fiscal half was uncertain, citing ongoing weakness in multi-residential and non-residential construction and a transition period for major projects. It also said existing projects have relatively low intensity of concrete and asphalt, and that new projects have been slow to progress.

While all forms of building approvals rose 10.9% in December, Boral said it was unclear whether this trend would continue or was a response to government stimulus. Mr Todorcevski said:

What we can't tell at the moment is, was that outcome driven by stimulus measures like JobKeeper and HomeBuilder or is there something fundamentally happening in the market.

Government schemes such as HomeBuilder have given financial incentives for building new homes during the pandemic.

The number of new high-rise apartments approved fell 14% nationally in the first half of 2021, with the biggest market in NSW hit by a 26% decline - even at a time of extremely low interest rates - amid a looming end to government stimulus and low immigration levels. Mr Todorcevski said:

From my perspective I don't see it rebounding in the near term ... Clearly there's a stock of multi-residential apartments that need to be worked through and we really need to see a rebound in immigration.

People moving out of cities into rural areas - sparked by COVID-19 - were also a factor, with September quarter statistics showing the largest migration levels on record. Mr Todorcevski said:

We're watching pretty closely the amount of migration in Australia out of capital cities.

While the outlook for demand in Australia was uncertain, Mr Todorcevski said strong demand in North America was expected to continue. The company's main assets in the US include roofing, stone and windows businesses.

Boral has confirmed the appointment of Bank of America to advise on a potential US deal. Mr Todorcevski said there had been robust interest from potential buyers in the company's United States operations after a formal sales process was started late last year. He said:

We haven't got to the point yet where we're assessing those in detail.

Mr Todorcevski remains open to a sale or keeping the unit in-house. He said:

The market is good at the moment but we want to make sure we position these businesses in as good a shape as we can...

Mr Todorcevski said the North American operations showed solid potential and there would be no fire sale. The company wanted to test potential price tags against the benefits of keeping ownership.

Boral plans to boost earnings by $300 million within an unspecified timeframe through running plants more efficiently, finding new sources of revenues and potential asset sales.

The group's net profit after tax rose 18.2% to $161.4 million, yet the company downplayed this figure as $46 million profit came from businesses which Boral has sold.

Related: Late last year, the company completed the sale of the Midland Brick business in Western Australia to BGC. Boral also announced it was selling its 50% stakes in USG Boral, and Meridian Brick joint ventures in Canada and the US.

James Hardie

A greater home improvement focus among consumers during the global pandemic has boosted demand for James Hardie's building products.

Chief executive Jack Truong said the company had again delivered "strong organic growth" in its major regions around the world, including the United States, Europe and Australia, in the three months ended December 31.

The US housing market in particular has been strong, while James Hardie has continued to win market share in Australia and New Zealand with its range of wall and board products, decking and floorboards.

Global net sales rose 20% in the quarter to USD738.6 million, delivering a 59% boost to its net operating profit after tax (NOPAT) at USD123.3 million. It was the seventh consecutive growth quarter for the company.

The Asia-Pacific region, which comprises Australia, New Zealand and the Philippines, lifted profit margins to 28.1% in the December quarter, from 22.9% a year earlier, with EBIT up 43% to USD33.5 million.

The North American market delivered the strongest sales gain, up 20%. Mr Truong said the business would launch a "direct to customer" campaign for homeowners in the US, targeting a significant market opportunity with more than 44 million homes more than 40 years old.

Mr Truong said the business had a clear strategy to drive profitable fiscal and organic growth with a focus on customer-centric marketing and product innovation.

The company lifted its net profit guidance for the full year to between USD440 million and USD450 million, from a previous range of USD380 million to USD420 million given in mid-October.

Speedy brings tool hire into more B&Q stores; omni-channel trade-focused retailer Screwfix said it continues to focus on its team and customers; and web-based DIY marketplace ManoMano said it has 50 million unique visitors per month, an increase of 70%.

B&Q

UK home improvement retailer B&Q and tool hire chain Speedy have extended their trial of Speedy hire outlets in B&Q stores. The trial began in July 2020 with Speedy concessions now at nine B&Q stores throughout Britain. A further five outlets opened in January.

The concessions, typically about 90sqm in size, give B&Q retail and trade customers the option to hire equipment from Speedy as part of their B&Q shopping trip. The offer includes Speedy's four-hour national delivery promise on certain products.

Customers can order and collect Speedy products from the select B&Q stores, complementing Speedy's own network of 200 depots. They can hire a range of mobile access platforms, tower scaffolds, mini diggers and dumpers, plate compactors, floor sanders, mixers and heaters. Speedy chief executive Russell Down said:

We are delighted to be trialling Speedy concessions in B&Q stores. These will make the option of hiring tools and equipment much more accessible to DIY customers and enable trade customers to hire equipment seven days a week...

B&Q business development director Chris Bargate said:

We're committed to testing new initiatives and are delighted to be trialling this tool and equipment hire service in our stores with Speedy. Our customers are continuing to adapt and change to new ways of living and shopping, and these new concessions with Speedy are just one way in which we're making it easier for people to improve their homes.

We're excited by the potential re-use of our space to offer new services in store and are keen to understand how customers respond.

Screwfix

Screwfix recently confirmed that it had passed GBP2 billion in sales in its latest financial year. During the year it opened 30 shops, created more than 500 new jobs and benefited from high levels of demand both online and in-store during COVID-19 lockdowns. It now has 725 outlets across the UK and Ireland.

In the past five years, Screwfix has created 4,000 new jobs in total, opened a new store once a week - on average - and doubled sales from GBP1 billion to GBP2 billion. The retailer said that many new recruits include the under-24 age group.

The growth came as people now working from home or furloughed during lockdowns held over the last year looked to improve their surroundings, buying from retailers such as Screwfix and sister company B&Q either directly or through the tradespeople who are Screwfix's core customer base. During the first lockdown, Screwfix's branches operated as click and collect fulfilment points and saw sales grow across all in-store and digital channels.

ManoMano

ManoMano is an online marketplace for DIY, home improvement and gardening products, headquartered in France.

After achieving EUR1.2 billion in sales turnover in 2020, the company said it is building its presence in Northern Europe, and increasing support for its merchant partners.

By doubling its sales volume in 2020, ManoMano said it has demonstrated the scalability of its model. Philippe de Chanville and Christian Raisson, co-founders and co-CEOs of ManoMano, said in a statement:

The year 2020 has been marked by a considerable increase in European consumers' digital expectations for DIY, garden and home products.

ManoMano said it has 50 million unique visitors per month and 7 million active users. With 10 million products, ManoMano offers a significant online catalogue.

The UK is most important market for ManoMano's growth. The company saw a major boost in demand during 2020, with sales turnover in the UK increasing by 240% to EUR105 million.

ManoMano said it carefully selects its partners to ensure a qualitative offer for customers. On its UK platform, 75% of sellers are based in the UK. To support its growth plans ManoMano will make further investments in its UK-based marketing including TV advertising.

In mid-2020, ManoMano partnered with order management specialist OneStock to optimise fulfilment logistics in the UK and across Europe. It appointed OneStock to manage all UK warehouse and merchant stock, enabling guaranteed delivery dates for shoppers and freeing merchants from logistical constraints.

ManoMano has already rolled out its fulfilment service in France and Spain which promises delivery in either 24 or 48 hours. It is working with OneStock to extend this feature to customers in the UK, Italy and Germany.

Weber is expanding its line of internet-connected BBQs to encompass its gas models, including the company's entry-level Spirt lineup. They offer Bluetooth and Wi-Fi connectivity for tracking temperature and an integrated digital display.

The Genesis EX-315, EX-335 and SX-335 and the Spirit SX-315 models incorporate the Weber Connect platform, which aims to make BBQing easy. Until now, the platform has only been available on the company's smart grilling hub and pellet grills.

These models can now monitor temperatures and let users know when it's time to flip or serve food via an app. Guided recipes can take users through the entire process step-by-step to help achieve the ideal cook.

WiFi and Bluetooth connectivity allow users to monitor how things are going while they are away from the BBQ. If they would rather not be checking their phone, they can use the built-in LED display and the grill's audible notifications. Users can keep an eye on how much gas is left in the tank via the app or on the BBQ.

The three Genesis smart gas grills, including the EX-315 feature LED lighting, 669 square inches of grill space, three high-heat burners and a folding warming rack. The EX-335 and SX-335 have a side burner, and the latter has a stainless steel lid rather than a porcelain-enamelled one. The smaller Spirit SX-315 has 529 square inches of grill space.

Connected BBQing isn't a new concept for Weber: the company has offered a line of iGrill meat thermometers for several years as add-ons for its existing grills. Last year, it debuted its second-generation Weber Connect smart grilling hub accessory, which offers a more advanced Weber Connect app. It has also offered Weber Connect smart grilling features on its SmokeFire pellet smoker.

The latest models in the Weber Connect smart BBQ range is set to launch later the first half of this year.

Independent Australian hardware retailers have recently rediscovered the potential represented by the consumer/DIY market. For the last 10 to 12 years, the dominance of Bunnings in that market has seen many of these retailers invest more time, effort, and money into their trade business lines, with DIY frequently slipping down to 20% to 30% of their business by volume, and around 30% to 35% by profit.

The COVID-19 pandemic pushed DIY customers into their stores for two reasons. First, it wasn't possible for them to go to their "usual" Bunnings store, either because it had long lines due to density limitations or was outside the allowed travel radius. Secondly, homeowners paid increased attention to taking care of their homes during periods of partial lockdown, both to improve the place they were now spending 160 hours of a week's total 168 hours, and to find some way of not going stir-crazy due to limited stimulus.

As Australians collectively gain some sense of how we might pursue an almost-normal life for at least six weeks out of every seven (given the ongoing minor outbreaks of infection), those retailers are very concerned with how they might hold onto at least 50% of the new DIY customers that came through their doors during the last nine months of 2020.

In the past, the main technique independent hardware retailers have employed was to try to compete with Bunnings on price. It really took the overall industry about 10 years to catch up with Bunnings on this basis, as it required not only a change in the originating supply line, but also in final distribution. While Bunnings continues to have an advantage in overall scale, hardware retailers have significantly closed the gap.

