Big box update

Proposed Bunnings store for Port Augusta

Macquarie has identified that Seven's Coates subsidiary could have AUD150m opportunity through Bunnings' rental shops

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

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

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

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

Public consultation for this development closes on August 3.

Coates rental opportunity

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

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

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

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

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

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

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

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

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

Home Depot's evolving rental strategy - HNN Flash #30, January 2021
  • Sources: The Adelaide Advertiser, Dow Jones Institutional News, Sydney Morning Herald and The Australian
  • bigbox

    Big box update

    Two-storey Bunnings proposed for Adelaide

    The location of the planned store is on the corner of Glynburn Road and Penna Avenue in the suburb of Glynde, and looks to occupy more than a hectare of land

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

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

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

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

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

  • Sources: Glam Adelaide and The Adelaide Advertiser
  • bigbox

    USA update

    Home Depot and Lowe's try to extend the home improvement boom

    Customers tackled DIY projects during the pandemic but are now inviting contractors back into their homes and spending time dining out instead of painting. Both retailers have sought to attract professionals with services like tool rental and perks like bulk discounts.

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

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

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

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

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

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

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

    Sales growth

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Big box update

    Bunnings trade centre in Invercargill (NZ)

    Bunnings in New Zealand has also signed up to the equivalent of the living wage

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

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

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

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

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

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

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

    Bunnings trade centre in Invercargill, New Zealand - HNN Flash #26, December 2020

    New Zealand living wage

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

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

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

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

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

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

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

  • Sources: Otago Daily Times and Waikato Times
  • bigbox

    USA update

    Home Depot launches "rent online, pick up in-store" technology

    The big box retailer has expanded its "buy online, pick up in-store" technology to the rental sector

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

    This new online technology saves Pro and DIY customers time and trips to the store because they can conveniently check equipment availability and reserve what they need in advance to get in and out of our rental centres more quickly than ever.
    For urgent needs at the jobsite or in the midst of that weekend project, customers can also check availability at multiple locations and make reservations on their phone or other mobile device.

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

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

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

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

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

    Home Depot's evolving rental strategy - HNN Flash #30, January 2021
  • Sources: RER Magazine and The Home Depot
  • bigbox

    Home Depot charts its future

    Project-based sales and strong logistics

    Home Depot has managed to beat its forecasts for its FY2020, and the first quarter of FY2021 is strong. Behind that success were some serious gambles on investment in infrastructure, and inventive thinking about markets.

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

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

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

    Project-based DIY

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

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

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

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

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

    Mr Decker replied:

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

    Mr Kinnaird followed up that answer:

    I'll start with portable power and power tools. You look at the capabilities that ... we're developing in terms of our tools, and how that's empowering consumers. I mean, it's just incredible.
    And then, if you ... think about [it], we always relied on paint as the simplest project in our stores. That's really shifted. I mean, you look at luxury vinyl tiles, one of our large categories today that is now probably one of the simplest floor surfaces to install. You can do it over the weekend. You can buy them in-store and online. We've got all kinds of fulfilment options in terms of getting that project to the customer and it's an easy-install.
    You look at a faucet install today versus yesterday, it's a simpler install. A couple of examples. So, our goal is to really make it easier for the Pro to do their install, but also for the consumer. There's a real opportunity for us to continue to teach consumers how to take on projects across the store. We're seeing more and more of that.

    Mr Decker took up some of those points:

    On big-ticket for example, we call it our big-ticket, which are, say, transactions over USD1,000, comped 50-odd percent in the first quarter. What's interesting about our big-tickets, I often have to stop and refresh my understanding of the data, you would think that is driven by appliances, by the cordless outdoor power equipment or tools that Jeff referenced, because we have seen people trading up to innovation for years now. And we're on ... a very steep innovation curve with cordless technology.
    But when you look at our large tickets, this isn't [about] a very expensive appliance or a combo kit, these are still tickets with, 50, 60, 70 plus units in the basket. So, our large transaction while they benefit from a USD2,000 or USD3,000 refrigerator, they are still very much driven by the project business. That's where our big-ticket comes from, 50, 60 items in cart which speaks out the profit.

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

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

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

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

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

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

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

    Clearly, there's a lot of do-it for me and pro activity on projects. But Millennials themselves are behaving much like the DIY phenomenon of the baby boomers, where you start with that first project. It might be a gardening project, or it might be a paint project. Paint remains the number one DIY project.
    And as you do your first project, you gain confidence, you take on the second one, you gain confidence and you just start doing larger projects and bigger projects with as your confidence level and the interest in the category grows.
    We are seeing that with the Millennials. So, super excited about medium and long term.

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

    Logistics

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

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

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

    For Amazon, makeup, books and shoes are all just interchangeable SKUs with the same buying journey that can all be stored in the same fulfilment pod and all go into the same brown cardboard box, but a cucumber, a stove, a bag of cement or a bowl of soup do not fit this model at all - they might need a different buying journey, but they definitely need a different logistics model. So, as well as thinking in terms of hardline versus softline, or high touch versus low touch, we should also think of parcels versus collection or delivery versus bikes.
    ...
    [T]he base model for a weekly grocery shop, a fridge, or a garden project is that you go to the store, or the store brings it to you, and it doesn't go through the mail, but that doesn't mean it can't be 'ecommerce' and doesn't mean you can't buy it online. You can - you just need an entirely different supply chain and delivery model, with different unit economics.
    Ben Evans on retail logistics

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

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

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

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

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

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

    When you think about our supply chain build-out ... one of the platforms we're building [is] the flatbed distribution centre. That is really about two things.
    One, it's about relieving the store - the pressure from the stores. We're now USD550-odd a square foot in sales, USD55-odd million on average a store, staging all those deliveries in the store, those project big-ticket [items].
    Again, think, 40, 50, 60 items per transaction. That staging and loading in the store is a heavy burden on our store. So, job critical, number one, for the flatbed distribution centres is to relieve the stores of that activity.
    The second thing is customer experience, whether it's Pro, or DIY, those flatbed distribution centres offers speed, certainty of delivery, on-time and complete orders and broader assortment that we're able to stock in the facilities that we wouldn't have the room to stock in the store. So that again, is all about supporting that project business, both DIY and Pro.

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

    Flatbed trucks roll through the middle of the massive building as heavy products such as lumber, ladders, pipes and roofing materials are added from either side.
    Flatbeds can hold multiple deliveries, and the facility can handle up to 65 to 75 trucks going out per day. That's thousands of deliveries per week to customers within a 75-mile (120km) radius of Dallas, [Stephanie Smith, Home Depot's senior vice president of supply chain] said.
    That compares with smaller trucks loading a couple of orders from each store and then returning and doing it again and again, she said.
    Stores try to make next-day deliveries, she said, "but now we can guarantee it."
    ...
    The flatbed fulfilment centre at 9222 W. Jefferson Blvd in Dallas is on a rail line that's been extended into the building and can hold 10 railcars. An outside yard can handle 20 more railcars.
    The system allows Home Depot to take control of that entire supply chain, from the lumber mill all the way to the customer, Smith said.
    Home Depot launches a new Pro customer delivery system in Dallas

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

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

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

    We are building out a network of capabilities to better serve, not only the Pro customer, but the DIY customer as well. And these capabilities are really important when you think about growing with a planned purchase with our Pro customers, which is a larger opportunity for Home Depot. We're investing, and we called this out at the beginning of our incremental investment cycle in 2018, we're investing about USD1.2 billion in a supply chain that will give us the capability to serve roughly 90% of the population with same day next day capability or delivery on every type of product we sell, whether that's something that's going parcel to a customer, or whether that is a pallet of goods that need to go on a flatbed ... to a job site.
    I'd say we're in the kind of the early middle innings of that. We're following a very similar pattern to what we did when we built out our RDC network, our Rapid Deployment Centre network. In the first year, we actually - you create the concept, you open a facility, you work through the operational aspects of that and fine tune.
    ...
    So we have - we've opened every type of building that we intend to open. We are at different stages in that. We have full direct fulfilment centres. We have a number of those open and have for a few years. And those are all going well. We have our market delivery operations facilities, which are smaller facilities that are kind of cross docks that were product comes in and they move on to a delivery truck direct to a customer's home or job site. We have a number of those that are open. We are running about 38% of our deliveries through those facilities at the end of 2020 that will accelerate in 2021.

    Future market

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

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

    Analysis

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

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

    Things changed rather rapidly on that issue.

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

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

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

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

    bigbox

    Big box update

    Sale of Bunnings Plainland store

    The NSW government is working with Bunnings to give away more than 25,000 trees to homes in Western Sydney to make suburbs greener and reduce heat build-up

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

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

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

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

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

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

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

    Related: Plainland Bunnings opened in early June 2021.

    Bunnings Plainland opening - HNN Flash #48, June 2021

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

    Plainland store is being prepped for sale - HNN Flash #46, May 2021

    Free trees

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

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

    Our Free Tree Giveaway with Bunnings is open to all 33 local government areas across Greater Sydney, giving 10,500 eligible households a tree to plant in their yard.
    Trees make a huge difference to our lives ... and are the best way to manage the urban heat island effect which we know is a particular problem in western Sydney.

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

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

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

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

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

  • Sources: Australian Financial Review, Campbelltown-Macarthur Advertiser and News.com.au
  • bigbox

    Kingfisher on change in COVID-19 times

    More small stores, own brands and ecommerce

    Kingfisher has seen sales soar during the pandemic, and is hopeful some helpful shifts in buyer patterns will persist. Underlying this, however, is the need to find further profit sources in the face of high investment in technology.

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

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

    Retail channels

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

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

    Ecommerce

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

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

    At Screwfix, operations were altered even further:

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

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

    This has been completely transformed over the course of 2020 with penetration now at 18%. Group e-commerce sales grew by 158% and by 144% excluding Screwfix. Click and collect sales has become the largest and fastest growing fulfilment channel at group level with 226% growth. Supported by our newly implemented group digital stack, our platform has scaled rapidly and is now supporting 500,000 click and collect orders per week across B&Q and Casto France. Stores now sit firmly at the centre of our e-commerce proposition providing support for a very significant proportion of retail online orders.
    We have now rolled out digitally enabled picking for all fulfilment routes for B&Q and Castorama France and introduced a digital hub model at B&Q where 56 stores service the vast majority of our home delivery orders. We expanded our last-mile delivery options. Our partnership with DPD has enabled next day delivery by B&Q with 98% of the UK population. B&Q, Castorama France and Poland are trialling click and collect lockers and we have implemented drive-through and car park collections in France.
    Looking ahead, we remain committed to delivering strong growth in e-commerce sales through providing speed, convenience and choice to our customers. Our key focus this year will be implementing a new IT and digital operating model, to increase our agility and lower costs. Overall, we are moving towards home delivery for full store ranges with faster last-mile options. In Poland, we are rolling out the new group digital stack enabling stronger digital capabilities. In Castorama France we are implementing the same digital hub model used at B&Q. And finally, we are continuing to explore the merits of building a marketplace model which could further support our e-commerce ambitions.

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

    Your question on hubs and dark stores is very interesting, very, very important for us. The 56 [B&Q] hubs are stores that have been chosen for two reasons: because of their location, because we wanted to cover a large part of the UK and we today cover 98% of the UK population; and that some [have] surface space available to run a kind of "dark store" without reducing the [current] store area.
    So today, [a hub is] really a store where we have large warehouses and we build small dark stores, small warehouses inside their existing operation, and therefore, being able to cater probably regularly over 1,000 [online] orders, or 1,500 [online] orders a day, which is pretty good for a store operation.

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

    Online today the range is firstly focused on store. I would put Screwfix aside. I mean, if I look at B&Q, it's really to deliver the full store range on click and collect and home delivery from store.
    We have a few exclusive ranges online, that are delivered directly by vendors, but they are a relatively small number of SKUs. At Screwfix the model is slightly different because we have a very large central warehouse in Trentham, where we have about 25,000 to 30,000 SKUs that are not in stores. In Screwfix you have 11,000 SKUs, and in addition to that, you have 25,000 to 30,000 SKUs in this central warehouse in order to deliver to all of our customers, that's for the online range and again, our first focus is around speed.

    Store formats

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

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

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

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

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

    Customer changes

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

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

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

    We see clearly, in the future people working a bit more from home. I don't know if it's 10, 5, 15 or 20%, but this will have a material impact on many businesses and including on our business. It will be more wear and tear, people reorganising their space.
    I think the second big trend is the new DIYer we saw during the lockdown. We all see people doing more cooking at home and, we saw a lot of people doing more DIY, and when we try to learn new skills usually, part of it is staying and we believe part of it will stay with us. So, we could have ups and downs in the short term, but in the medium term we feel there are new supportive trends.

    Changing markets

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

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

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

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

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

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

    Move to DIY

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

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

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

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

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

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

    Exclusive brands

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

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

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

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

    Kingfisher's OEB product sales are now GBP5.3 billion, up 7.5% last year and represent 44% of our total sales. OEB provides a strong point of differentiation for our retail banners, and here I mean affordability, functionality and innovation and sustainability as well as supporting our gross margin.
    In 2020 we saw a strong increase in the awareness of our brands and our five leading OEB brands alone contributed around a quarter of our total group sales. The rollout of Kingfisher's new OEB kitchen range completed in B&Q in H1 2020 and will complete in France and Poland this month.

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

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

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

    Today, we have reached 44% of the group sales [from] OEB, and that's pretty impressive. I must admit that [is] not only the job done in 2020, but all the past years by building, you know, sourcing offices, designers, engineers across the group, and that's really a group, - well, we call it "Group Power" to be able to produce OEB.
    We have clearly an ambitious plan. I would not give you a precise target today, but we consider we can continue to grow from 44%. We will not grow to 100%, you know, they are very strong brands, very strong vendors, and we need as well to have choice and open our ranges to many vendors, but we consider we can still grow from 44%.
    As you mentioned, the margin of OEB category by category, is above the average of our business, so we have a clear margin contribution from OEB that's why our plan by growing OEB is as well, not only to push ourselves to provide differentiation, but as well to provide more margin ...

    Analysis

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

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

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

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

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

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

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

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

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

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

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

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

    bigbox

    Big box update

    Customer satisfaction retail award

    Bunnings customer is successful in a discrimination complaint against the retailer and IKEA will roll out more small format stores in Australia

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

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

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

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

    There has never been a period like the last 18 months for the retail industry with some businesses booming on the back of record spending and others, more reliant on bricks-and-mortar stores, facing the most challenging market circumstances imaginable.
    The onset of the COVID-19 pandemic in mid-March 2020 seemed set to lead to a tremendous level of disruption to Australian retailers, however there have been 'winners' and 'losers' in the industry just like in any other with those able to respond quickly to the changing landscape able to deliver higher levels of customer satisfaction and prove their adaptability.
    The 15 retailers presented with Annual Roy Morgan Customer Satisfaction Awards ... have topped their competitors in providing a high level of customer satisfaction to consumers and proven their 'mettle' in dealing with the extreme challenge of the pandemic.
    There were several retailers to win all 12 months in 2020 including Department Store of the Year Myer, Discount Department Store of the Year Costco, Discount Variety Store of the Year The Reject Shop, Hardware Store of the Year Bunnings and Sports Store of the Year Rebel...
    The first-time winners Schnitz (Quick Service Restaurant of the Year) and Chemist Warehouse (Chemist/Pharmacy of the Year) are two very different businesses but both have benefited from the pandemic with the rapid growth of food delivery services in 2020 ... while the desire to keep safe and protected from COVID-19 drove many to buy disinfectants, gloves and other medical supplies from Chemist Warehouse.
    We are now half-way through 2021, and well into the second year of the COVID-19 pandemic, but the same skills and commitment to providing high levels of customer satisfaction to customers during 2020 is set to prove valuable again this year as international borders remain closed, and Australians are 'forced' to spend their 'discretionary leisure dollars' here at home...
    Congratulations to all 15 winners for not losing sight of the importance of the consumer despite the myriad of distractions, disruption and widespread uncertainty faced by all in 2020.

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

    Discrimination

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

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

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

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

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

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

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

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

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

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

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

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

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

    Toowoomba location

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

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

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

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

    The council has yet to respond to the application.

    IKEA small format strategy

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

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

    In the beginning, the strategy was to create our destination stores, which meant very large and instant gratification, cash and carry for the whole range. That proposition has worked very well for more than 60 years. But that value proposition has been challenged.
    Today, to get a full-fledged kitchen or a big wardrobe solution, of course it consists of many different components. We are finding more people don't want to spend that extra half hour running around in a self-serve warehouse to pick up 50 different items, so we want to offer more services for the future.

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

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

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

    We have tested this plan of order point studios across many different markets. We have tested in Sweden, Denmark, Spain and France, so now it is conceptualised and we can see what is working and really scale it up.
    We are looking at metros, so that means Melbourne, Brisbane, Adelaide, Perth and Sydney. Melbourne is a $5 billion home furnishing market, it has close to 5 million people and growing.
    The density of living is about 450 people per square kilometre, we also know the average income is just above $100,000.
    We know the average house size is 132 square metres and about 68% of the people in Melbourne own their own home; 45% are living with children.

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

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

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

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

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

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

    Ikea's digital-first, small format store - HNN
  • Sources: Roy Morgan, The Canberra Times, The Chronicle, Toowoomba and Australian Financial Review
  • bigbox

    USA update

    Home Depot contracts its own container ship

    Walmart-owned Sam's Club is trying to nab a share of the US home improvement market amid the busiest season for renovations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Home Depot's Q1 gets another boost from the pandemic - HNN Flash #46, May 2021

    New competitor

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

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

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

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

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

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

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

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

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

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

  • Sources: CNBC, Maritime Executive and Fox Business
  • bigbox

    Big box update

    Small format store closure

    Bunnings Modbury site in South Australia has been sold, and the buyer is leveraging its prominent position on a major carriageway and proximity to the state's largest regional shopping centre by area

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

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

    As our store portfolio evolves and new investments are made, we continually review our network and our needs in the local areas in which we operate and our stores play an important role as part of that.
    Because our lease expiry was nearing, we've made the decision to cease operations at our Toombul smaller format store and service the local community from our nearby stores in Virginia, Newstead and Stafford. Both our Virginia and Newstead Bunnings Warehouses opened in 2019 and offer customers a newer, wider and improved offer.

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

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

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

    Modbury

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

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

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

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

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

    Investors are particularly attracted to secure, well-leased retail opportunities in South Australia providing attractive yields and no stamp duty on commercial transactions.
    ICAM recognised the value of the Bunnings lease and with their existing retail expertise were attracted to the tightly held Modbury precinct.

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

    Big box update: Real estate sale - HNN Flash #24, November 2020
  • Sources: Northside Chronicle and The Australian (Online)
  • bigbox

    Bunnings Strategy Day 2021

    Bunnings quietly heads in a different direction

    The question about whether the pandemic has brought permanent changes has been answered: it has, at least for Bunnings. The strategy day set out the markers for a rapid evolution of one of Australia's largest retailers.

    On 3 June 2021 Wesfarmers held its strategy day focused on the 2021/22 financial year, which took place at the Fullerton (formerly Westin) Hotel in Sydney, Australia.

    For Bunnings, looking back over the previous 10 years of these strategy days, this is probably the second most significant such event, over-shadowed only by the strategy day in June 2012, when Bunnings released details of its response to the launch of Masters Home Improvement, a retail venture by Woolworths.

    This is also only the third strategy day since the failure of Bunnings' attempt to enter the United Kingdom (UK) and Ireland markets through the acquisition of the retailer Homebase.

    It is worth briefly revisiting that history because it has indirectly influenced this strategy day. There has been a number of journalists who have made a complete hash of covering the rise and fall of BUKI. In terms of the operation of Homebase itself, there is really nothing complex about it.

    In January 2016 Woolworths announced that Masters would be shut down, and Bunnings announced the formation of Bunnings UK & Ireland (BUKI).

    The original plan was to acquire Homebase, make a few improvements, but concentrate on developing a Bunnings-branded offer for the UK market. This was a classic Bunnings strategy: develop a prototype, test it in the market, make improvements, and eventually roll it out.

    Instead, Wesfarmers chose to make a substantial investment in Homebase stores, without any testing, and with a very poor understanding of the UK market. (Somewhat ironically, Bunnings' understanding of the UK was slightly worse than that of US retailer Lowe's understanding of the Australian market when it partnered with Woolworths in Masters.) This lack of knowledge was exacerbated by the wholesale dismissal of almost all of the Homebase management staff (including its very competent CEO). It was a case of a company being caught out by the "unknown unknowns" - it did not even realise the extent of its lack of expertise.

    The question is, of course, why did Bunnings choose such a risky venture? In HNN's analysis, it's important to understand the situation of Bunnings at the end of 2015. The company's strategy - to face-off against the expansion of Masters through its own expansion - was incredibly successful. To achieve that goal, it had built up an outstanding management staff, capable of rapid and effective execution. With Masters defeated, what was going to happen to all that expertise and capability?

    There really were only two ways for it to go. Either Bunnings would have to take the essentials of its current business and break these to reform into an even more successful company, or it would have to find new markets to enter with the existing model, and expand through access to more customers.

    In 2016, Bunnings chose the latter.

    What Bunnings managing director, Mike Schneider, announced on 3 June 2021 was, essentially, Bunnings choosing the former path. In typical Bunnings style, this was done in an understated manner. But it is, nonetheless, strategically very significant.

    The reasons for this are fairly evident, and it is largely down to two influences the COVID-19 pandemic has had on the business. The first influence is simply that revenues have increased strongly- due both to the pandemic boosting stay-at-home DIY projects, and the increasing value of dwellings. The difficulty this creates is that Wesfarmers and Bunnings will be cycling these high numbers, probably not just for one year, but for three halves. To continue to "deliver shareholder value", the company needs to at the very least retain those retail sales, if not increase them by percentages somewhere in the mid-single digits.

    The second influence is the type of customer who has been coming to Bunnings during the pandemic. Where the standard Bunnings customer is somewhat value-conscious, the most recent surge has seen growth in consumers willing to pay more. Bunnings has had the opportunity to introduce its offer to a wider market than before, and its future growth is partly based on keeping those customers coming back.

    The situation of Bunnings pre-pandemic was similar to that of many larger Australian retailers: a relatively static market - demographically - to sell into, with the main task being how to derive the best sales from that market. Post-pandemic, Bunnings is closer to the situation of retailers in the North American markets, where engagement, bringing newer customers back to the store, has increased in importance.

    What we will present here is a quick summary of the major points of what is new, and a roundup of the more familiar. More in-depth analysis will appear in the forthcoming edition of HI News digital magazine.

    The new stuff

    While much of this is new, it does build on existing structures, but takes those in unexpected directions.