What the COVID-19 pandemic also illustrated clearly was that these retailers do have a persistent advantage they can leverage against that scale, which is simply location and proximity. While Bunnings has worked hard to expand its store fleet over the past decade, unless there is a Bunnings within 2km, hardware stores nonetheless have their own "customer radius" where, from a travel perspective, they are the most convenient hardware outlet.

While that has long been a reliable advantage, another trusted advantage has proved itself over the past decade to be somewhat less reliable: the service difference. There is little doubt that a higher, more knowledgeable, more personalised level of service in independent hardware stores does create an advantage (though it is as much a way of life), but that advantage has not been significant enough, from the DIY customer perspective, to keep them away from big-box retailers.

So where is the advantage? What do independent hardware retailers need to do to retain and grow their DIY customer base? How can they really satisfy homeowners, and keep at least some of their custom as the threat of COVID-19 recedes?

In today's market, the lesson that we keep learning and relearning is that knowledge of the customer's needs and wants is key. One of the main drivers behind that requirement is that, especially when it comes to the DIY customer, we could say there isn't really any such thing as a "traditional" customer. What was once a large, fairly unified market in Australia has split up into a series of "micro-markets".

As a result, hardware retailers need to take three actions:

The micromarkets

That expected, "traditional" DIY market is perhaps best reflected in the coverlines of Handyman magazine from the 1980s and 1990s. The articles that dominated at that time were all about building pergolas, decks, fitting out wardrobes, garage storage, outdoor entertaining/barbecue areas, verandahs, painting - and an amazing amount of advice on perfecting lawns.

While that market does still exist today, it tends to be seen as the really "serious" end of DIY, and includes more serious renovation tasks as well, including redoing flooring (laminates and vinyl planks), retiling bathrooms, and fitting out kitchens. It is also, simply, a lot smaller than it was 25 years ago.

Instead, we have a new cluster of micro-markets, which would include:

When you look at these categories as opposed to "traditional" DIY, one feature clearly stands out: the projects they describe are what might be termed "high time-value". They make use of little time but produce a high-value product at the end.

For example, take furniture upgrading. Twenty years ago, you didn't have to look too far to find articles on how to build your own chairs. Today, who really has time for that? Instead, it's easier to hunt through the op-shops that seem to be everywhere, find something you like, and spend a couple of afternoons staining, painting and reupholstering.

Similarly, with a category like smarthome, you can quite literally spend $1500 to upgrade convenience and security and get far better results than you would have by spending $15,000 about 20 years ago. When we get into another tech-inspired area, maker culture, the difference is even more acute. What you can today make with 3D printers and CNC routers is simply beyond any DIY project imaginable in the 1990s - especially when these are combined with internet of things (IoT) devices, such as Arduino and Raspberry Pi processors.

All that might seem a little overwhelming, but one advantage in this area is that most people will have done quite a bit of online research before they tackle one of these projects. They don't come to the store expecting the retailer to tell them what to do, but they do expect some help in choosing one option over another.

The core thing to grasp from a retail perspective is that while most of these customers are price-aware, they are even more time-aware. They are coming to a physical retail location both because they don't want to waste time ordering online and waiting for a delivery, and they are in slightly unfamiliar territory and want to see what they are buying. As a result, they are less fixated on price and more concerned with convenience and reducing frustration.

The tools

We can best illustrate what this cluster of micro-categories is like by looking at a new tool that Bosch Power Tools released in November 2020 (though it is not available in Australia just yet). At first glance, the Easy Cut&Grind (ECG) can seem something of a confusing product. The existing Bosch product that it most resembles is the Bosch (blue) 12V 76Mm Compact Angle Grinder, which provides a handy, one-handed way to cut through materials such as metal pipes and rods.

What the ECG most resembles, however, is Bosch's redesigned IXO screwdriver (and drill, plus other functions). Its physical appearance is similar, and it seems to have the same Li-ion fixed battery system as well, which recharges conveniently through a USB port.

It comes with a carbide disk, capable of cutting to a depth of 14mm, as well as a multi-material cutting disk. The latter could be used to, for example, cut out gaps for pipes and other irregularities in laminate flooring, trimming plasterboard, or cutting plywood sheets. In addition, it also comes with a fixture that turns it into a mini-disk sander, the sanding pads attaching via a hook-and-loop system similar to Velcro.

From the viewpoint of "traditional" DIY, this is a very underpowered tool with a limited range of functions. But for people doing tasks in this cluster of micro-categories, there is simply little need for the kind of power than standard tools offer. Instead it offers lightweight versatility, no-fuss operations, and ease of storage when not in use.

What to do now

While the distribution of the more innovative Bosch DIY products to Australia is a little slow, retailers could get ahead of this market by dealing with another part of the huge Bosch corporation: Dremel. Dremel makes what are widely recognised as some of the best rotary tools in the world. The range has been around for some time and offers not only a wide range of tool bits, but also add-ons that turn the Dremel into a plunge router and even a drill press.

Analysis

What the surge in DIY sales should be communicating to retailers is that there exists a market they might have disregarded, but which actually can provide not only decent revenues, but especially better margins. Like other markets, catering to its needs means not only the sale of certain speciality products, but also more common adjacent products as well. Provide the means to sand down the tough to reach parts of a refurbished chair easily, and it's more likely that the paint for that chair will be bought from the same place as well.

Of course, it's not just about getting the products stocked, either, but also communicating what is available, and backing that up with service where staff don't dismiss these new customers - especially if they are women.

Bunnings is not going anywhere, and it will continue to dominate many categories. This is one set of categories, however, where the combination of proximity, service and familiarity can really help to drive sales in a way that big-box retailers are unlikely to equal.

The Australian Bureau of Statistics (ABS) has released its figures for retail revenues for December 2020. This means that we now have all the data for 2020 as a year, and can provide annual statistics.

For calendar year 2020, revenues for hardware retail across Australia as a whole increased by just over 20%, as compared to the previous corresponding period (pcp) which is calendar 2019, as shown in Chart 1.

In percentage terms, the Australian Capital Territory (ACT) posted the strongest rise, of close to 32%, while the other states (excluding the Northern Territory and Tasmania, for which figures are not available), showed increases in the 18% to 22% range. Victoria (VIC) had the lowest increase, of 18.3%, while South Australia had the second highest increase of 21.4%. (See Table 1.)

In dollar terms, VIC posted the largest increase over the pcp, at $1184 million, followed by New South Wales (NSW) at $1039 million. Queensland (QLD) came in third at $867 million, followed by Western Australia at $393 million. Australia overall saw an increase of $3969 million, reaching a total of $23,632 million for the year.

The historical trends indicate just how unusual 2020 has been with the rate of increase exceeding that of past calendar years by a considerable amount, as indicated by Chart 2.

Finally, Chart 3 gives some sense of how the increase in revenue took place across the states and territories, as well as Australia as a whole.

There was a strong, unified peak in increased revenue for May and June, but this fell sharply for VIC from August to October, due to the lockdown in that state. Australia, as a whole, hovered around 20% increase from August through to December.

Analysis

These charts provide the "hard numbers" behind what individual hardware retailers have been reporting after March 2020, with sales surging, and largely driven up and down by the state of the pandemic response during any particular month. While there has been some moderation in these increases, they have continued with some strength straight through to the end of the year.

Given ongoing strength in housing markets, it is likely that positive numbers will continue through the first calendar quarter of 2021 as well.

The Bunnings Warehouse in Port Kennedy (WA) is set to close its doors permanently; Moreton Bay Regional Council has given approval for a Bunnings store in Caboolture (QLD); and the proposed Dubbo (NSW) development marks a major investment in the region.

Port Kennedy

The final day of trading for Bunning in Port Kennedy will be March 21 ahead of its lease ending with BWP Trust, the largest owner of Bunnings Warehouse sites in Australia with a portfolio of 68 stores.

It is understood all of the current Port Kennedy team members will be offered transfers to nearby stores with Bunnings' main focus to support them throughout the transition.

Bunnings regional operations manager Hayley Coulson said as the store's lease expiry was nearing, the retailer made the decision to cease operations at Port Kennedy. It will serve the local community from surrounding stores in Baldivis, Rockingham and Mandurah. She said:

Both Baldivis and Mandurah opened in 2018 and offer customers a newer, wider and improved offer [sic]. The Bunnings team in Port Kennedy has done a great job serving customers and the local community since 2008, and we thank the team for their commitment.

Caboolture

The new 13,000sqm Bunnings Warehouse in Caboolture will be built on the corner of the Bruce Highway and Pumicestone Road - now known as the Sungate Business Park. This development is expected to include other retail outlets, a supermarket and multiple food outlets.

Moreton Bay Regional Council approved the development application in December. Bunnings area manager Emily Sweet told The Courier-Mail:

Features will include the main warehouse, outdoor nursery, timber trade sales area, cafe and a playground ... and have parking for over 400 cars.

Ms Sweet said construction was due to start mid-year and the aim was to open the doors in the first half of 2022.

Related: The Bunnings Caboolture store was first proposed on mid-2020.

Dubbo

The proposed $30 million Bunnings store in Dubbo will be the largest in the Central West of NSW if approved, according to Dubbo mayor Ben Shields.

A development application (DA) for the hardware store - which will be 68% bigger than the city's current outlet - is before Dubbo Regional Council. Developer Mark Stanford said the former RAAF base where the proposed store site is located is 100 acres, and suitable for a big business. A 500-space car park will also be constructed. He told the Western Advocate:

The total spend in the entire project is over $60 million, so it's a fair investment. The Bunnings building itself is over $30 million. There won't be too many private projects in 2021 that are over $30 million in the city.

The Bunnings DA needs to be approved by council before work can begin. Cr Shields told the Daily Liberal and Macquarie Advocate:

I believe the zoning is already appropriate. There are a number of processes that this has to go through before final approval but for a major company to see Dubbo as a place to continue and expand on their already significant investment is a good thing.

Bunnings regional operations manager Robyn Hudson said this Bunnings outlet will offer customers "an even wider range of home and lifestyle products".

Spanning more than 17,500sqm, the new Bunnings will include the main warehouse, outdoor nursery, timber trade sales area, cafe, and a playground. This store would also feature a 1,600sqm specialised bulk trade offer.