    Quality ranging

    According to Mr Schneider:

    Our focus is ensuring we have a true ranging diamond - entry, good, better and best - introducing products in line with customer aspirations and needs.

    The big change here appears to be the addition of "entry [level]" goods. In the past, the Bunnings range has been mostly described as only "good, better, best".

    It would be tempting to see this as being the introduction of a new "sub-level" of goods, but the truth is that a better description of much of what Bunnings has to offer is "entry level, good, better". So what this extra level really likely indicates isn't a new sub-level, but rather a new top level - which is reflected in the next point.

    Style

    According to Mr Schneider:

    And we're upping our focus on stylish on-trend products, recognising our customers desire not only to access essential products for home repair or maintenance, but also to be inspired to undertake more diverse projects.

    That's a clear reflection of a shift in market strategy. While Bunnings intends to stay with its "warehouse" look and feel, the retailer realises it needs to offer facilities for a wider range of projects, especially at the premium end.

    Store layout

    Commenting on changes to the display of goods, Mr Schneider said:

    You can see an example of this on this slide where we've located all the products a customer needs to move their home or business in one aisle. This space optimisation work is enabling us to introduce inspiring new store layouts.

    While this type of project-based layout is something we have seen before at Bunnings (the Chadstone, Victoria store had a similar area for moving supplies at launch), the fact that this is being called out indicates it will become more common.

    Customer contact

    Commenting on the influences on the in-store service teams, Mr Schneider states:

    And when in store, we want our team members to spend more of their time with our customers to help them with the advice and materials they need.

    From some comments HNN has heard from Bunnings workers, part of the training at some points in the past has included making sure staff minimises time spent with customers, so that they can perform a full range of duties, including restocking. That is a contrast to what is regarded as best practice at US retailers, where work systems are developed to minimise time staff spends on tasks that are not directly customer-facing.

    Market segmentation

    Discussing Bunnings' renewed focus on commercial customers, Mr Schneider commented:

    Our commercial business continues to be a significant growth opportunity. We take a segmented approach to the market, with our three primary commercial customer groups. Regardless of the segment, we ensure we use a mix of leading brands and channels to serve our customers.

    The previous managing director of Bunnings, John Gillam, was always very clear that Bunnings did not do segmentation. In his view, Bunnings functioned as a kind of endpoint to a global sourcing/supply chain operation. While this is perhaps the most "abstract" change, it is still an important one.

    Appliances

    In responding to a question from Brooke Campbell Crawford, an analyst with JP Morgan, Mr Schneider said:

    We're also interested in categories like appliances that are sort of fitted to the home so we're not really thinking as much you know, TVs and sound systems, but more in sort of fridges and dishwashers. We do have a small range of those but clearly there's opportunities to look for growth in those, as we see our global peers do so you know, it is it is within that ranging lens. We're very focused on that. You know, we're not sort of considering homewares Or some of the softer furnishings. That's not what we sort of see in our purview.

    First of all, this was perhaps one of the real "bombshells" of the presentation. Bunnings has for years been questioned as to whether it intends to go into appliance sales, and has always demurred, citing intense market competition and poor range fit. That kind of change will have reverberations across the appliance retail sector.

    Secondly, it is couched clearly in terms of Bunnings moving more towards some of the strategies used by North American home improvement retailers.

    There is just a little bit more going on here as well, though. The "announcement" was placed into the very last answer of the day, in such a way that HNN expects many analysts might miss it.

    Business (more) as usual

    To just quickly run through some of the other significant statements:

    Acquisitions

    Mr Schneider reported Adelaide Tools was trading well, with a new store launched in Parafield, South Australia, which is trialling some new layout ideas. On expansion, he said:

    We'll open our first stores outside of Adelaide later this calendar year. These will be in Western Australia where we see strong prospects for growth with a new brand that will be announced in the next few months. A staged rollout across Australia and New Zealand will follow over the next 12 to 18 months.

    On the Beaumont Tiles acquisition, he was just a little cautious, repeatedly stating that this was not yet a "done deal". Thats down not only to needing Australian Competition & Consumer Commission (ACCC) clearance, but also to some "internal steps" that need to be taken. At a guess, Beaumonts is a private, family company, and Bunnings was probably only granted access to the full accounting numbers post agreement of intent, so it may be processing some unexpected accounting practices.

    In discussing the strategy behind the acquisition, Mr Schneider said:

    Beaumont Tiles operates in a large competitive category that has the opportunity for strong growth. And this acquisition would allow us to build on the success of the Beaumont Tiles business and invest in its future growth. It's also a great opportunity to better address the needs of our builder customers and flooring trades as we help them with more of their build. Beaumont Tiles has a great leadership team in place and will be run as a separate and distinct business, much like Adelaide Tools.

    (It's worth pointing out that Beaumonts is also a part-franchise operation, unlike Adelaide Tools, so it will be interesting to see how that plays out.)

    It came down to Michael Simotas, head of consumer equity research at Jefferies (and the source of many an intelligent question) to ask the Total Tools question without mentioning Total Tools:

    If you look at you guys, as well as a couple of the other bigger players, there are plans to put a lot of professional tools stores on the ground over the next three to five years, across the industry. Stores seem to be doing quite well at the moment. Where do you think the sales will come from and where do you model the sales to come from? Or is it expansion in the market?

    Mr Schneider replied:

    I think the way we've sort of thought about the business for a long time is grow the market and grow the opportunities that present within the market. It's really clear there's a very strong demand across Australia for trades and clearly a lot of pressure on different markets [to] actually get trades into that.
    So we're seeing a lot more being done at the sort of apprentice level to sort of grow employment within the sector. And I think that's one of the elements. And then you know, it is really clear that across housing construction, there is real demand. And whilst from a Bunnings trade point of view, we don't play in that heavy construction trade market, the trades, they're actually working on those sites, you know, are very professional operators and they're looking for the sort of products and brands that specialist trade players are able to offer and we're able to do that through Adelaide Tools.

    It seems quite likely that these predictions of an expanding market will hold true, at least into 2022. However, most industry analysts would also say that Bunnings will end up competing directly with Total Tools by the end of 2022. Though, the reality is that both Wesfarmers and Metcash are likely counting on taking a great deal of market share from smaller retailers in the specialist tools market.

    Digital and supply chain

    The overall approach to digital ecommerce, according to Mr Schneider, is to assume the company will have to support at least 5% of its overall sales through that channel. The peak, so far, has been just over 3%, and that has dropped back down to 2%. The 5% number is a decent target however, and, as Mr Schneider pointed out, at that level, fulfilment direct from stores to customers will not be possible.

    One of the surprises of the day that arose from this is that Bunnings revealed it has a fulfillment centre set to begin operations in Melbourne.

    A good example of this is our upcoming trial of a rapid fulfillment centre in the western suburbs of Melbourne to test and learn around more efficient online fulfillment for our customers. The site will also trial the central dispatch of items customers purchase in store, or decide to have home delivered with expected benefits to include removing tasks from stores, freeing up space and reducing manual handling for our team.

    While that is a welcome direction of strategy, the analyst Ben Gilbert of Jarden Australia pushed the company a little on the possible need for deeper changes to the supply chain in the future. Mr Gilbert asked:

    Just interested in supply chain, and also right to play categories. If you look at what Home Depot has done, the US, and I've spent a lot of time looking at some of these players, they've increased their SKU count to sort of a million odd when they look at dropshipping, and those sorts of things...How are you thinking about supply chain investment, increasing range and moving more aggressively into these right to play categories?

    Mr Schneider responded:

    I'll start with supply chain. So for me, the thing that sort of occupies our thinking is what happens is, as online penetration grows, I think we talked at the half about online penetration, sort of peaking it, just over 3% of revenue, it's dropped back down under, under 2%. At present, but that is going to grow, it's going to flow the global trends. And, you know, I think one of the things that you know, lock down does is push people to look, look to different channels, and you will eventually get some more stick from things like that as well. And we recognise that once we're sort of getting up above 5% of revenue coming from our online channel fulfilling from store becomes much less efficient than it is today. So you know, what we were looking at in in the western suburbs of Melbourne is: what's that going to look like? And it really is in a very Bunnings way, a test and learn environment.
    And we're also looking, as I said in my presentation at, you know, are there opportunities to improve efficiency in store by having products that customers want to have home delivered big bulky products, kitchens, barbecues, and things like that, that they're purchasing in store, delivered to their home in a more efficient way. So that's that formed one part of our thinking. We do know that we've still got opportunities from back-dock to shelf, if you like, in terms of install logistics.

    Mr Gilbert followed up on his question by further asking:

    Just on that, do we need to be thinking about the next 12/24 months, there's going to have to be some, some firmer news around some larger centralised distribution points to then support those distribution centres that then allows you to push that range and bring more products in. Because it seems likely given the nature of the models historically, you probably need some bigger centralised sheds and some automation to do more of the cross stock, etc.

    Mr Schneider responded:

    Yeah, look, I think certainly over the next 12/24 months, we'll have we'll have more to say, you know, based on the things that we're doing now to sort of learn from it. So yeah, I think it's certainly going to be a stay tuned, there's more to come down the track.

    Conclusion

    That's pretty much just the highlights from what was said at the strategy day. As we said in the introduction to this piece, we'll be offering a more comprehensive analysis in the next edition of HI News.

    bigbox

    Big box update

    Bunnings Plainland opening

    The development application for a new Dubbo store has been withdrawn and building has begun on Mt Isa outlet

    Bunnings Plainland is expected to open shortly; a planned store in Dubbo (NSW) will no longer be built; construction has started on the Mt Isa store; and a traffic plan was revised for proposed Wagga Wagga store.

    Plainland

    The team at Bunnings Plainland is preparing for the official opening of its store. Complex manager, Simon Funk spoke exclusively to the Gatton Star about welcoming the first customers through the door, and leading a large team of locals, at the age of 22. He said:

    The team have been working tremendous amounts of hours and putting in a huge effort to get the shop to where it looks today, and even more when it opens.

    The Plainland store will cater to a regional and rural demographic. Mr Funk said:

    Inside the store it's a bit more compact, but we have absolutely everything we would offer in a bigger warehouse but backed by an oversized timber and nursery.
    We're carrying items that we might not carry in our metro stores - like ride-on mowers, rural fencing supplies, Besser blocks and bigger bags of products.

    The store spans more than 9000sqm and has about 200 car parks. Having worked with Bunnings for six years, Mr Funk said the best part of the job was helping the customers.

    We are here to help our customers and it's a business that's been built on that.
    Also for me, I've got the opportunity to bring on more than 100 locals and provide them with careers. It's not just a job, but a career that is hopefully meaningful to them.

    The Plainland store is also set to go up for auction through Burgess Rawson in late June. Real estate agents anticipating a sale fetching close to $20 million, according to The Queensland Times.

    The store is part of the Plainland Crossing master planned community, which will have hundreds of new houses, school, childcare centre and an upcoming Aldi supermarket. The project is being delivered by development and construction company De Luca.

    Bunnings Plainland is located at 4404 Warrego Highway, Plainland (QLD).

    Dubbo

    Dubbo Regional Council were recently notified that the development application (DA) to build a Bunnings store located on the old RAAF base site has been withdrawn.

    The withdrawal comes after the Heritage Council of NSW refused to grant General Terms of Approval, according to a report in the Daily Liberal and Macquarie Advocate.

    A statement from council said those who made a submission during the public exhibition period would be advised in writing of the withdrawal.

    Several residents voiced their concerns over the proposal, with a petition started to stop the application. Over 200 people signed the petition which highlighted concerns over increased traffic, associated noise and safety issues for residents and businesses in the area.

    Controversy has surrounded the DA since March, when deputy mayor Stephen Lawrence and councillor John Ryan called for then mayor Ben Shields to resign over a press conference he held about the DA.

    At the time, Cr Lawrence said the mayor's conference had undermined public confidence in the process. The mayor responded to the allegations, saying he had not undermined council processes or misled perceptions in the community. Cr Shields said in March:

    I've always welcomed a proposal if it goes to plan, so this nonsense that I've circumvented process is insane.

    More recently, Councillor Stephen Lawrence has been elected as mayor of Dubbo with Anne Jones elected as deputy mayor following Cr Shields resignation.

    Mt Isa

    Old buildings have now been demolished as construction work for a new Bunnings Mount Isa store begins. It is expected to open its doors in early 2022.

    This store will span more than 5500sqm, more than double the size of the existing store located on Camooweal Street. The new site is at 89 West Street.

    Features include the main retail area, a fully enclosed timber yard, an outdoor nursery and 150 on-site car parks. It will also have a building materials landscape yard and a bagged goods area in the nursery, both not at the existing Mount Isa store. Bunnings area manager, Michael Rodwell, told the North West Star:

    Bunnings Mount Isa has been part of the local community for about twenty years so we're really excited we'll be able to give customers a fantastic offer with the widest range of products.
    The existing Bunnings Mount Isa team will transfer across to the new store once complete and will be joined by new team members, who will be recruited closer to store opening.

    Hutchinson Builders are developing the site in a project estimated to be worth over $20 million.

    Related: Progress on the Mount Isa and Plainland stores have been ongoing.

    Big box update, HNN Flash #37 - March 2021

    Wagga Wagga

    An updated traffic plan for the Bunnings store relocation project in Wagga Wagga (NSW), on the corner of Pearson Street and the Sturt Highway were released for public review.

    Last year the public was invited to have their say on the plan, with a number of concerns raised about road safety and congestion in the area.

    Bunnings property director Andrew Marks said the company had listened to the feedback and adjusted the plans accordingly, providing three exit and entry points for cars and one for trucks. He told the Daily Advertiser:

    We have taken on board feedback from the local community and council, and the amendment will provide an additional exit only onto Saxon Street, providing improved traffic flow and safety for Wagga locals.

    Access will include left turn only entrances and exits for cars on both the Sturt Highway and Pearson Street, with an additional deacceleration turning lane constructed on the highway border. Trucks will have one separate entrance off the highway and one exit onto Saxon Street.

    Additionally, car park spaces will be reduced to 421, inclusive of accessible and trailer parking. In the original report, which was lodged in 2020, 449 spaces were proposed for the new development.

  • Sources: Gatton Star, The Queensland Times, Daily Liberal and Macquarie Advocate, The North West Star and The Daily Advertiser
  • bigbox

    Big box update

    Gardening tops Bunnings' survey

    Bunnings maintains its timber ban despite a Federal Court decision upholding an appeal by VicForests over alleged breaches of the Environment Protection Biodiversity Conservation Act

    In a recent survey commissioned by Bunnings, almost a third of respondents placed gardening at the top of their home "to do" lists. But many shoppers are taking shortcuts and opting for plastic plants. Bunnings' general manager of merchandise, Tracey Lefebure, told News Corp:

    Paint and decorating products are always in demand, with the introduction of our new artificial flowers range...receiving very positive feedback with people creating everlasting statement floral arrangements that look just as good as the real thing.

    The survey indicates many customers are enhancing their outdoor areas to enjoy during the colder months. Ms Lefebure said outdoor heating, outdoor lighting, and fire pits were among some of the top performing product categories.

    Following the impacts of COVID-19, almost 60% of Australians (according to the poll) say they enjoy spending more time at home than they did prior, and customers are telling us that they are looking for ways to get the most out of every space of their home - including their outdoor area during winter.

    The survey of 1000 Australians, conducted by Antenna Insights, also found almost half of Australians were planning to complete more DIY projects in 2021 that the generally would have outsourced.

    More than 40% of respondents said they were more willing to start a renovation project since the pandemic started. Australians are planning on spending $4,100 on home improvement this year on average, and homeowners are set to spend $5,500. Ms Lefebure said:

    As we get closer to winter, customers will shift their focus to indoor projects and products to make their homes feel warm and cosy including rugs, indoor lighting, indoor heating options like wood-fire and panel heaters, as well as insulation products to help keep in the heat.

    Bunnings timber

    Bunnings has also responded to a union plea for the Victorian government's help to negotiate with the hardware store chain over a ban to stock local hardwood on its shelves.

    In a statement provided to The Mandarin website, Bunnings general manager merchandise Toby Watson said the store would not be reversing its decision to ban the use of trees logged in Victoria at this time.

    Mr Watson explained that Bunnings' timber policy required suppliers to source from legal, responsibly sourced and well managed forest operations. While the recent Federal Court decision to uphold VicForests' appeal meant it had acted according to the law, this did not necessarily mean the operations met other standards under the store's policy. He said:

    We've reviewed the court's decision in detail to understand the implications in relation to our timber policy. While the court reversed a single finding relating to the EPBC (Environment Protection Biodiversity Conservation Act) Act, it upheld the trial judge's 21 other findings regarding the effect of VicForests' forestry operations on the environment.

    VicForests' current practices continued to fall short of the requirements of Bunning's timber policy, Mr Watson noted, saying that the store was open to working with stakeholders to find some future solution. He added that Bunnings remained committed to sourcing most of its timber supplies from within Australia and New Zealand.

    We're committed to working closely with industry, government and environmental organisations to continue to improve our timber sourcing and help ensure the long-term sustainability of Australian forestry.
    This includes continuing to purchase the majority of the timber we sell from sources within Australia and New Zealand that meet our policy requirements for legal, well-managed and responsible forest operations.

    CFMEU Manufacturing, the union representing timber workers, said Bunnings exploited the original court decision to justify a ban on VicForests' timber and appease environment groups.

    The union said it is asking the state government to put pressure on Bunnings to reverse the ban on timber from Victorian managed forests. In an interview with The Ballarat Courier, CFMEU Manufacturing national secretary Michael O'Connor said the ban introduced by Bunnings had affected timber workers and their communities.

    [Bunnings] is a huge network, it's got a high profile. A ban from Bunnings is important symbolically. It could cause, and it did cause, grief for timber producers and people who work in the timber industry.

    Mr O'Connor said it's unlikely overseas timber sourced by Bunnings to replace Victorian timber would have the same level of sustainable management.

    We are calling for a reversal of Bunnings' unfair ban on Victorian grown, sawn and manufactured hardwood timber and wood products.

    Bunnings implemented the ban in July 2020 after an initial decision by Federal Court Justice Debra Mortimer found VicForests had breached federal law by logging "66 areas of habitat critical to the vulnerable greater glider and critically endangered Leadbeater's possum.

    That decision was overturned recently on appeal to the full bench of the court. Three justices found if logging is conducted within a Regional Forestry Agreement (RFA) zone it is exempt from federal law, even if that logging breaches Victorian law and the RFA.

    Related: In mid-2020, the hardware chain said it would stop selling timber logged by VicForests.

    Bunnings drops VicForests wood products - HNN Flash #16, July 2020
  • Sources: Herald Sun (online), The Mandarin and The Ballarat Courier
  • bigbox

    Big box update

    Bunnings Preston store being built

    Plainland store is being prepped for sale and Wagga Wagga site is encountering legal problems

    The Northland Preston store is closing, and a new outlet is scheduled to open in 2022; construction company De Luca Corporation plans to sell Bunnings Plainland in Queensland at auction; and land for a new Bunnings store in Wagga Wagga (NSW) is caught up in legal dispute.

    Preston

    Bunnings area manager David Roddis recently told the Whittlesea Leader that construction had started on the Bunnings store at the corner of Bell St and Chifley Drive in Preston (VIC).

    It will span 18,000sqm of retail area, and will be more than 5000sqm bigger than the existing Northland store. The store being built is expected to open in May next year.

    It will also have a fully enclosed trade yard and drive through and about 500 car parks for customers, 170 more than the Northland store.

    Existing Northland staff members will be transferring across to the new store and additional jobs will also be created for locals, said Bunnings.

    Related: In February, Newmark Capital announced it has purchased the Bunnings store being built in Preston (VIC).

    Big box update: Preston - HNN Flash #33, February 2021

    Plainland

    De Luca Corporation is selling three properties - including Bunnings Plainland - in the next Burgess Rawson auction series, according to a report in The Courier-Mail.

    Managing director Nic De Luca said it has already fielded off-market offers for Bunnings Plainland in the mid 4% yield mark, but he expects the auction to produce a better result. He told The Courier-Mail:

    Upon securing the Plainland asset last year, we were always committed to run an auction process as sub $30 million Bunnings assets are extremely rare.

    Bunnings entered a 10-year lease on the Plainland site, where construction began in early October 2020. The new store is expected to open in the second quarter of 2021. Mr De Luca told the Unwrap Large Format Retail website in December 2020:

    The Plainland site was a strategic acquisition for our business, following the successful Kingaroy and Lawnton Bunnings developments.
    We are extremely excited and proud to be delivering new Bunnings stores in Queensland, particularly during these challenging economic times. It is testament to our long-standing relationship with Bunnings.

    The Plainland project adds to De Luca's previous experience with Bunnings, having constructed over 20 stores since 2011 and complementing De Luca's current construction pipeline, with new Bunnings Warehouses also being constructed in Pimpama and Yeppoon.

    Plainland is a rural locality within the Lockyer Valley Region in Queensland and is 75km west of Brisbane. The town has been identified as a growth hub and the preferred location for several services to support the growing needs of the Lockyer Valley Region.

    Related: Real estate company, Plainland Crossing recently posted an update (May 8, 2021) on the progress of the Bunnings Plainland store.

    Plainland Crossing posts Bunnings store progress on its Facebook page

    Wagga Wagga

    Bunnings is continuing to plan for its Wagga relocation in NSW despite the Sturt Highway land set aside for the project being caught up in a legal dispute over a deceased's estate, according to a report in The Daily Advertiser.

    In January last year, the hardware retail chain lodged a development application for a $47 million store on Wagga's Pearson Street at the Sturt and Olympic Highways roundabout. It is approximately 500 metres north of Wagga's current Bunnings store.

    The proposed site is owned by Maria Limberger who died in January 2018. The property is currently occupied by her family's Rivcrete concrete business.

    Mrs Limberger's three adult children, Joseph Limberger, Catherine Oakman and Steven Limberger, have been involved in legal action over the past two years over various claims to her estate.

    Recently, the NSW Supreme Court handed down an interim determination that valued the Pearson Street property at $8 million and cleared the way for a sale in order to settle the inheritance claims.

    Justice Justice Philip Hallen stated that the Pearson Street property would be sold along with some of Maria Limberger's other Wagga properties and the money distributed according to her will, subject to further legal proceedings.

    Bunnings Warehouse is not involved in the Supreme Court case. Bunnings' property and store development director Andrew Marks said the company's "development application for a new store located at the corner of Pearson Street and Sturt Highway is still undergoing assessment by Council".

  • Sources: Whittlesea Leader, The Courier-Mail, Unwrap Large Format Retail and The Daily Advertiser
  • bigbox

    Big box update

    Store opening in Central Queensland

    Bunnings owned land located in Mill Park (VIC) and Gatton (QLD) have been placed on the market

    Bunnings' newest store that has just opened to the public is located in the 9000sqm facility next to its previous store on Yeppoon Road on the Capricorn Coast in Queensland.