If approved by Dubbo Regional Council, work on the Bunnings store is expected to start in July.

A new flagship store for Sunshine Mitre 10 in Nambour (QLD) and C&L Tool Centre is operating under different ownership.

Nambour

Queensland-based Sunshine Mitre 10's plans to build its optimal store in Nambour is in the same town where the business began 110 years ago.

Sunshine Mitre 10 general manager Neil Hutchins recently announced the new site at 980 Nambour Connection Road (formerly occupied by Allclass Kubota Tractors), and said it already has council approval and will open later this year. He said:

The transformation of the 13,000sqm site is well underway, and the local community has already shown excitement and support for this endeavour.

The new location in Nambour is important because it not only meets the increasing demand from our retail and trade customer base, but it also supports the town of Nambour and pays respect to the heritage where the company was started by Walter Lanham in 1910.

We have been steadily expanding the Sunshine Mitre 10 group across Queensland with more recent store openings in Bundaberg, St George, and Brisbane, and we have a focus on supporting the communities of the towns in which we operate.

Nambour is at the top of that list in terms of regions we want to support. This new store is the next step in our expansion, and this flagship location will be the best possible representation of our brand and heritage. We're excited to see it unfold and transition into another 110 years of locals supporting locals.

Sunshine Mitre 10 already employs more than 400 staff across our network of stores in Queensland, including the seven sites we operate throughout the Sunshine Coast. We are pleased to have committed to this multimillion-dollar investment on the back of a 25-year lease at this location.

The site has 4,000sqm under roof and will be one of the largest in the Sunshine Mitre 10 network. It is expected that dozens of jobs to be created, in addition to the development and construction of the site being managed and built by local builders and tradies. Mr Hutchins said:

This new flagship store will include all the latest brands and products and showcase the best hardware product available. The site will have everything you need to get in, get out, and get on with it. The entire project has been meticulously designed to provide the customer with the ultimate hardware shopping experience.

The new store will feature dedicated departments around building and hardware, along with homewares, electrical, hand and power tools, kitchens, painting and decorating, gardening and outdoor, appliances and plumbing as well as the dedicated trade products and services Sunshine Mitre 10 is known for.

Mr Hutchins said when the store opens, Sunshine Mitre 10 would continue to operate the existing Court Road store for the convenience of the local community and work to transition its loyal customers of 75 years to the new location.

We look forward to inviting everyone to the grand opening mid-2021.

Related: Sunshine Mitre 10 has 18 locations throughout Queensland. HNN took a tour of its operations in 2019.

Perth

Distribution group Stealth Global Holdings, headquartered in Perth, has purchased construction trade-focused retailer C&L Tool Centre.

Established in 1969, C&L is a reseller of industrial and tooling supplies, safety and personal protective equipment, and hardware, building, construction and workplace consumables primarily to professional (80%) and retail (20%) customers. They include multinational corporations, small-to-medium enterprises, schools and universities, and government agencies.

C&L operates three divisions and offers well-known brands within a "mega-store" setup comprising a showroom and distribution centre across 2700sqm.

Almost 25% of the company's sales orders are received and processed online through various digital channels.

For the 2020 financial year, C&L delivered revenue of $14.3 million and earnings before interest taxation depreciation and amortisation of $1.26 million. Sales for the first four months of the 2021 year are believed to be tracking 25% higher than the previous corresponding period.

The directors and management of C&L continue to work with the business under the change of ownership.

The C&L acquisition is believed to be complementary to Stealth's existing business, with the companies sharing a similar customer and supplier base and offering similar services. Stealth said it would spend $3.83 million acquiring C&L.

Stealth managing director Mike Arnold said the synergies would deliver on the company's aim of providing long-term value to shareholders and customers.

[We believe] the depth of C&L's products and tailored services will give [our] merged businesses greater scale as we continue to build a national distribution network to deliver more value, better experiences, more stores in our network, a deeper assortment of merchandise and brand range, and a more complementary team of experienced [personnel]...

Stealth is a supplier and distributor of safety, industrial, healthcare and workplace consumable products. Its services include distribution and logistics services, contract supply and on-site inventory management solutions. It operates through four segments: industrial, safety, healthcare and workplace supplies.

The company's industrial segment provides maintenance, repair and operations (MRO) supplies, hoses and fittings, adhesives, sealants and fillers, tools and equipment and electrical products. The safety division provides clothing, footwear, hand protection and lifting and handling, height safety, and safety glasses products. Healthcare has first aid products including medical supplies, consumables, disinfectant and wipes and disposable towels products. Workplace supplies provides packaging and tapes, cleaning and janitorial, crib and kitchen, storage and hardware products. Its portfolio of brands includes BSA Brands (a joint venture between Stealth and Bisley Workwear) and Heatleys Safety & Industrial.

Related: US big box retailer Home Depot acquired HD Supply, one of the largest distributors of maintenance, repair and operations (MRO) products in the multifamily and hospitality markets throughout the US and Canada.

Master Lock will commemorate its 100th anniversary with year-long celebrations; plumbing supplies group Reliance Worldwide has rebounded after the business took a hit in the early stages of the COVID-19 pandemic; and BlueScope Steel is flagging its best Australia steel sales in a decade as a result of increased construction projects.

Master Lock

Global safety and security supplier Master Lock is celebrating 100 years in 2021 and is launching a 360-degree marketing campaign, and previewing new user-led innovation.

To pay tribute to 100 years, it debuted a commemorative logo that incorporates the brand's original "Master Lock Lion" symbol, which harkens back to the company's vintage trademark identity.

Featuring its commemorative 100-year logo and a black weather-resistant cover, Master Lock has introduced the 1921D Padlock - a limited-edition product that includes a vintage stamped key and keychain.

Founded in 1921 by travelling locksmith and Russian immigrant, Harry Soref, Master Lock's legacy is born in strength. What started as Mr Soref's mission to safeguard military equipment with the world's first laminated steel padlock has since evolved into Master Lock becoming a leading global manufacturer of padlocks and related security and safety products.

In 2021, Master Lock will reveal its most durable Bluetooth padlock yet, the ProSeries Bluetooth Padlock. This high-security padlock will allow commercial end users to leverage Bluetooth technology in the toughest work environments.

Master Lock will also release the Key Tether Lock Box which was developed in response to users needing to keep the key and lock box together at all times. By linking the key and lock box together with a tether, they can have peace of mind knowing the key will always be in the lock box when it is accessed.

Reliance Worldwide

Demand has improved for the plumbing products that Reliance Worldwide makes as enthusiasm for home improvement increased in markets across the world. Chief executive Heath Sharp said that all of the main geographic regions produced strong sales and profits in the six months ended December 31, with the US a standout because of rising demand in the repairs and renovations market.

The US accounts for about 50% of the plumbing supplier's overall business, with the group's flagship product there being the Sharkbite range of brass push-to-connect fittings.

A preliminary report showed that earnings before interest, tax, depreciation and amortisation (EBITDA) is forecast to be between $164 and $167 million, up at least 30% on the first half of FY2020.

Mr Sharp said Reliance Worldwide delivered interim sales growth of 13% and 17% on a constant currency basis. Overall, sales totalled $642 million. EBITDA margins increased because of operational leverage driven by higher volumes, and each region is expected to report bigger margins for the half, he added.

The first half of financial 2021 had "undoubtedly been a strong period" for Reliance Worldwide amid difficult conditions, the chief executive said, cautioning investors against extrapolating the first-half sales performance for the entire fiscal year. Copper cost increases would be a handbrake in the second half while currency fluctuations would also have an influence, Mr Sharp said.

Almost $1 billion was wiped from its market capitalisation last February after a profit downgrade triggered by the coronavirus.

Official first-half results will be released on February 22, 2021.

BlueScope Steel

BlueScope expects to book a half year profit, before interest and tax of $530 million - $55 million ahead of updated forecasts provided in November, and almost $200 million ahead of the $340 million it tipped in October.

The company's total underlying EBIT in the 2019-20 financial year was $564 million, as earnings crashed amid the coronavirus crisis.

BlueScope managing director and chief executive officer Mark Vassella said all of the company's operating segments performed well across the half, with strong volumes and better margins in its Australian steel making business, as well as in the US and Asia. He said:

Domestic construction and distribution segment demand has been strong, particularly for coated and painted products - leading to the strongest domestic mill sales volumes in a decade, at about 1,175,000 tonnes.

A number of Australian start-ups have developed apps or websites - Delivertrade, Rendr and Getter - to address the issue of tradies making unplanned trips to the hardware store or wholesalers in different ways. Industry research indicates these unplanned trips occur in one in every three jobs. The extra labour and vehicle costs add about $2 billion a year, according to a report in The Courier-Mail.

The Getter app recently attracted $1.4 million in a capital raising from about 15 investors. Its biggest investor is Darren Wallis, the Sunshine Coast-based chairman of GJ Gardner Homes. He told The Courier-Mail:

There's a gap in the market and this is an amazing opportunity. It could revolutionise how tradies get supplies delivered.

The potential efficiencies for Australia's $360 billion a year construction industry are substantial, with likely flow-on benefits for consumers in the form of lower prices, he said.

Getter launched in Sydney in March 2020 after boss Tom Burton and his fellow co-founders in the building sector repeatedly saw jobs run over time and over budget because of hold-ups accessing materials. He told The Courier-Mail:

At a macro level, the Australian construction industry has a longstanding problem with not being able to procure its trade materials efficiently, meaning tradies either visit wholesalers themselves, or worse, wait hours and sometimes days for their supplies to be delivered.

As tradies themselves, the Getter founders have seen first-hand the lost productivity that ensues when products or tools need replacing, whether that be on large-scale commercial tower building sites, project home sites or landscaping projects.

The business generates income through an Uber-style pick-up and delivery of goods. It also offers to source products, charging an additional fee based on the value of the material.

Mr Burton said Getter has already grown its registered users from 800 to about 3500. He is aiming to dramatically expand that to about 30,000 across Brisbane, Sydney and Melbourne in the next 12 months, with a revenue target of around $14 million.