    It has been about seven months of construction for the $23 million complex after the first sod was turned in October 2020, according to The Morning Bulletin. Complex manager Kath Dingley told the newspaper:

    We've got a five-lane timberyard, we've got a dedicated nursery with an undercover landscape area, we've got a dedicated tool shop, and obviously we've got kitchen and bathroom displays, and a really good paint offer.

    The store has 240 parking spaces, and the timberyard is bigger than the Rockhampton store.

    Land sales

    Bunnings is selling a 13,800sqm parcel of land in Mill Park behind its Plenty Road store in Victoria, according to a report in The Age.

    It is understood the land located at 18 Bush Boulevard was originally intended as expansion space for the Bunnings but a newer store was instead built further up Plenty Road in Mernda.

    Gorman Commercial agents Jonathon MacCormack and Stephen Gorman are running the expressions of interest campaign which closes on May 26. The land is expected to fetch more than $7.75 million.

    Property at the busy Mill Park town centre is highly prized. The Bunnings store was bought by investor David Feldman in 2009 for $16.2 million.

    In February 2021, the Gatton Star reported that Bunnings was planning to sell its block of land in Gatton in the Lockyer Valley region (QLD), which previously sold $1.6 million.

  • Sources: The Morning Bulletin, The Age and Gatton Star
  • bigbox

    Bunnings to buy Beaumont Tiles

    Will combine top two retailers in tiles

    In a surprise move, Bunnings announced it intends to buy the tile and bathroomware retailer for an as yet undisclosed sum

    On 28 April 2021, Wesfarmers announced that its big-box hardware retailer, Bunnings, had entered into an agreement to acquire Beaumont Tiles. The managing director of Bunnings, Michael Schneider, was quoted in a Wesfarmers press release as stating that:

    Beaumont Tiles is a well-run business with a proud family history that will remain separate and distinct to Bunnings, as is the case with Adelaide Tools which was acquired by Bunnings in April 2020.

    Wesfarmers has released very few additional details, other than noting that the deal will have to pass regulatory requirements.

    Beaumont Tiles is not a public company, so financial details are hard to come by. Estimates for revenues at Beaumont Tiles range from around $270 million to $290 million for the projected FY2020/21. As it is partly a franchise business, a slightly optimistic estimate of earnings before interest, taxation, depreciation and amortisation (EBITDA) would be $38 million to $45 million. Given its unique position in the Australian market, it's possible to guess at an acquisition price of between $180 million and $210 million.

    By Wesfarmers standards, that is not an especially large acquisition. As with recent acquisitions by Wesfarmers (such as that of Catch.com.au), the question to ask is how, strategically, will the acquisition help to boost earnings from Bunnings? In HNN's opinion, looking at the next five years or so, that can be largely summed up in one five-letter word: Reece.

    However, it's best to leave that speculation for later, and begin with a more general overview of tile retailing and wholesaling in Australia.

    Australia's tile market

    In top order, the three major retail/trade sellers of tiles in Australia are Beaumont Tiles, Bunnings and National Tiles. As mentioned, the revenue for Beaumont Tiles is around $290 million, and for National Tiles it is estimated at $100 million. Estimates for revenue generated through tile sales at Bunnings vary widely, but the best estimate would seem to be around $170 million to $190 million.

    Beaumont Tiles was started in 1960 (according to the company's website, though some sources suggest 1962). Company lore has it that the idea for the company came about when Ray (RJ) Beaumont, a well-known entrepreneur in Adelaide, was chatting with a tiler working on a house - another one of RJ's endeavours, an up-market construction near his own home, which he planned to sell. One version of the story is that the tradie was complaining about the poor availability of tiles, while another version has it that RJ complained about the poor quality of the tiles being used.

    In any event, the story goes that RJ set out for Japan to find his own tiles, and was so enthusiastic that he bought an extra 2500sqm of tiles. While it is rumoured RJ's family was not keen on the investment, it soon proved to be a success. What began as a one-shed business soon expanded into a shop (the Grote Street showroom is still there, and viewed as the company's flagship retail outlet) and warehouse in Adelaide, which employed four staff. By 1967, when RJ's son Bob Beaumont joined the company, annual turnover was $120,000.

    Mr Beaumont eventually took over as managing director in 1978. The next major change to the company started in the 1990s. It was at that time Mr Beaumont began to pursue what would become a decades-long vision to consolidate smaller tile retailers. He explained his reasons for this in a 1993 article published in the Australian Financial Review (AFR):

    Buying tiles at the nearest hardware or small tile shop is most often the way it happens in Australia. But for customers, whether they are tilers, builders or home handymen, it does not allow for choice, large showrooms of ideas, or exclusive ranges at competitive prices. At any time we stock more than $5 million in tiles, slate and marble from around the world, which our franchise members, and therefore their customers, can have next-day access to.

    By 1993, the company had sales of around $36 million, and operated 15 stores in South Australia, which controlled about half the state's market. The company employed 150 staff, and relied on trade sales for 75% of its business. Its innovations included having tile makers produce custom tiles to which Beaumont Tiles held exclusive rights - partly in a bid to boost Australian-made tile sales - and setting up their own testing to give tiles a slip rating, to ensure customers could choose the best tile fit for purpose.

    One of the company's riskiest moves came in that year, when Beaumont Tiles moved into the Victorian market in a two-stage push. That began with Beaumont Tiles establishing its first franchise operation, of some 20 owner-operated retailers. Added to that, the company took over the longest established tile retailer in the state, Crosby Tiles, which had five outlets. Describing that development on the company's website, Mr Beaumont stated:

    My father and I had always been keen on the idea of grabbing an opportunity when it presented itself. In the early days, we were offered the Victorian outlets of a failing tiling business, which we decided to go ahead and buy.
    It was very risky because it was losing a lot of money. However, we gradually built on it until finally, we became the biggest in Victoria. That then enabled us to leap frog into Queensland and other parts of the country.

    Never one to shy away from a challenge, Mr Beaumont declared the company would have sales of $100 million in the year 2000. In FY2013/14, the company was estimated to have revenue of $200 million, with 100 outlets and 50,000sqm of total retail space, and opened warehouses in NSW and QLD with over 10,000sqm each. That success continued. The company claimed growth of 12% in retail sales during FY2016/17 to $275 million (implying sales in FY2015/16 were $246 million), with the company having a total of over 110 retail outlets.

    However, in 2018 Beaumont Tiles began to speak of a possible decline in the Australian market, while at the same time insisting Beaumont Tiles had firm plans to expand. According to an article published in the AFR during March 2018, Mr Beaumont stated that the housing market had peaked at a point in the previous financial year, and he expected it to decline in the future. However, he also stated that the market could support a total of 180 stores, 65 more than it had at the time, and that it would reach that goal by 2022. In an article published by Inside Retail in 2018, Mr Beaumont stated he expected annual revenue in 2022 to be over $500 million.

    In parallel with this, Beaumont Tiles began to suggest it would also consider expanding overseas. Asked about which markets the company would consider, Inside Retail quoted Mr Beaumont as stating:

    It will depend at the time what opportunities and partnerships are available to us...we're very open to the US or Canada and we're very open to some of the Asian countries too.

    It's perhaps a real testament to Mr Beaumont's business acumen that the proposed international expansion never took place. As the US big-box home improvement retailer Lowe's Companies learned with its partnership in Masters Home Improvement, and Wesfarmers learned with its attempts to enter the UK market through Homebase, national home improvement markets are intimately tied to local cultures, and this makes international expansion difficult.

    Perhaps the best insight into what the company was going through during 2018 comes from a quote that appears in the tiling industry's leading publication, Tile Today, where Mr Beaumont is quoted as saying:

    For Beaumonts to achieve greatness, we will become a very different business in some ways over the next couple of years, but we will also stay, in many ways, exactly the same, building on our tremendous strengths.
    Over the next two years, I consider "greatness" as our warehouses achieving almost Amazon levels of effectiveness, a totally integrated computer system that talks to both suppliers and customers, new and spacious warehouses in all states, expanded stock and range and a company covering all states, including Western Australia.

    (It is perhaps not at all coincidental that the number three tile company, National Tiles, had also begun exploring a different future around about the same time. According to the AFR's "Street Talk" column, National had hired financial group Flagstaff Partners to investigate different capital structures that could help it invest more in growth.)

    It seems very likely that Mr Beaumont's entrepreneurial instincts were, again, spot-on. The fact is that Beaumont Tiles, on its own, was simply unable over the two years after those remarks, to make the kinds of transitions it needed to in order to become a company better suited to the new retail environment.

    All this culminated to some extent in Beaumont Tiles' annual presentation for customers and media, held virtually in March 2021, where Mr Beaumont restated some of these optimistic growth forecasts, but over a longer term. These remarks were then repeated by the national buyer for Beaumont Tiles, Dean Booker, for an article in the Herald Sun of 6 April 2021. He predicted a further 50 stores would be added over the next five years - essentially 10 per year.

    Obviously, Mr Beaumont was aware the acquisition was a strong possibility when he made his remarks - though that might not be true of Mr Booker. In any event, it seems pretty certain that this expansion will finally take place – but under the auspices of new ownership.

    The market

    The big question that looms over the tile market is whether some of the low growth it has experienced since 2017 is really due only to the housing market itself, and the way that drives demand for both new builds and renovations, or if there are also structural problems at work.

    It is certainly true that, for example, the ability to do tiling on a DIY basis has become more accessible. As Mr Beaumont puts it on the company's website:

    We were the drivers of switching the whole industry over to adhesives from the traditional "mud mix", which is what they all called it. This meant that DIYers could do tiling quite easily themselves and this certainly drove the renovation market.
    Looking at the product itself, it's not only changed in look but in composition. Most of the tiles these days are porcelain, which are far less porous than the old tiles. However, the greatest change is in the evolution of digital glazing, where you can take almost any surface - timber, stone, slate or concrete - and duplicate it on the surface of a tile. This gives you an extremely durable, easy to clean surface which looks the same as timber, for example.

    At the same time, virtually all of us have seen tile floors that were installed on a DIY basis, or even by a "handyman" which are simply atrocious. It's barely possible that a DIYer can get away with tiling a bathroom wall, or even the floor to a laundry area, but the complexities of alignment and grouting on a floor are more bewildering - especially when it comes to tiles 60cm a side and larger.

    Meanwhile, much more accessible ways of laying attractive floors have continued to develop. Almost any DIYer should be capable of laying a laminate plank floor, and these have continued to improve in quality. The real "game changer", however, is the category now known as "resilient flooring", which includes vinyl planks. It's not only easier to lay than laminate, it is also 100% waterproof, making it ideal for kitchens and other wet areas.

    We could be looking at a future, in other words, where the only commonly tiled areas will be bathrooms - and that largely due to our association of tiles with things sanitary. This means that even if spending on new house builds and renovations continues to grow, a smaller share may go to tiles.

    The challenges at Beaumont Tiles

    While the market has had its effect, it's also true that Beaumont Tiles seemed unable to do what it needed to do in order to unlock more growth. One clear point of reference on this might be the company's website itself. Website designs such as the one used by Beaumont Tiles are referred to in the tech industry as being "opinionated" designs. That means they make certain pre-decisions for the user, and insist interactions will follow a very set pattern.

    The Beaumont Tiles website insists on slotting the user through a survey-like tile personality test.

    Beaumont Tiles

    A range of choices are posed to the user (along with personal questions such as age and gender), and at the end of that process the user is assigned a style. There are nine styles: Coastal, Classic Traditional, Eclectic Bohemian, Global Fusion, Modern, Scandinavian, Country Chic, Retro Vintage, and Contemporary.

    The problem comes when a user dislikes the style to which they get assigned, or simply does not fit, in terms of taste, within any one of these categories. At that point, navigating the site becomes quite difficult.

    By contrast, the National Tiles website provides a much simpler, cleaner interface to the tiles.

    National Tiles

    A drop-down menu lists, as the three top navigation choices: "shop by type", "shop by look" and "shop by room".

    Regulatory hurdles

    The acquisition of Beaumont Tiles by Wesfarmers is likely to end up facing more serious questioning by the Australian Competition & Consumer Commission (ACCC) than many other acquisitions in recent times. Essentially, this is about the two largest competitors in a market joining forces to take a commanding position.

    This also comes at a time when previous definitions regarding what should trigger anti-trust considerations are being challenged. The previous standard was that such acquisitions should be judged on whether they did, or could in future come to disadvantage consumers. That disadvantage was thought of strictly in terms of price, quality and supply.

    As concern has grown over the looming power of tech industry behemoths such as Facebook, Alphabet (Google) and Apple, attention is shifting away from pure consumer-based disadvantage, to look at the overall competitive situation, the need for consumers to have viable alternatives, and whether companies dominant in markets can stifle future innovations by smaller businesses.

    The company that is likely to come under the most pressure is, of course, third-place National Tiles. It will be left with revenues of around $100 million a year, and earnings that have been estimated at around $14 million a year, facing a company with combined revenues of close to $500 million a year. All this in a market which is facing challenges when it comes to overall growth over the next five years.

    While HNN believes that the ACCC will in the end approve the acquisition, we don't see this happening as rapidly as some past decisions have been made, which means it will likely be 2022 before it is completed.

    Why Beaumont? Why now?

    The most surprising thing of all about the acquisition is that it doesn't fit into the operational model that Bunnings has been pursuing for the past couple of decades. Particularly over the past decade, the company has been very concentrated on keeping its processes and models as simple as possible. Adding Beaumont Tiles to the mix stands starkly against that.

    Not only will it add a highly complex retail model, with high levels of expected customer service, but there are also a number of entanglements the company has assiduously avoided. Warehouses, for example. Not to mention franchisees, with all the complexity of dealing with independent entities who can largely set the tone for the entire business.

    What is understandable about this, however, is that Bunnings has few other choices. One way of reading what happened in its acquisition of UK retailer Homebase was that it was seeking a way of expanding without departing from its basic business model. As any expansion inside Australia would have meant adopting a different model, it chose to instead take the existing business model and apply it overseas. The purchase of Beaumont Tiles does represent something of a hard-earned maturity.

    Just as pressing, however, is where does Bunnings see the growth coming from? The managing director of its parent Wesfarmers, Rob Scott, has been very cautious in investing in new businesses, despite the company being somewhat "cashed up" after the de-merger of Coles. Why did Beaumont Tiles get the green light?

    As we mentioned at the start of this article, we think the real game for Bunnings is not just tiles - though that will be valuable - but rather bathroomware (and hence plumbing itself). It's interesting that Beaumont Tiles describes itself as a "tile and bathroomware" retailer. It is perhaps from bathroomware that Mr Beaumont in his earlier optimism expected additional revenues to eventuate.

    The problem there, what would have blocked those efforts, is the colossus that sits over that area of retail, namely the Reece Group. Reece has annual revenues in Australia of around $3 billion, and about the same from its US operations. It has a lot of experience, expertise and capital for anyone in the tile industry to go up against. But it is certainly a market well within the capability of Bunnings and Wesfarmers to compete with.

    Analysis

    How will this acquisition affect independent hardware retailers? As tiles do not typically form that much of an income stream for most of them, it's unlikely there will be too much of an impact. Where the impact does come will be more in those supplies that support tiling, such as adhesives, waterproofing, and tiling specific tools.

    The secondary concern this does bring up - which is really two concerns - is this: does this development really represent the kind of hardware industry that Australia should be developing? And the concern that is triggered by that one is: where and how and should independent hardware retailers be able to express what they think should be developed? Where is the concerted, developed voice of the independent industry, and how can that be used to better express broad industry concerns? What would the industry do if Bunnings were to buy a central supplier business, such as an Australian paint company?

    Also, what is really surprising about this acquisition is that had the situation been described to many of us in the hardware industry, the position of Beaumont Tiles, of National Tiles, Bunnings and even Reece, how many of us would have instead picked National Tiles as the "natural" Bunnings acquisition? It isn't, of course, when you really think this through, and the reason is Bunnings has simply grown so big it doesn't need to take that kind of risk anymore. Instead, it can rely on scale.

    Perhaps that's just good business sense. But to survive the kinds of challenges retail will develop this decade, something other than scale is going to be needed, and Beaumont Tiles may not be an acquisition that will deliver that.

    bigbox

    Bunnings does "Make it Yours", the at-home edition

    Influencers invade homes of innocent Bunnings employees

    Bunnings continues to surprise with its efforts to better communicate through videos. It is bringing out a second season of its successful "Make It Yours" series, with internet influencers going to work on the homes of people who work at Bunnings

    The Australian Financial Review (AFR) provided a glimpse into the current Bunnings video production underway. The company's previous effort made two years ago, titled "Make It Yours", managed to lift production values and content high enough that it actually ran for a period on free-to-air TV.

    At times the purpose of that production did seem a little muddled. It began as a series about how to renovate a space even when it was simply rented, and soon devolved into the kind of renovations only an owner could do. It also was aimed at neophytes to DIY who might not have that many tools - and yet just about every project ended up being reliant on using a $400 nailgun.

    Make It Yours

    In that sense, as the AFR article suggests, it followed very closely to the formula made famous by the long-running Channel Nine renovation series, "The Block" - a lot of inspiration, but not all that much common sense. Or, in other words, it had all the probity and attention to important detail you would expect from any YouTube series.

    As HNN has commented in the past, it was a vast improvement over some previous renovation DIY video efforts performed by Bunnings staff, where the DIYer would stop and do a bit of quick arc-welding when it was needed. (And very good welding it was, too.) The focus was as much on how different "influencers" would go about making specific rooms look better. Aimed at the "young people", it managed to evade the more difficult DIY tasks, while making styling up a space look fun and exciting.

    According to the AFR, Bunnings has continued in its most recent series to rely on the communication, styling and DIY skills of yet more influencers, which include interior designer Lucy Glade-Wright, the founder of online publication "Hunting for George", Az and Jamie from Haus of Cruze, DIY style diva Geneva Vanderzeil, and organisational dreamer/YouTube star Rachel Lee.

    The big changes for the current series in that instead of buying a house and renovating it, the renovations are being done to the houses of Bunnings employees.

    HNN has to confess that we find that a difficult concept to imagine actually working, but we won't judge the results until we actually see them. We just hope that no housing was harmed during the production of these videos.

    Related: Bunnings has launched different versions of "Make it Yours".

    Bunnings reaches out to Gen M with "Make It Yours" Bunnings reno series on free to air TV - HI News 6.2, page 31
    bigbox

    Big box update

    Bunnings grants for women's football

    General interest magazine Reader's Digest has proclaimed Bunnings as "Australia's Most Trusted Iconic Brand"

    The Bunnings Helping Hand program is giving one community AFL club from each state and territory in Australia the opportunity to access grants worth $30,000 to help upgrade their facilities to be more user-friendly for female footballers. (Applications for the program close on June 9, 2021).

    Since the establishment of a national competition in 2016, the number of girls and women playing football has increased from 194,952 to 586,422, according to the Bunnings Helping Hand website.

    With such rapid growth, sporting facilities at community clubs are struggling to meet demand; in fact, a recent audit of facilities showed less than 30 per cent were considered female-friendly. So the inaugural provision of Bunnings Helping Hand grants will be entirely dedicated to the build and upgrade of infrastructure for female footballers.

    AFL executive general manager of customer and commercial, Kylie Rogers, said the support and investment is significant in helping the future of the game.

    Bunnings' support of female football has been significant, not only at the elite level with its sponsorship of the NAB AFLW competition, but at the grassroots level through its new Bunnings Helping Hands initiative.
    Through the introduction of new female football initiatives like the Bunnings Helping Hands program, we hope more women and girls feel inspired to get involved in our game and be part of the continued growth of the NAB AFLW competition for many years to come.

    Bunnings managing director, Michael Schneider, said:

    We know the important role local footy clubs play in bringing communities together and through our partnership and support of the NAB AFLW competition, we hope to demonstrate our commitment to women and girls in sport and make a meaningful difference to the wider community.
    Achieving change requires commitment from many and as a proud AFLW partner it's just a small way we can lend a hand.

    Melbourne AFLW captain and Bunnings Helping Hands ambassador, Daisy Pearce, said this program is chance for community clubs to show their inclusivity and appeal more to female footballers.

    Grassroots football clubs are the heartbeat of local communities everywhere and the place where I first developed my passion for the game, so I'd encourage all community football clubs to apply for the Bunnings Helping Hand program to make their clubs more inclusive of the next generation of female football stars.

    The AFLW's popularity continues to grow with its fifth season selling out 13 matches and reaching a record number of 24,423 memberships, according to the Ministry of Sport.

    Brand status

    Bunnings has topped the list of "trusted iconic brands" in Australia, based on information collated by Reader's Digest Asia Pacific. Its report said:

    With over 300 outlets, and employing tens of thousands of locals, Bunnings is part of Australian culture.
    According to Harvard Business School professor Douglas Holt, few brand marketers know how to secure their brand that illusive iconic status. Why? "Because icons are built according to principles entirely different from those of conventional marketing."
    Iconic brands like Bunnings, as well as Vegemite, the Royal Flying Doctor Service, WeetBix, Qantas, Bega, AVJennings and Victa are Australian icons with deep connections to our culture and lifestyles. They each enjoy culture share, as well as market share, and are tethered by history and symbolism that states what the brand stands for, not just how it performs.
    Among the winning trusted brands in 2021, our iconic brands stand out in the market because of their place in Australian history - they are trusted icons as well as a source of national pride.
  • Sources: Ministry of Sport, Bunnings and Readers Digest Asia Pacific
  • bigbox

    USA update

    Lowe's buys Stainmaster carpet brand

    The purchase expands Lowe's private brand offering, and the retailer sees an opportunity to extend its high-performance characteristics into other product categories

    Lowe's recently announced it has acquired the carpet cleaning brand Stainmaster for an undisclosed amount from parent company, Invista. Lowe's president and CEO Marvin Ellison said in a statement:

    ...At a time when home has never been more important, customers are increasingly looking for high-performance products to meet their evolving needs and expectations.
    We see great potential to leverage and extend the Stainmaster brand into other product areas to further serve our customers and deliver on our Total Home strategy.

    The strategy has four key areas: focusing on the pro market, improving installation services, offering popular products in local markets like Stainmaster and investing online.

    Sarah Dodd, senior vice president of global merchandising for Lowe's, said the Stainmaster acquisition should strengthen Lowe's family of private brands.

    Research shows Stainmaster is the soft-surfaces brand customers trust the most when shopping for flooring. This acquisition further demonstrates our commitment to deliver a compelling product assortment for customers wherever they choose to shop with us.