Mr Wallis started at GJ Gardner as an accountant in 1994 and rose to spend just over 20 years as CEO. The group's franchising network operates across Australia, New Zealand and the US. He will be spreading the word to its franchisees nationwide. He said:

So far the feedback is fantastic. They love it.

Related: Drone delivery company Wing Aviation is considering expanding its services to take tools to tradies on jobs around Canberra.

For the financial analysts participating in the half-year 2020/21 results announcement for Australian wholesale/retail conglomerate Metcash, the company's pre-COVID-19 acquisition of the Total Tools Holdings (TTH) franchise must have seemed a rare glint of bright sunlight in an otherwise mostly gloomy retail sector.

Where Metcash's hardware operations, under the umbrella of its Independent Hardware Group (IHG) division, is commonly shunted somewhat towards the back of the queue of concerns, behind Metcash's food retail operations, and even its liquor retail operations, TTH and IHG came close to being the "star" of the results - even though, in terms of actual financial contribution hardware remains a minor player.

That is understandable, and even - to some extent - deserved. Metcash and IHG did pull off something of a minor coup. Not only did they pick up TTH for something substantially under its original asking price, they also bought the business right before sales surged as a result of the somewhat paradoxical boost that the building and construction industry has received during the 2020 pandemic months, from March onwards. It's the kind of "luck" that companies skilled in acquisitions, especially in retail, will sometimes encounter, that "X" factor that enables senior management to pick up on possibilities that other bidders for a business might not quite have understood. And timing, while it is certainly not "everything", can play a significant part as well.

Looking beyond the immediate - and somewhat circumstantial - positives of the acquisition, how does the TTH acquisition shape up in the longer term? How will it interact with the pre-existing IHG business, and what kind of future does Metcash envision for this business?

TTH as acquired

TTH was started in 1989 as a co-operative based group of 20 independent tool stores. That changed in November 2007, when TTH's Board of Directors put in place a Network Development Plan based on a franchising model. In line with this, TTH established its National Support Office to boost the franchise businesses.

While the co-operative model is somewhat in the past, there are evident signs of this lingering into its operations in 2018 and beyond. All of the original 20 stores have remained as shareholders in TTH. Two or three of these owners served on the company's board through to 2020.

According to a report in Inside Franchise Business from June 2018:

The retail chain is an unusual set-up, developed from a co-operative structure that has given it a strong sense of community, and put franchisees front and centre... [F]ranchisees are, literally, at the heart of the business. This is evident in the tenure of the franchisees as well. Agreement terms run up to 10 years with renewal options, and as yet no franchisee has sold on their business.

Quite the reverse, actually. The strength of the business model has seen franchisees embrace multi-unit ownership while maintaining a fair level of influence.

As acquired, TTH consisted of 84 independently-owned stores, and two company-owned stores. In its presentation for its FY2020/21 half-year, Metcash noted that:

Post the half year TTH acquired 4 independent stores with ownership interest of 60%. A further 8 independent stores expected to be acquired by end of CY20.

So during the second quarter of Metcash's FY2020/21, the company should end up with a majority interest in at least 14 TTH stores, along with 72 fully independent stores.

In addition to a circa $57 million acquisition price for 70% ownership (plus put/call options to guarantee full acquisition up until mid-2023), Metcash also provided a $40 million debt facility which, Metcash stated, "will be utilised to acquire an ownership interest in select stores", which means buying between 50% and 51% interest in those stores. These purchases include the option to obtain 100% ownership by 2024.

In terms of revenues and earnings, the figure of $555 million is frequently presented as a revenue figure for TTH in FY2019/20, but this is essentially the total sales of all the TTH stores. Dun & Bradstreet lists revenues for FY2019/20 as being around $98 million, and the figure of $25 million is often mentioned as being TTH's number for earnings before interest and taxation (EBIT).

Metcash has announced that in its two months of ownership prior to its first-half results, TTH declared $18.6 million in total revenue, and $4.8 million in total EBIT. Those numbers annualise out to $111.6 million and $28.8 million. That reflects a projected uplift of 13.9% for earnings, and 13.2% for EBIT. While the background hardware retail increase over that period is above 15%, this is nonetheless a good showing, given that TTH is focused on trade/construction business, and DIY/consumer showed stronger gains.

Dun & Bradstreet also lists TTH as employing around 122 people. The cited article from Inside Franchise Business identifies there being between 80 and 90 people in the TTH head office, and 26 people in its marketing team.

Metcash strategies for TTH

Speaking at the FY2020/21 half-year results presentation, Metcash chief financial officer Brad Soller had this to say about the overall strategy for TTH:

We expect operation and merchandise synergies to be delivered from the acquisition and for these to commence in the second half of the year. As Total Tools will not be fully integrated with Mitre 10 but rather operate separately and as the overlap of products range is not as significant as it was between Mitre 10 and HTH, the quantum and synergies to be delivered is not expected to be anywhere near the synergies delivered on the HTH acquisition.

HNN would not be surprised to see the team size at TTH reduced to between 49 and 59 people by the end of 2022 (though many of those employees may find new positions inside Metcash), which would reduce overheads, of course.

One reason for the relatively high head count for TTH is that its strategy has been primarily focused on growing the number of franchises it operates, with a goal of some 131 set some years ago. As Nicole Bemelmans, who is the general manager of TTH's merchandising team, mentioned in an interview, one of the company's major ongoing tasks has been "onboarding" new franchisees.

If we ask the critical question about this acquisition, which is "why did TTH decided to sell?", the answer (in HNN's opinion) is likely to be that this model of growing the number of franchisees did not show signs of becoming as profitable as hoped. This is a common problem for business networks that evolve from being on a co-operative basis to a franchise basis. Scale should bring additional cost efficiencies, but this type of organisation struggles with the choice between member services that are the most helpful, and those that are the most efficient.

It is also likely that concerns similar to this also held up the potential listing of TTH on the Australian Stock Exchange (ASX), which had been suggested as one path in 2017. Instead, TTH began to seek a buyout via an equity partner in late 2019. While Metcash was approached, the end buyer turned out to be Quadrant Private Equity, which, according to the Australian Financial Review's "Street Talk" column, "will look to shift Total Tools to a blended company owned model and buy back franchise sites". The same column suggested that Quadrant's approach would be to "target 200 Total Tools sites in Australia using the company-owned model".

Of course, the Quadrant deal fell through in early 2020, with the private equity firm citing the agreement's contingency clause, referencing the COVID-19 pandemic. This led Metcash to pick up the company at what some would regard as something of a "bargain" price. The outgoing former CEO of IHG, Mark Laidlaw, remains involved in its management, and TTH's CEO, Paul Dumbrell, will remain in place - the two of them having worked together in the past, with Mr Dumbrell managing Metcash's automotive division which fell within Mr Laidlaw's responsibilities.

At the moment, it seems fairly clear that the core strategy for Metcash will be to continue its acquisition of TTH stores for at least the next three years. At the same time, Metcash also sees room for growth in the number of stores as well. This was outlined in a response by Mr Soller to a question asked by Grant Saligari of Credit Suisse AG:

The key driver for growth in the future will be those - as we actually corporatise those stores, and we actually get the actual ownership interest in those independent stores. And the other thing we should actually - is they still got a fairly good runway on their ability to open new stores. So if you look at the new stores that they actually had, at the time of the acquisition, it was 82 stores they had in the portfolio. The number of stores have now gone up to 86. So they've actually opened four stores in a relatively short space of time. And Paul and the team over there believe that there's still a pretty good runway for them to actually open additional stores going forward.

There are some synergies that will actually come through, just actually lets you know that those synergies shouldn't - as I called out in my presentation, won't be anywhere near the quantum synergies we've got through - with the HTH acquisition.

At the same time the CEO of Metcash, Jeff Adams, made it clear in response to a question from Bryan Raymond of Citigroup that expansions in store numbers would likely be from new franchisees, not additional corporate-owned stores:

The plan would be most, the absolute majority of them would be franchisees. We've got a very strong network plan looking forward, and again, I think in March, we can share more of that.

Effects on IHG

The most serious question for members of the independent hardware retail community is what effect this will have on them - and that is a question of particular interest for current members of IHG, in Mitre 10, Home Timber & Hardware (HTH), Thrifty Link and True Value bannered stores.

In the initial release to the ASX outlining its bid for TTH, Metcash stated that the acquisition would:

Enhance Metcash's position in the Australian hardware market which will benefit independent retailers in both Total Tools and the Independent Hardware Group.

In its summary of the benefits of the acquisition in its half-year results, Metcash stated that there would be "Operational and merchandise synergies expected in 2H21".

The concern, of course, is that with the acquisition of TTH, Metcash has brought onboard a true competitor to the existing networks of independent stores in IHG. If corporate-owned stores in IHG suffer a loss of revenue as a result, that's going to be less important to Metcash, as those earnings are essentially fungible. But for independent stores, a cashed-up, expansionary TTH, with the additional corporate might of Metcash behind it, could be something of a real threat to their revenues and earnings.

It's interesting to note that, prior to the acquisition by Metcash, TTH did portray itself as a strong competitor to independent hardware retail stores. In a September 2018 article with Business Buy Invest, the website outlined this position:

While demand is high, smaller hardware retailers can find it harder to compete with the scope and diversity of an operation like a Total Tools Franchise. According to Fred [Pose, then franchise and leasing manager for TTH], "The average competitor to a Total Tools stocks about 40% of the total range of hardware products we have on offer". Popular items include building related products, including products required for bricklaying and concreting, as well as nails and nail guns. Power tools and power tool kits are also consistently popular.

Analysis

The reality is that while the market for power tools has itself not been a broad one for most smaller hardware retailers (largely due to strong category competition from Bunnings), the market for both power tool accessories and hand tools has remained a broad and relatively high margin one for most retailers. With all due respect to Metcash, it somewhat defies common sense to suggest that TTH will not have an ongoing impact on sales in these categories throughout Australia.

As HNN has suggested for some time, there is something of an inner-conflict in the business model that Metcash has brought to the hardware retail market in IHG. At one time there is an increasing drive to bring in more corporate-owned stores, which give IHG access to a larger share of the profits derived directly from sales revenues. At the same time, IHG is supporting independent hardware retailers, some of whom are in direct competition to those corporate-owned stores.