    Invista, which was formed from DuPont Textiles and Interiors in 2003, sold the Stainmaster brand including related trademarks such as Pet Protect.

    Lowe's was the only home improvement store in the US to carry the brand exclusively for over a decade.

    Bill Boltz, executive vice president of merchandising for Lowe's, told The Charlotte Observer the acquisition is also part of the company's ongoing market share rights with main rival Home Depot. He said:

    It's important to know we're going to continue to invest in the (Stainmaster) brand and that Stainmaster and Lowe's are now one entity.

    Stainmaster joins Lowe's private brand portfolio including Moxie cleaning supplies, Kobalt power tools and allen + roth home decor.

    About Stainmaster

    Stainmaster was started by DuPont in 1986, in a launch that shook up the flooring industry. The brand was built on stain-resistant technology, which wasn't new and, in fact, had been around a while. What set Stainmaster apart, however, was how much money went into advertising it to the consumer. The unprecedented USD85 million, three-year campaign made the treatment, in many instances, better known than the carpets that use Stainmaster.

    Tom McAndrews, then-president of DuPont Flooring, said the initial USD5 million in advertising grew to USD15 million. Mr McAndrews challenged its advertising agency BBD&O to put the ads everywhere. He told Floor Daily, "It was a massive success", catching fire not only in the US, but also in Europe, the United Kingdom, Australia and Japan.

  • Sources: Chattanooga Times Free Press, Floor Daily and The Charlotte Observer
  • bigbox

    Big box update

    Bunnings car parks as vaccine hubs?

    A clone of Bunnings Warehouse outlets has been identified in the Philippines and a Bunnings store in Sydney sold to Newmark Capital

    Bunnings recently offered the use of its car parks as mass vaccination hubs if the federal government requested assistance, according to a report in The Guardian Australia. Bunnings' chief operating officer, Deb Poole, said:

    We've previously supported the government and the community by hosting COVID-19 testing in some of our store car parks and we're always open to discussing further support directly with the government.

    Using Bunnings car parks to vaccinate Australians en masse has the support of a few leading epidemiologists. Hassan Vally, an associate professor in public health and an epidemiologist with La Trobe University in Melbourne, said hosting mass vaccination centres in Bunnings car parks could provide a "nudge" to large sections of the population who would visit the stores and see jabs being administered. Mr Vally told The Guardian:

    Everyone in the population seems to end up at Bunnings with some frequency ...they're convenient for people to get to. Most people haven't seen a vaccination occur in person, so if you're going into a Bunnings a few times and you keep passing the vaccinations, then the next time you're on your way out with your potting mix, you'll go up and ask.

    Mr Vally also noted the "credibility heuristic" - a rule of thumb concerning vaccine hesitancy where epidemiologists observe "we trust people we can relate to - people in our social network". Bunnings has been rated as Australia's most trusted brand, based on research by Roy Morgan.

    Mr Vally said religious and community leaders were best placed to address vaccine hesitancy but Bunnings stores would have an advantage when it came to promoting COVID vaccination.

    If people go to Bunnings and can get their sausage sandwich after their vaccine on the way out, that's a good thing.

    Prof Catherine Bennett, chair of epidemiology at Deakin University, said once Australia's vaccine supplies significantly increased using Bunnings car parks could help "normalise the vaccination process".

    She pointed out that mass vaccination hubs identified by state governments so far were mostly in city centres and Bunnings' suburban locations would make logistical sense when rolling out Pfizer vaccines en masse later in the year.

    That's because one way of avoiding wastage once multi-dose vials are open, is to offer the vaccine to anyone nearby who can quickly come in for a jab. Prof Bennett said:

    For testing, Bunnings car parks worked really, as people could get tested in their cars. [It's] an identifiable site, it's got the space and can be adapted for this.

    She said a sterile environment and waiting area would need to be cordoned off to administer jabs and provide recipients an area to wait the required 15 minutes following their injection.

    Prof Bennett also said such a vaccination site would work best if it used a combination of bookings and walk-in appointments to avoid vaccine wastage.

    Bunnings is an identifiable site, it's got the space and can be adapted for this. People are comfortable there and this type of plan would leverage Bunnings' presence in the community.

    A number of Bunnings stores hosted testing clinics in carparks in the early weeks of the pandemic. National Australia Bank and the Business Council of Australia is also offering to help speed up the vaccine rollout and reopen the economy.

    Related: In 2020, Bunnings car parks in Victoria were an option where people could

    get tested for coronavirus.

    Contactless service at 250 Bunnings stores - HI News 6.2, page 28

    Philippines version of Bunnings

    Philippines-based Builders Warehouse is a close clone to Bunnings using its familiar red and green branding as well as the hammer icon but with a different tagline, "You build. We provide".

    A direct comparison of the two types of stores was made by PEDESTRIAN.TV, a youth-focused online news and entertainment website.

    Builders Warehouse has far fewer stores in its network than Bunnings with five locations in Dau, Mabalacat, Pampanga, Malolos and Bulacan in the Philippines. In addition to selling hardware and building products, the stores also offer groceries.

    According to its website, Builders Warehouse was established in 2018 by the Racal Group of Companies with the "aim to be a purveyor of top quality yet economical products and services". It also says:

    Builders Warehouse aspire to be a competent, well-founded home building institution by putting its employees under constant training to ratify professionalism, furnish every home with its trusted local and global brand suppliers, deliver remarkable services to its customer and trade partners, and above all, maintain a harmonious relationship with its company employees by creating a healthy corporate working environment.

    For more information, visit the website in the following link:

    Our Builders Warehouse, the Philippines answer to Bunnings

    The Racal Group of Companies also owns My Home Depot in the Philippines but has little resemblance to US hardware retail giant Home Depot event though it sells similar products.

    Bunnings Eastgardens sold

    The $75 million Bunnings store located in Eastgardens, about 9km south of the Sydney central business district, has been purchased by fund manager Newmark Capital.

    It has been added to its portfolio of hardware stores, Newmark Hardware Trust, according to The Australian Financial Review (AFR). The acquisition of the Eastgardens Bunnings on 4.14% initial yield follows its deal in February to acquire a Bunnings outlet under construction in Preston (VIC) for $85 million.

    The Eastgardens site spans 2.3 hectares. The Bunnings store, comprising 14,920sqm, began trading in mid-2017. It was developed by Bunnings and then sold ahead of its opening in 2015 to a private investor. The property serves a large catchment area in Sydney's east, including nearby suburbs of Maroubra, Pagewood and Botany.

  • Sources: The Guardian Australia, PEDESTRIAN.TV and The Australian Financial Review
  • bigbox

    Big box update

    Construction will start on new Bunnings outlet in Mount Isa

    Bunnings leads in "digital interest", according to Google Trends research by Macquarie

    After a builder was appointed for its store in Mount Isa (QLD), Bunnings anticipates construction will get underway in early May, with the new store opening its doors to local customers in early 2022.

    Bunnings said it will invest more than $19 million in this store, located on West Street, and will span more than 5500sqm. It will be double the size of the existing store on Camooweal Street.

    The store will include the main retail area, a fully enclosed timber yard, an outdoor nursery and over 150 on-site car parks for customers. It will also have a building materials landscape yard and a bagged goods area in the nursery, both features not seen at the current Mount Isa store.

    Related: Bunnings in Mount Isa and Plainland

    Big box update - HNN Flash #37, March 2021

    Google search trends

    Research conducted by Macquarie found that Wesfarmers-owned Bunnings led the way - along with Metcash-owned Mitre 10 - in terms of online search activity (for hardware) on Google Trends. Macquarie said in its report:

    Wesfarmers has seen favourable momentum in Bunnings and Kmart for online search activity as value remains a key driver for consumers.
    As expected, Easter long weekend led to heightened search interest, as people continue home improvement projects.

    The researchers added that strong turnover in a booming housing market was also a factor.

    American online retail giant Amazon has started trending higher, Macquarie said, as it gained traction in Australia.

    It said JB Hi-Fi-owned The Good Guys also fared well but suffered a notable decline in the first week of April, below pre-COVID levels. After reaping bumper revenue from December's holiday-season spike in spending, digital interest in JB Hi-Fi and Harvey Norman has diminished, close to pre-pandemic levels in January last year.

    Interest also fell for Wesfarmers' online retailer Catch since the heights of Black Friday sales in November, while its Officeworks chain has continued to trend lower due to softer demand for school and office supplies after the back-to-school season in January and CBD offices opening up.

  • Sources: The North West Star and News.com.au
  • bigbox

    USA update

    Lowe's launches Pro Zone

    It is a dedicated area situated near the Pro entrance for grab-and-go convenience with specially selected products and value packs for professionals

    Lowe's Home Improvement has unveiled a number of perks for its professional customers, including a dedicated Pro Zone that makes high-demand items more accessible, free phone charging and air stations, extended trailer parking spots, and flexible credit.

    Store staff have also been equipped with technology to improve the shopping experience for tradies. Fred Stokes, senior vice president of Pro Sales and Services for Lowe's, said:

    We want to make sure any time spent away from the jobsite is efficient and productive for the Pro customer, especially small- to mid-size companies. We've enhanced our shopping experience, bringing in new products and services that help add value to each trip Pros take and cut down on the number of stops they make throughout the day.

    Lowe's has placed increasing focus on the professional market in recent years, introducing more items that meet the needs of a professional customer and launching the Lowe's for Pros loyalty program in 2020.

    Though there are concerns that businesses that did well during 2020 will see declines as consumers venture out and shift their spending once again, there's confidence that businesses related to the home will continue to do well. Speaking at the recent UBS Global Consumer and Retail Virtual Conference, Lowe's chief financial officer David Denton, said:

    We still see the housing sector, the home improvement sector still very frothy at the moment, in the sense that demand continues to be robust across categories and across geographic markets, we continue to see interest rates, although they're ticking up, relatively at historic lows.
    We see the consumers' balance sheet pretty healthy, still a lot of savings rate from a consumer perspective, so cash is building up into consumers' bank accounts.

    And now that there is some distance between now and the beginning of COVID-19 when shoppers wanted to isolate themselves as much as possible, work involving professionals can take place. Bill Boltz, Lowe's executive vice president of merchandising, told MarketWatch:

    Early in the pandemic, consumers didn't want someone in their home.

    As time went on, Mr Boltz said consumers became more comfortable with tackling these bigger projects.

    Outside projects, like decks, take precedence now with more comfort in having an installer in the home.

    During its fourth-quarter earnings announcement, Lowe's said that DIY comparative sales "outpaced" professional comparative sales, but the pro business was still in the mid-20% range for the quarter and nearly 20% for the year.

    With so much uncertainty across the retail landscape, Mr Boltz said the company is trying to control what it can, and the company's data shows that 90% of respondents who took on a project last year have plans to take on another this year.

    Moreover, professionals are reporting that "their bookings are full". Mr Boltz said:

    We know we still have a lot of room for growth, both online and store level. The market is very fragmented, there's lots of share to get ... There are a lot of pieces in motion and it's early innings in terms of being relevant to the pros.
  • Sources: MarketWatch and PR Newswire
  • bigbox

    Big box update

    Bunnings sponsors New Zealand Rugby

    Bunnings (NZ) takes over from hardware retail rival Mitre 10 (NZ) when it did not have its five-year deal renewed

    New Zealand Rugby (NZR) and Bunnings Warehouse recently announced a three-year deal to sponsor domestic competitions and support community rugby throughout New Zealand.