There are cases where a balance is achieved, and HNN would cite in particular the operations of Sunshine Mitre 10 in Queensland. While Sunshine has an interesting network of stores, they also try to provide support to other Mitre 10 operations in their area. Outside of that kind of regional area, in more competitive urban regions, where stores are geographically closer to each other, it's difficult to see the same relationships at work.

This sense of balance seems bound to come under stress with the addition of TTH stores to Metcash, stress that is likely set to grow as Metcash obtains control over more TTH stores, and welcomes additional franchisees to the TTH network.

It is possible that what we are seeing are the first stages of the hardware retail industry reaching an inflexion point where Metcash exerts more control over retail operations than it has in the past.

One reason why that seems somewhat likely is that the past business models Metcash have used in hardware retail have not worked out as well as expected. Far from "taking it to Bunnings" through the HTH acquisition, IHG has found itself under increasing pressure from the efforts by Bunnings to grow its trade sales. While the Wesfarmers-owned Bunnings has continued to grow its revenue and EBIT at above-market rates, IHG has, absent its HTH synergies, languished somewhat in the market.

And again, HNN must repeat our overall concern about the hardware market: history indicates that housing markets with high purchase rates and high prices ultimately begin to fall, and over the past 10 years have been repeatedly shored up through the Reserve Bank of Australia (RBA) lowering interest rates.

At the moment, the RBA has worked itself into a place where the interest rates are too low to be reduced further, and it has guaranteed that rate through to 2023. While direct fiscal stimulus as the housing market is possible, with about one-third of Australians no longer owning houses, it has the potential to be very divisive. HNN would suggest that it is really those numbers that in the end saw Quadrant pull out of the TTH deal, and Metcash has taken them on at its own peril.

Building plans lodged for a larger store in Dubbo (NSW); the Bunnings store in Seymour (VIC) is on schedule to open soon; and a Bunnings Warehouse and garden centre will not be built in Carrara (QLD) after all.

Dubbo

There could be a bigger Bunnings store in Dubbo if plans are approved by Dubbo Regional Council. The proposed store would be more than 17,500sqm in size and built on the old RAAF base which is 5000sqm bigger than the existing site located on Sheraton Road.

Andorra Developments is redeveloping the former RAAF base which has not been used for more than 15 years, according to The Daily Telegraph.

About 400 homes are expected to be constructed on the site along with a tourism and industrial precinct which could include cafes, pubs, accommodation options and other retail outlets.

Dubbo Chamber of Commerce President Matt Wright said the investment Bunnings was prepared to make in Dubbo was good news for other businesses in the city. He told The Daily Telegraph:

Confidence breeds confidence. A lot of businesses who are smaller and already established may be able to take confidence away from the fact a big company like Wesfarmers is prepared to invest in Dubbo.

It does present another opportunity for another retailer to take on the empty space left by Bunnings and that could be even more good news.

Dubbo's existing Bunnings store opened in 2008 and has been part of the growth of the Blueridge Business Park precinct in East Dubbo.

Seymour

The new smaller format Bunning store in Seymour (VIC) represents an investment of more than $9 million and spans more than 4500sqm, and is expected to open soon.

Features include the main retail area, outdoor nursery with an undercover bagged goods and landscaping area and access to services such as key cutting, timber cutting. There is a hire shop where customers can hire out products such as carpet cleaners and trailers. The location will also feature parking for about 70 cars.

Trade customers will have access to a revamped trade desk and an undercover timber drive-through with eight indoor car spaces for easy loading facilities. Bunnings Seymour store manager, Ruben Anderson said the warehouse was purpose-built and it took six weeks to turn it from an empty warehouse to store-ready. He told the Seymour Telegraph:

It takes two weeks to get the racking up and four weeks to fill. It's coming along really quickly, and we can't wait to open for the Seymour community. They are already shopping at Craigieburn and Shepparton and now they have their own store. 'I'm very excited.

As part of the store opening, the team has provided support to local community groups with product donations and hands-on support. Mr Anderson said:

Team members from Seymour have already worked together to assist in local community projects such as helping Seymour Health's Goranwarrabul House plant new vegie gardens ... The team have also offered a hand to The Salvation Army's community garden by refreshing their front gardens, making way for a children's play area which will replace an empty unused space that was previously there.

Carrara

In 2016, Bunnings had plans to build a 16,000sqm warehouse and garden centre backing on to the Palm Meadows golf course in Carrara on the Gold Coast in Queensland.

According to the Gold Coast Bulletin, the flood-plain land had problems and there was the major issue of entry and exit off Nerang-Broadbeach Road, which feeds into the major roundabout that also serves Gooding Drive and Robina Parkway.

After battling for four years to get its plans approved, Bunnings has pulled the plug. Its conditional deal to buy the 10.8ha site, believed to be for in excess of $7 million, lapsed and the land is back on the market.

Bunnings said that while it's decided not to pursue the project, the area remains "of interest".

The executive in charge of Home Depot Rental, Richard Porter recently spoke to Rental Equipment Register (RER) about what he regards as the "Three Stages of Rental Evolution" at the big box retailer. It is starting to get into larger equipment. Mr Porter said:

It's been an evolution ... Home Depot has been engaged in rental for 25 years and in the early days of rental we were trying to empower those DIY customers that were coming into Home Depot to really do the projects that they wanted to try in a lot of cases for the first time. So the emphasis was really on what can we provide, how can we encourage customers that they have the ability to do those projects in a safe way, and to do it themselves. And in that way, I think we had [an] influence on the rental market, expanding peoples' confidence in their own abilities to take on projects where they might not have the tools at home and we can rent those tools to them.

Over the course of the time that has begun to expand into more and more pro customers [tradies] and those pros have told us what they want. And we have a robust pro community that depends upon the convenience of Home Depot for their businesses ... [T]hey began telling us, 'If you carry this tool or this piece of equipment, it would my life easier because I could pick up the products and I could pick up the tools and the piece of equipment all in one spot, take it to my jobsite, and be done'.

So we began to expand into the pro categories and with the acquisition of Compact Power Equipment Rentals in 2017, we were more able to connect with the pros through larger equipment classes and categories that they had previously needed to rent through other rental companies. And that was very successful.

People think of our evolution in three stages: First product tools for DIYers; second, larger towable equipment that they could put in the parking lot and your average F-150s could pull; and now larger equipment that larger pros are telling us that they need and they want in order to keep their business going with Home Depot Rental.

...

We take ... a significant amount of research as to each individual geographic location and determine whether we feel like that category of equipment would do well. There are some obvious geographic influences that determine what mix you're carrying in a specific store. For a simple example, I would say you're going see a lot more tile saws in South Florida than you'll see anywhere else within the country because of the use of tile in that geographic area. Or the basic composition of soil in an area determines what people need. Aside from that, each store gets input from the customers that shop there, and the fleet customises according to what the customers need over the course of time.

Delivery vehicles are available at most of Home Depot's rental departments. Mr Porter explains:

We can deliver a piece of equipment from most of our locations across the United States and that has been a very fast-growing part of our business. We typically have about a one-hour radius around a store but we've been expanding that in some geographic locations.

In 2017, The Home Depot acquired Compact Power Equipment Rental, a national provider of equipment rental and maintenance services that has been its commercial partner since 2009. The transaction was for USD265 million in cash. Part the of acquisition included a number of the pro shops across the US and Canada.

Rental centres

Home Depot now rents large equipment, tools, trucks and trailers from eight newly opened rental centres in Georgia, Arkansas, Montana, Florida, Wisconsin and Texas.

They came after Home Depot developed and launched the concept of Rental Operations Facilities that allows for a larger range of rental equipment for its pro consumers. While not open to the public, these equipment facilities enabled fleet growth in many new and larger equipment classes - such as 24metre boom lifts and 4,500kg telehandlers - while improving efficient fleet management. This has allowed the business to better meet customers' rental needs, according to the retailer.

The first Rental Operations Facility was introduced just outside of New Orleans in late 2019 and was followed by a second location in Los Angeles in 2020. Mr Porter said:

...2020 was a challenging year but both of those locations have continued to grow and they really provide some strategic infrastructure for us. Our retail stores are where all of our rental centres are, and those stores need to grow and add customers every year. And as we've grown, we've added a great number of categories of equipment in the parking lots of those stores as well as "Load and Go".

We used to have only the one traditional "Load and Go" F-250 traditional offerings, we now have four or five different options in the parking lot ... so now we are starting to have space constraints.

As we get into the larger categories of equipment, we have very specific functional needs from a preventive maintenance and a repair capacity that the operations facilities provide along with additional capacity for delivering equipment.

Home Depot Rental is also looking at enhancing its reservation process. Mr Porter said:

We are currently working on a reservation project for our customers, and we know that our customers are looking to shop in more and more convenient ways ... so that is a clear focus for us into 2021.

Mr Porter said there is a rental presence in about half of Home Depot's 2,200 store locations in the US and Canada.

I say approximately because that number is changing every day. Our customers, particularly our pro customers have made it clear to us that geographical proximity is important for them because it means convenience and for a busy pro or busy DIYer, time is money.

With 2,200 stores in the US and Canada, there's a store within 10 miles of 90% of the population...[W]e will look at every opportunity that makes sense based on the community and what our customers are telling us, we'll provide rental presence to more locations.

There has been a lot of attention on providing the right kind of training for staff in Home Depot Rental. Mr Porter said:

...We know that part of the customer value proposition is in having competent technicians or sales associates who can engage the customer, answer their questions competently and make sure they are being matched for the right tool or equipment to ensure the success of the job they are working on. We have worked very hard to standardise training for our associates who work in the rental centres as well as to bring some of the industry experienced folks who came with through the Compact Power Equipment Rental acquisition to the locations to help train our rental associates.

Each location has at least one onsite technician and I can tell you that we have the very technicians in the industry that have been with us a long time and have significant experience. We also have associates who engage with the customers, get to know those customers, particularly those who are coming in on a regular basis, really try and provide the best experience that that customer is looking for.

We have some customers who are very experienced and their focus is to get in and get out in a hurry and we have others who are looking for that competent advice and we are focusing on providing that training across all of our locations.

Hardware supplier Hillman Group has struck a USD2.64 billion deal to merge with Landcadia Holdings III, a publicly traded special purpose acquisition company (SPAC). It operates as a blank cheque company and works to "effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganisation or similar business combination with one or more businesses". The company was founded on March 2018 and is headquartered in Houston, Texas (USA).

The joint statement from Hillman Group and Landcadia Holdings III that they have entered into a definitive merger agreement will result in Hillman becoming a publicly listed company. Hillman chairman, chief executive officer and president, Doug Cahill said in an interview:

We looked at our options and obviously, private equity was an option, and we felt that this SPAC route was also an option. That could get us to market quicker.

He also said the company was set to benefit from a shift in how people think of their residences, now that so many are working from home.

It's gone from a place where people would eat, sleep and watch TV - now it's school, it's an office, it's entertainment, it's recreation..

We've always been focused on repair and remodel. We think the trends are very positive as we think forward.

...

[The] announcement marks the beginning of the next chapter of Hillman's partnership with our winning retail customers in the large, non-cyclical and growing retail hardware market...

With our new capital structure, we expect to accelerate our growth across both existing products and channels, as well as pursue attractive opportunities in adjacent categories, both organically and through M&A.

Cincinnati-based Hillman makes fasteners and other home improvement products. It has relationships with more than 38,000 companies, including Lowe's and Home Depot. Private equity firm CCMP Captial bought the company in 2014 for USD1.5 billion and will remain its largest shareholder.

Upon the closing of the transaction, the combined company will be named Hillman Solutions Corp. and remain listed on Nasdaq under the new ticker symbol "HLMN".

Mr Cahill will continue to lead the combined company in his current roles and will be a significant equity participant in the new company.

Landcadia III's management team is led by Tilman J. Fertitta, chief executive officer and co-chairman of its board of directors, and Rich Handler, president and co-chairman. They said in a statement:

Doug and his team have established Hillman as an essential product and services provider in the hardware and home improvement industry, and given changes benefitting the residential housing markets, they have the wind at their back.

What makes this business combination unique is that Hillman operates in a market that is large, predictable, growing and non-cyclical. Consumers love their homes, but now they are living and working, entertaining, vacationing, educating and retiring in them, and home improvement spending is expected to remain strong...

Founded in 1964, Hillman distributes over 110,000 SKUs in categories including fasteners and hardware; work gear, gloves and other PPE; and robotics and digital solutions such as key and fob duplication. Hillman said its sales have grown in 55 of its 56-year history and are estimated to reach USD1.4 billion for the fiscal year ended on December 26, 2020.

Related: Hillman Group acquired Big Time Products, a provider of personal protection and work gear products in 2018.

The #MyWickesMyWay TikTok campaign launched by UK DIY retailer Wickes in late 2020 involved seven content creators each producing a video on the social media platform.

Working with influencer marketing agency Takumi, the TikTok creators were tasked with adapting existing trends, including DIY tips and transformation hacks, to drive awareness of Wickes' product range and reach new audiences. The sponsored posts encourage viewers to engage with the brand and its campaign hashtag, #MyWickesMyWay driving user-generated content by participating in hands-on home improvement challenges.

Wickes' first influencer campaign on TikTok aims to engage younger consumers who use the app to follow their favourite DIY creators and share videos. By running its #MyWickesMyWay campaign with branded hashtag challenges, Wickes could demonstrate how to use its products for home improvement projects and urge people to visit its stores. As an essential business, its locations have remained open during recent lockdowns and offers delivery and "click and collect" service.

Following its launch, the campaign delivered over 612,600 views and 120,000 likes as well as a reach of 442,000 and engagement rate of 17.9%, according to Takumi. Wickes head of marketing Shelley Allison said in statement:

TikTok is the ideal space for creating fun home improvement content at a time when consumers of all backgrounds are either discovering or re-engaging with this area.

We want to help the nation feel houseproud, and as we're all spending more time inside our four walls, we want to encourage new audiences to engage with our brand and home trends. The #MyWickesMyWay campaign helps to deliver important awareness for Wickes as the go-to destination for all things DIY, inspiring consumers to go out and get creative with new tips and tricks.

Recent research from Wickes also revealed that over half (53%) of those working from home throughout the pandemic admit to deliberately sprucing up areas of their homes so they look better on a video call.

About TikTok

On average, TikTok users spent 52 minutes per day on the app in 2019. This is just shy of the 53 minutes per day Instagram users spent on the platform despite having been around almost a decade longer. And 90% of TikTok users return to the app multiple times a day, according to Marketing Dive.

These high levels of engagement are driven by the entertaining short-form video content that populates users' feeds and makes it difficult to put down. It also offers marketers the chance to encourage user-generated content, spark trends and create viral content quickly.

Although TikTok is a particularly effective way for brands to reach younger audiences, it's misguided to think there aren't opportunities beyond this core user base. In the US alone, TikTok's adult audience is growing by 357% annually.

You can view some of the videos on Wickes' TikTok page at this link:

The Australian Bureau of Statistics has released its data for Australia's National Accounts through to the September 2020 quarter. This includes a survey-based component that covers alterations and additions (renovations) for private residences. This provides slightly better detail than construction-based data series, as it includes work below $5000 that does not require a building permit.

Chart 1 shows the consolidated numbers for the four quarters to September over the past 11 years.

The data reveals more of a mixed picture than might be expected, given the strong rise in hardware retail revenue during the most recent period. Australia overall has failed to reach the same levels as those for 2018, though the 2020 figure is up on that for 2019. NSW shows an increase, but VIC is relatively stable, while QLD shows a mild gain.

Chart 2 shows these percentage gains in more detail over time.

The NT shows a very steep gain, but it has a history of volatility. The rest of the states and territories gained less than 5% overall.

Chart 3 maps out the quarter-on-quarter numbers, comparing each quarter to that for the same period in the previous year.

Here the gains for the most recent September quarter are stronger, ranging close to 10% for NSW and QLD.

These numbers are backed up by the ABS statistics for new loans issued for the purpose of making alterations and additions. These are shown in Chart 4.

This does show that QLD is clearly leading when it comes to growth in loans for alterations and additions, but the activity across the category shows good growth, but nothing like the growth we've seen for sales in hardware retail.

Analysis

How do we account for the ongoing surge in sales through hardware retailers, but comparatively low increases in spending on alterations and additions? There are likely two sources of this. One is that with more homeowners venturing into DIY, the actual costs - outside of materials - have been kept low, as they are not paying for tradies.

The second reason is that it is likely much of what homeowners are doing they would self-classify as "repair and maintenance" rather than alterations and additions. Painting rooms and replacing gutters, for example, would likely be seen as maintenance tasks.

Pontings Mitre 10, located in Warrnambool (VIC), has won Independent Hardware Group's 2020 award for the top medium-format store in Victoria and Tasmania. It recognises the store's retail excellence, engagement with community and innovation.

The store opened in 1923 and traded under Home Timber and Hardware from 1993 before taking on the Mitre 10 banner in 2019.

Co-owner John Ponting said he was "surprised" and "humbled" and could not recall winning another award in 15 years. He told The Warrnambool Standard:

I think we have raised the standard of the business. It is all about customer service and building the customer's trust, and we have a good diversity of staff, young to old and male to female and customers really have some sort of connection with the store.

Operations manager Kat Ross said the award was a "fantastic achievement" for the 55 staff.

We would also like to thank our loyal customers for their continued support, especially throughout such unprecedented times of 2020.

Sydney Tools

In late 2020, Sydney Tools opened a showroom and warehouse on Bayswater Road, Garbutt, which is expected to be a retail hub for North Queensland.

At the time, Sydney Tools manager Ryan Luke said like many retailers, there had been delays getting stock into the country because of COVID-19 but the store was fully stocked within a couple of weeks.

Prior to launching its Garbutt location, Sydney Tools said it has executed on its expansion plan that involved opening 10 stores during 2020 including five in Queensland and one each in NSW and Victoria. It has also opened stores for the first time in the Northern Territory, South Australia and Western Australia.

Ten more stores are expected to open in 2021 and in four years the company said it expects to have a network of 70 stores across the country.

Online retailer VidaXL has committed to a land and build package of 113,620sqm in Tarneit (VIC), after signing a deal with Frasers Property Industrial through its Australian subsidiary HB Commerce, according to a report in the Australian Financial Review.

The e-tailer which sells home, outdoor furniture and garden products will occupy the space which includes a warehouse and two offices. Frasers Property Industrial general manager - southern region Anthony Maugeri said that the site will help VidaXL accelerate its e-commerce operations in Australia.

The new national distribution centre is designed to help VidaXL accommodate its rapid online business growth and customer demand which is in-line with the rise of e-commerce and a structural shift towards online retailing.

Completion of VidaXL's facility is anticipated in April 2022.

The move by the Dutch home and garden products online retailer comes as a growing number of e-commerce businesses acquire new warehouse facilities amid the online shopping boom generated by COVID-19. Amazon will build an even bigger 200,000sqm warehouse in Sydney. CBRE director of advisory and transaction services industrial and logistics, Todd Grima, said:

CBRE forecasts an additional 350,000sqm of additional new space will be required each year to accommodate growth in e-commerce. The VidaXL transaction reflects the growing e-commerce trend in Victoria and its new facility will be fully racked and hold over 100,000 pallets.

VidaXL launched in Australia in 2014 and is currently growing at over 100% per annum.

Founded in 2006, VidaXL has grown from selling products via other e-commerce platforms such as Amazon, Ebay and Kogan, to also sell from its own web-based store. Within 14 years, the Dutch company has grown its market reach across Europe and is active in 29 countries.

But the continuing increase in online shopping and large pure-play online businesses such as VidaXL is unlikely to dominate retail spending. Retail expert at Queensland University of Technology's Business School, Gary Mortimer, told SmartCompany:

There are still consumers that want to go out into a nursery centre, touch and feel and engage with products and also get face-to-face advice on technical products and electronics.

According to Mr Mortimer, while Australians spent an estimated $45 billion online in 2020 - a 40% increase from the previous year - only 12.5% of retail sales are made online. He said:

It still suggests that about 88 cents in every dollar is still being spent inside a physical store.

The digital "Work smarter, not harder" campaign from tradie online platform Hipages highlights the new leads and steady stream of opportunities that can help tradies grow their businesses.

Created by media agency VCCP, the campaign is running across YouTube, Facebook, Instagram and Google with 15 and 6 second versions. A digital out-of-home display will also be running in Brisbane for three weeks.

Hipages head of brand communications, Guillaume Papillon, said the campaign is taking advantage in the surge in home improvement projects. He told the Mumbrella website:

Currently in Australia there are 1.1 million tradies working within 257,000 trade businesses which service the home improvement industry - worth $83 billion in 2020. On Hipages, a new job is posted on average every 23 seconds, with over 100,000 jobs posted each month offering a high volume of job lead opportunities which trade businesses of all sizes and locations can take advantage of to efficiently grow their business.

In trade businesses, the biggest inefficiencies lie in everything that needs to happen off the job and Hipages offers a way to reduce the pain-points that come with building and maintaining a business, helping tradies work smarter, not harder.

The campaign comes two months after the finale of The Block. As a sponsor of the Nine reality program, The Block is the basis for Hipages' major marketing activation throughout the year.

Related: Hipages was preparing for an IPO in 2020.

Speaking at NRF 2021: Retail's Big Show Chapter 1, the virtual version of the retail industry's biggest annual event in the US, Lowe's CEO Marvin Ellison said the company's digital transformation journey was all about staying focused on the fundamentals. He said:

Two years ago, we couldn't even provide our customers with an e-receipt. Our e-commerce platform was on a decade-old infrastructure. Think about what your computer was like 10 years ago: That's the equivalent of what our e-commerce platform was built on. We really hadn't made any significant investments in merchandising systems or supply chain technology. I felt it was critically important that we focus on the core retail elements and get those operational underpinnings in place.

It's not clear what position the company would be in today, in the midst of a global pandemic and widespread shutdowns of storefronts, had it not pivoted aggressively toward e-commerce and omnichannel experience technology in 2019. But because of those efforts, Lowe's emerged as a retail winner in 2020, delivering a 30% increase in sales in the third quarter compared with the same period in 2019.

Lowe's capitalised on increased demand for home improvement goods at a time when millions of consumers were stuck at home. But had the company not shifted away from its store-based merchandising approach, it would have missed its opportunity, Mr Ellison said. He told Matthew Shay, president and CEO of the National Retail Federation:

One of the most difficult things to do for any company in the middle of a transformation is deciding what your priorities are. For us, we were a very large company with a great brand and a strong balance sheet, but we'd made limited investments in the fundamentals of the business. So we'd been working on those things for two years, and because we'd been doing that, we were able in 2020 to meet this unprecedented demand we saw as an essential business, with everyone staying at home.

Lowe's digital transformation efforts seem to have it well placed for the future, if a new survey of more than 4,000 consumers around the world - more than half of them in the US - is any guide. Melanie Noronha, senior editor at The Economist, which conducted the survey, said:

Our research shows that once restrictions ease, new online shopping behaviours look likely to continue, particularly for younger consumers. Once restrictions lift, you will see some return back to stores, to a certain extent. But about 60% of respondents will retain some of their new online shopping habits, and that includes about 55% of baby boomers.

In fact, said Ms Noronha, the most dramatic shifts toward online shopping during the pandemic took place among older shoppers, with baby boomers increasing their online spending (as a share of their total spending) from 25% to 37%, followed by Generation X, whose share of online spending climbed from 39% to 47%.

Overall, retail spending dropped by 9% during the pandemic - but online spending increased by 15%. Retailers around the world, recognising this big flip in their industry, have responded by aggressively accelerating their digital transformation projects. Ms Noronha said:

We're seeing there's now a seamless experience between on- and offline shopping. For instance, a consumer could go in-store, discover a product and then place the order online, or they could discover it online and then go in-store to test it and purchase it.

For Lowe's, Mr Ellison said, the goal is to simply deliver on customer expectations.

It's not about our competition or what will happen in the macro environment. It's about being customer-centric: If a customer wants a simple in-store transaction, how do we execute that in a way that's flawless and frictionless?

If a customer wants to buy online and pick up in-store, buy online and pick up in a locker, buy online and we'll ship to your home - as we think about all the ways customers want to shop and the ways they'll shop in the future, that dictates our capital spend and our innovation strategy.

Lowe's has built a store navigation app to help in-person shoppers find what they need. It is offering secure lockers outside retail locations where customers can pick up online orders. And it's been following the buy online, pick up in-store trend, as well.

Whatever the tech solution, Mr Ellison said, the key is to remove all friction from the shopping experience.

As my CIO, Seemantini Godbole, says to me often, the most effective technology is the technology no one sees. It's always behind the scenes. And all the customer knows is, 'This was really simple, this was so easy, I had so little effort to get this transaction processed.' And the associate in the store, in the distribution centre and in the corporate office is saying, 'This system works so well and is so intuitive.' So our innovation is focused making things simple without putting anything in front of the customer or associate.That's what good innovation looks like.

At its most recent investor update, Mr Ellison announced the company's "Total Home" strategy that will focus on making it easy for consumers to use Lowe's as a means of creating the household they envision. He explains:

We're thinking about things beyond getting your bathroom remodelled. We want to provide all your textiles as well. If you're going to get your kitchen remodelled, we want to provide you every element you need to make that kitchen functional, make that kitchen something that will meet your dreams and inspirations.

Home improvement has become the national pastime in the UK during the coronavirus pandemic as people spent more time at home - and rediscovered a passion for DIY renovations after a decade of decline.

The closure of pubs, restaurants and sporting venues, financial pressures and the need to adapt houses and flats to cope with changed circumstances and working from home, prompted a boom in DIY and gardening during 2020, particularly among 18-34-year-olds who previously shunned such activities.

B&Q's parent company, Kingfisher, which also owns Screwfix, is hoping to cash in on the trend, which has reversed years of gradual shifts towards relying on professional builders and tradesmen. It is investing in digital marketing, home delivery and new products that can capture the imagination of the Instagram generation. Kingfisher chief executive, Thierry Garnier, told The Guardian:

There is a proportion of customers who have said that for the first time in my life: 'I am doing DIY, I learned new things from the internet or my parents and I enjoyed doing it.

He hopes research suggesting that many of those who try out one job will go on to do more is correct and the trend is here to stay, even when under-35s have more sociable alternatives available. Mr Garnier said:

We are adjusting to the way they shop, with Instagram and Pinterest, click and collect and online.

While there are fears that sales will be hit in 2021 when job losses are expected to mount, Mr Garnier said that will not necessarily translate into falling sales.

The majority of people can't afford to [hire in a builder]; they have got to do it themselves.

Mr Garnier said he has plenty of data to prove how consumers fell back in love with DIY in 2020. It began during the spring season - with painting fences and sprucing up patios, walls or cars. Sales of pressure washers soared by 80% at B&Q.

Then people moved on to gardening, kitchen refurbishment, creating home office setups and outdoor entertaining.

The second wave of Covid-19 prompted consumers in the UK to buy early Christmas decorations - so early that lights, trees and baubles sold out at B&Q two weeks earlier than normal.

It has been the same story in other countries. Demand for fencing, decking and sheds in Europe and the US has put such a strain on timber supply chains that sawmills and manufacturers are working flat out to cope.

Paint suppliers to B&Q are concentrating on the most popular shades, reducing the product range so they can keep up with the demand for high volumes.

Mr Garnier, who joined Kingfisher just over a year ago from the French supermarket Carrefour, where he ran the Asian arm, wants to revamp the business, which owns 1,370 stores across eight countries, to pull in newly houseproud millennials and generation Zs.

Environmental and social concerns, which younger shoppers expect to be taken into account, are being given new impetus with a partnership with Shelter (a housing and homelessness charity in the UK) to improve poor housing, and there is also a pledge to create more forests than it uses by 2025, partly via a new scheme with the Rainforest Alliance.

But the big focus is on digital. The Frenchman is heavily influenced by his time in China, where Mr Garnier said rapid adaptation is the norm and all kinds of goods - "from a glass to a fresh lobster" - can be delivered to homes in 30 minutes in most cities. He said:

I believe the younger generation is looking for speed. You see that in TikTok and every trend. I would like to be like China. It is not for everyone, but I think the need for speed is not going to disappear.

He said stores will remain central to delivering these services as only operators such as Amazon have the scale to make swift deliveries from centralised distribution centres.

It is a better option than a fulfilment centre. When you have stores, you have the assortment and the team. If you organise yourself well, you can achieve that [speed].

During the pandemic, when the demand for home shopping rocketed, B&Q began using its stores to help pick and pack home deliveries - a move that had already been planned but was accelerated. The group now handles 1.5million orders a week - 90% of which are picked up from stores.

Online accounts for 17% of group sales, up from 8% before the pandemic, and Mr Garnier wants to expand further. Further digital plans under consideration include an Amazon-style marketplace, where other brands could sell goods.

It is also opening smaller stores in convenient locations where goods ordered online can be picked up, including outlets in Asda supermarkets and a click-and-collect Screwfix store near Victoria station in London.

The B&Q in St Albans, which at 5,100sq ft is half the size of the group's largest stores, is home to a design centre where shoppers can get advice on matching paints and wallpaper. B&Q is also testing out tool hire, in partnership with rental specialist Speedy, in 10 stores.

Mr Garnier wants "more services, more tests and more new". He said:

We need to be comfortable with uncertainty and, very important in a new world where we are never perfect in our life, we need to be comfortable with constant change.

If it is not Covid it will be something else - a new competitor or government decisions or social media's way of getting information.

Results

In a recent trading update, Kingfisher said sales soared in the 10 weeks to 9 January, jumping almost 17%. Online sales rose more than 150% compared with the same period a year ago.

The company benefited from being given "essential" retail status in the UK, which allowed its 1,380 stores to remain open during the second lockdown in the UK and subsequent tiering in the run-up to Christmas. Mr Garnier said:

While the strength of our Q4 trading, to date, is reassuring, uncertainty over COVID-19 and the impact of lockdown restrictions in most of our markets continue to limit our visibility. Longer term, we are confident that the strategic and operational actions we are taking are building a strong foundation for sustainable long-term growth.

Kingfisher has already announced that it will give back some GBP130million in business rates relief received from the British government.

Related: Kingfisher chief executive Thierry Garnier gave an interview to The Times about his online strategy.

As a hardware retail buying group, Hardware & Building Traders (HBT) has come a long way from the first time I met them in the early oughts. Now under the leadership of CEO Greg Benstead, it is more equipped to battle the challenges ahead, and doing it with a few laughs along the way.

Simply click on the following link to download this edition:

In this edition, we also have a long, investigative article on why Australia - and specifically, Melbourne and Sydney - is in the grip of housing price bubble. Rising house prices are being used to compensate Australian workers for poor productivity growth, which has resulted in very low levels of wage growth.

Bunnings has become a sponsor of league football; extension planned for Bunnings in North Penrith (NSW); objections to a store development in Brunswick (VIC); store openings in Albany (WA) and Pimpama (QLD); progress on Seymour outlet in regional Victoria; stores in Robina (QLD), Seven Hills (NSW) and Caboolture (QLD) have changed hands in real estate deals; and New Zealand retail development.

Leagues sponsorship

The A-League and Westfield W-League have signed a partnership with Bunnings, the first time the hardware retailer has sponsored football.

The partnership will see the launch of the "Bunnings Ladder" and "Bunnings Team of the Week", a celebration of the best performing team in every round of the A-League and Westfield W-League.

Danny Townsend, CEO of Sydney FC, and commercial-lead of the Australian Professional Football Clubs Association (APFCA), the representative body of the A-League and Westfield W-League Clubs, said:

This is a partnership of perfectly aligned values - Bunnings' team members are the heart and soul of their business, and our sport is all about teamwork.

As we enter a new era for Australian football, with the soon to be independent professional leagues, we are delighted to have one of Australia's most loved brands on the journey with us.

Keith Murray, Bunnings general manager of marketing said:

The opportunity represented by football in Australia is huge - we know there is a highly engaged, diverse and culturally rich audience who love the game. We see our partnership with the A-League and Westfield W-League as a great fit for the Bunnings brand and we are excited to engage with a new audience.

Related: In 2019, Bunnings had a sponsorship deal with the National Basketball League.

Penrith

A development application (DA) has been lodged with Penrith Council for the Bunnings store located on Castlereagh Road in North Penrith. If approved, the works involve an extension on the western end of the building for a larger timber trade sales area, as well as a building materials and landscape supplies yard.

Parking would also be changed for an additional 14 parking spots to the area, and five new "business identification" signs would be erected. The gross floor area of the store would increase by almost 3000sqm. It is expected to cost more than $4 million.

Sutherland and Associates Planning, on behalf of Bunnings, said the works would "improve the visual quality of the site". It told the Daily Telegraph:

The massing of the development remains of an appropriate scale ... and will not result in any significant impacts on the amenity of the adjoining properties...

The planning company said the style of the building wouldn't change, and all relevant legislations are met by the plans.

The proposal provides the opportunity to upgrade the functionality of the site and improve the streetscape presentation of the existing building.

Brunswick

Bunnings' two-storey, $21 million development proposal in Glenlyon Road, located in the inner Melbourne suburb of Brunswick (VIC) has been opposed by Moreland Council, citing traffic impact and other concerns. According to a report in the Herald Sun, it said the design was not in keeping with the area's character and has recommended to the state planning tribunal that no permit be issued.

A total of 538 objections have also been lodged, raising similar concerns about traffic congestion, noise and fears the development is inappropriate for the area.

Toby Lawrance, Victorian regional operations manager at Bunnings, said traffic management and access to the site had been carefully considered to ensure the store would be safe and accessible.

The developer had ensured the area would not be adversely affected by noise levels and worked with the council to make certain the store design fit with the area.

The proposed store will have 250 underground parking spaces, be open daily between 6am and 10pm and include an enclosed area for truck unloading.

The matter goes before VCAT some time this year.

Related: In October 2020, Bunnings announced plans to build a two-storey shop with 250 underground parking spaces in Brunswick (VIC).

Albany

The recently opened Bunnings Albany store on Chester Pass Road in WA spans more than 14,500sqm.

A kitchen design centre with nine kitchen displays, a timber trade area with three-lane drive-through, a hire shop and a range of artificial plants are some of the store's new features. It has double the parking of the previous store, with 290 car bays, and represents an investment of $29 million, according to the big box retailer. Bunnings Albany manager Doug Grant told Albany Extra:

We've been part of the community for over 20 years, so we're really excited to bring an even better offer to customers in Albany.

Mr Grant said Bunnings had employed 20 new staff members, in addition to the 110 team members transferring from the old store.

Pimpama

A $36 million 14,500sqm Bunnings store has opened as part of the Home Focus Pimpama development on the Gold Coast (QLD).

It is the first in Queensland to be fitted with a new kitchen design centre and has a artificial plant and flower range, a new-look trade desk and a door selector display.

Complex manager Brendan O'Boyle, who has been a part of the Bunnings team for 10 years, said as part of the opening the team had already provided support to local community groups with product donations.

Home Focus Pimpama, which is being developed by Gold Coast-based company Baycrown Property Group, will have over 50,000sqm of lettable space with up to 60 tenancies upon completion.

Related: Work began on Home Focus Pimpama in late 2019.

Seymour

The Bunnings Seymour (VIC) store is expected to open early this year. Internal construction is almost complete along with the car park and landscaping, and merchandising of the store has begun.

Bunnings Seymour complex manager Ruben Anderson told the Seymour Telegraph:

The new store will span more than 4500sqm and have car parking for more than 70 cars. Features will include the main retail area, a timber trade drive-through and an outdoor nursery.

Related: The Seymour store was being built in the latter half of 2019.

Real estate sales

Robina

The Bunnings Robina store in QLD has been sold for $28 million to Melbourne-based investor. The building spans 12,803sqm on a 3ha block and was built in 2014 as a Masters Home Improvement Store before being rebranded in 2018 to Bunnings.

The property was marketed by global real estate services firm JLL (Jones Lang LaSalle). According to a sales analysis from JLL, the buyer identified "real value" in the underlying real estate despite Bunnings having an early termination clause in its lease.

Seven Hills

National Rugby League team, the Canberra Raiders has almost doubled its investment in the Bunnings Seven Hills store after selling it to Home Consortium (HomeCo) for $56 million.

According to The Australian Financial Review (AFR), the sports club paid $29.55 million in 2011 for the newly built large-format retail property in Sydney's Seven Hills as part of plans to expand its asset base and create new income streams.

Property records show it was acquired through a subsidiary of the club's controlling entity, Queanbeyan United Rugby League Football Inc.

HomeCo purchased the Bunnings Seven Hills property on a yield of 5.1%. HomeCo CEO and executive chairman David Di Pilla told the AFR:

This Bunnings asset ticks all the boxes: excellent Sydney metro location in high-growth corridor, high-quality tenant and the acquisition is immediately accretive to funds from operations [or earnings].

Caboolture

ASX-listed Charter Hall Long WALE Real Estate Investment Trust (REIT) has paid $28.1 million for a Bunnings property to be developed in Caboolture, north of Brisbane. It is scheduled for completion in early 2022.

The site is part of a new master planned large format retail precinct.

In March 2020, Charter Hall set a new benchmark for Bunnings warehouses by acquiring a new 16,000sqm outlet in Melbourne's south-east for $42.3 million on a yield of 4.5%.

Related: The Bunnings Mascot store in Sydney was recently sold to Charter Hall for $70 million.

New Zealand

Bunnings has confirmed its tenancy at Timaru's Showgrounds Hill retail centre, the same day developer Redwood Group confirmed it had purchased the 12-hectare site. Bunnings New Zealand director Jacqui Coombes told The Timaru Herald:

We've been searching for a location that allows us to serve the Timaru community for some time, and we're pleased to confirm we plan to become a tenant at the development when it's constructed.

We expect the store to create more than 80 new team member positions when it opens in 2022.

It will allow us to offer a wide range of home and lifestyle products to Timaru residents in a convenient location, that also includes other large format retailers.

Bunnings has six stores in the South Island - three in Christchurch, one in Blenheim, one in Nelson and one in Dunedin and 47 stores across New Zealand.

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Margaret River Mitre 10 has won the retail group's state award for excellence in Western Australia. The store won the annual award on a criterion based on sales, customer service, store standards, stock availability and community involvement.

The store changed to the Mitre 10 banner in October 2019, from the Home Timber and Hardware brand.

A new layout helped staff and customers deal with the restrictions brought on by the COVID-19 pandemic. Store manager Paul Brown told the Margaret River Mail they could practice social distancing with a lot more ease than with the old layout.

Mr Brown said it was extra special to receive the award after only being part of the Mitre 10 group for 12 months. He said:

We're all thrilled to have taken out this prestigious award. It's a real feather in the cap for us. Since transitioning, the store has become the flagship Mitre 10 outlet in the South West [of WA] and continues to offer the best possible service and range to their loyal trade and retail customers.

Our fantastic team provide our customers with professional and dedicated customer service, always striving towards 100% satisfaction.

This award was only possible due to the fantastic support we have received from the local community, in what has been very trying times.

The state awards were announced in late November 2020.

Brighton Hardware

The owners of a hardware store located in Brighton (TAS), around 29kms from Hobart, have decided to retire and placed the store for sale.

For the past 15 years, Paul Diaz and Leanne Taylor-Diaz have focused on providing quality products and exceptional service.

The store is a previous Tasmanian Telstra Micro Business Awards winner after turning the business around from a reputation of being poorly stocked and over-priced to successful regional store.

At the time, Paul and Leanne told Brighton Community News that when they took over the store the stock was depleted, there were few customers, and they had only about $20,000 to stock the shop. Leanne admitted she hardly knew the difference between a nail and a bolt.

While Paul said he had a strong background knowledge of what was required in terms of making sure the shop flourished, both of them also relied on finding out what customers wanted and then let their friendly personalities deliver it. Their loyal customers did the rest.

In three years, Brighton Hardware became a $450,000-a-year business. Paul said:

It's a local shop and once they saw that they could come in here and get what they wanted, they came and bought more and more.

The store is currently operating six days a week and is set just off the main road with customer parking available.

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