    Bunnings Warehouse will be the primary partner and naming rights sponsor of the Bunnings Warehouse National Provincial Championship (NPC), Farah Palmer Cup (FPC) presented by Bunnings Warehouse, Bunnings Warehouse Heartland Championship and Super Rugby Aotearoa Under 20s presented by Bunnings Warehouse.

    The new three-year sponsorship gives Bunnings naming sponsor rights to the men's provincial competition, which has returned to being the NPC after being called the Mitre 10 Cup and ITM Cup in recent times.

    The last main sponsor of domestic rugby, Mitre 10 (NZ) saw its five-year deal run out this year. Mitre 10 took over sponsorship in 2016 from another hardware company, ITM. (Mitre 10 New Zealand has no affiliation to the Independent Hardware Group's retail banner, Mitre 10, in Australia).

    NZR chief executive Mark Robinson said the Bunnings partnership was part of a shift in priorities for rugby's national body. He said in a statement:

    The past year has provided us with an opportunity to pause and reflect on our priorities and in Bunnings we have found a partner who shares our goal of putting rugby at the heart of every community.
    We are thrilled to have a partner who wants to help us grow the game and support the pathways that give the talented young people in our clubs the opportunity to represent their communities, whether it's through the Bunnings Warehouse NPC, the Farah Palmer Cup, Super Rugby Aotearoa Under 20s or the Heartland Championship.
    Bunnings Warehouse are synonymous with DIY, so I guess it's fitting they have decided to roll their sleeves up and support our clubs, and NZR and our provincial unions will be right there with them.

    After announcing the new partnership at the Ponsonby Rugby Club in Auckland, Bunnings head of trade Paul Connolly said the deal was about giving back. He said:

    Our team live and work within the communities we operate and our focus has always been on contributing to our local communities in meaningful ways, so it was a no-brainer for us to get behind a sport that shares and values the importance of local community connection and teamwork.

    NZR general manager community rugby Steve Lancaster said 2021 was shaping up as a special year for provincial rugby.

    We're seeing a resurgence in interest in our communities after a tough year for everyone. A lot of people are going back to their clubs to connect with friends and whanau and no doubt that support will transfer into our flagship domestic competitions.
    After looking at some format changes, the Bunnings Warehouse NPC will remain in its current 14-team premiership-championship format in 2021, including crossover matches between the two divisions. The Farah Palmer Cup presented by Bunnings will revert to the same format after splitting into north and south pools for the COVID-disrupted 2020 season.

    The new sponsorship was revealed prematurely with an early update of the old Mitre 10 Cup website. Following this, NZR confirmed domestic rugby in New Zealand would now fall under the Bunnings Warehouse Provincial Rugby banner.

  • Sources: Bay of Plenty Times, New Zealand Media and Entertainment and TV New Zealand
  • bigbox

    USA update

    Home Depot testing technology to combat organised retail theft

    Outfit is a startup that sells "DIY home renovations in a box". It formats architect-designed templates to a customer's space and buys all the materials needed on their behalf, and ships it to their door for them to build. The experience is accompanied by an app that guides users from start-to-completion of the project.

    Home improvement giant, The Home Depot is trying a different approach when it comes to curbing what it believes has become a growing problem with crime within its stores.

    The crime typically involves an individual or team walking into a store, grabbing a stack of power tools, and then heading to the front of the store. Next, they either ring up a few smaller items in the self-checkout lane to mask the crime or simply walk straight out the door.

    Either way, the tools are never paid for, and the individual or team will repeat the crime at the same store or various locations.

    To combat such organised retail theft some power tools at Home Depot are kept on locked shelves, some are wrapped with security devices around the boxes, and security cameras keep watch on the aisles. But those tactics haven't stopped organised theft. Scott Glenn, Home Depot's vice president of asset protection, told local TV station, 11Alive:

    We are working on a very strong strategy to, what we like to refer to as harden the target against these types of folks.

    An evolving anti-theft strategy the big box retailer is now using involves a chip being inserted into power tools from DeWalt and Milwaukee brand tools.

    Similar to how gift cards need to be scanned and paid for at a store to activate, the power tools need to be paid for, and then - using Bluetooth technology - the tool is activated. Tools that haven't been activated won't turn on, according to The Home Depot.

    The technology is currently part of a pilot program in select stores in Atlanta, Georgia and in other Home Depot markets. The goal is to discourage thieves, while keeping employees and customers safe and keeping costs low, according to Mr Glenn. He said:

    Theft and fraud are a pressure to those cost concerns, and we want to make sure we don't have to do anything to affect that pricing for our customers.

    Mr Glenn added that often power tools stolen from The Home Depot end up in a few different places. For example, pawn shops and online marketplaces, from eBay to Craigslist, Facebook Marketplace, and a growing list of others. He said:

    Ten, fifteen years ago, there were really one or two online resellers out there, and now we can think of 50. It is a fast, easy way to dispose of a stolen product.

    Mr Glenn said if the technology proves successful during testing in select power tools, it could eventually be inserted into other products with an on and off switch. He said:

    We want to lead in this space. We want to make sure the technology is not only where we want to be today, but where we are going in the future.

    A recent survey conducted by US-based National Retail Federation found in 2020, organised retail crime increased significantly for 31% of retailers surveyed. Forty-four per cent reported a slight increase, 2% reported a decrease and the remainder reported no change compared to 2019.

    Currently, lawmakers in Washington DC are considering legislation to target high-volume sellers of stolen retail items. The INFORM Consumers Act introduced in March 2021 in the US Senate aims to "prevent organised retail crime rings from stealing items from stores to resell those items in bulk online".

    It describes "high-volume" sellers as people who make more than 200 sales or have more than USD5,000 in revenue during a 12-month period on a marketplace. The act would require such sellers to supply the marketplace with bank account information, government-issued identification, a working email address and phone number, along with a business tax identification number.

    Home reno startup

    US-based startup, Outfit wants to make DIY home improvements easier to tackle. Founder and CEO, Ian Janicki, said he has always wanted to make architecture and design more accessible to people. He told TechCrunch:

    I realised I could leverage my knowledge of being handy to create a product that scaled.

    For people who want to go through the Outfit process, the first step is submitting information about the space they're looking to renovate, such as dimensions and photos, as well as the maximum amount they're looking to spend. Outfit then provides information about the expected cost of the project, the handiness level required to complete the project and everything that would need to be done in order to complete the project. Mr Janicki said:

    We make sure it's transparent and that you understand the amount of time that might be required.

    Once someone decides they want to move forward, Outfit then sends all the necessary tools and materials to the customer. Through the app, Outfit offers a step-by-step guide for completing the project. In the event someone gets stuck, they can chat with Janicki or someone else from the Outfit team for support.

    Outfit has had a small set of pilot customers - some who have completed their projects and some whose projects are still underway. Mr Janicki said:

    The millennial generation is now starting to purchase their homes and has been accelerated because of remote work and COVID. They're the Ikea generation and can put together bookshelves and are really used to digital experiences and are now demanding this digital solution.

    So far, the projects have ranged in cost from USD1,000 to USD15,000, but it depends on things like how invasive the project is, how big the space is and more, Mr Janicki said. In general, Outfit charges customers the cost of the actual materials (for eg. power drills, wrenches, cabinets, tiles, etc.) and then adds a percentage of the total on top as a surcharge to the customer.

    Down the road, Outfit envisions offering rentals of the tools themselves, but Mr Janicki said he just wanted to streamline everything in the early days.

    Reverse logistics is complicated to we're trying to take it one step at a time.

    There are a number of home improvement startups out there such as Eano, Renno and others, but Mr Janicki said he's not aware of any direct competitors. He said he recognises that there are some people who are fully capable of buying all the necessary items themselves, watching a video on YouTube and then completing the project.

    Meanwhile, homeowners are also just as capable of hiring someone to do the project for them. But with Outfit, Mr Janicki sees it as somewhere in between. He calls it "DIY plus".

    In terms of being handy, it's a rare trait that everyone appreciates. If we can elevate people in their handiness level, I'm going to be super happy. It's that pride that you were actually able to accomplish that.

    To date, the company has backing from Y Combinator, and previously raised about USD700,000 from investors like GitHub CEO Nat Friedman, B Capital Group's Crissy Costa, Gumroad CEO Sahil Lavingia and others.

  • Sources: WXIA-TV (11Alive), Yahoo News and TechCrunch
  • bigbox

    Big box update

    Opposition to Bunnings store plans in Dubbo

    Bunnings said it uses data to optimise "drive & collect" ordering service and for its supply chain teams. In the US, The Home Depot is gaining data insights by working with Google Big Query to meet changing customer demands.

    Petitions to oppose the proposed Bunnings Warehouse at the former Dubbo RAAF Stores Base site in NSW have attracted almost 500 signatures; and data plays a critical role in the execution of both Bunnings' and The Home Depot's digital strategies.

    Dubbo development

    An online petition on change.org against the Bunnings development application (DA) for a new store in Dubbo has attracted 428 signatures in the four weeks it was live, reports Dubbo Photo News.

    Dubbo Regional Council (DRC) also confirmed that 57 submissions and a hard-copy written petition objecting to the proposal were received during the feedback period which recently closed. However, there was one submission that supported Bunnings' DA.

    Those against the proposed new store cite safety, noise and traffic concerns for the South Dubbo area. Palmer Street resident and creator of the change.org petition, John Gibson, labelled the project as being "totally out of character" for the neighbourhood. He told Dubbo Photo News:

    The proposed development will create significant safety issues for residents, businesses, including childcare and schools in the immediate vicinity...There will also be heavy vehicle movements along Palmer Street from 7am to 10pm every day and the only exit for trucks delivering goods will be via Palmer Street.
    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.

    Mr Gibson has also accused the developers of attempting to use a heritage conservation clause in their Local Environment Plan to gain approval for a building which otherwise would not be allowed to be constructed on R1 (general residential) zoned land. He said:

    The original master plan for the RAAF depot redevelopment was largely residential. This proposal will take most of the residential zone and will pave the way for the developer to create a big box retail complex, in a totally inappropriate location.

    Given the RAAF Base is a heritage listed site, DRC director of development and environment, Stephen Wallace said submissions will now be provided to Heritage NSW for consideration.

    Heritage NSW will provide a response to council within 21 days to indicate whether they support or do not support the application. The DA, which includes Heritage NSW'S response, will be presented in a report at a council meeting thereafter.

    Related: Locals have signed a petition calling for the proposed Bunnings Warehouse at the former RAAF base in Dubbo to be stopped.

    Big box update: Dubbo - HNN Flash #33, February 2021

    Big box data

    As first reported in IT News (Australia), Bunnings said its "drive & collect" contactless pickup service launched during the pandemic is "here to stay" to cater to the changed expectations of customers.

    Drive & collect is a drive-through pickup option for customers who place orders online.

    Speaking at the University of Melbourne Business School's business analytics conference, Bunnings director of digital and analytics, Leah Balter said data and agile ways of working had led to optimisations of the retailer's "drive & collect" offering. She said:

    We had to design a whole new model for customers to shop in anticipation that stores might be closed.
    We collaborated across teams to design the 'drive & collect' model in three days, rolled it out to three stores in five days and trained 46,000 team [members] in the model in three weeks to get it out in time before the first lockdown.
    The 'drive & collect' program initially took two days to get an order, but...data really helped our team and store be informed in terms of the orders as they were coming in, and helped our merchandise team get supply and demand [right] - what essential items were people looking for during this time, and to get the right stock into the right location.
    We couldn't have gone through last year without the underlying data and the agile ways of working across the team to pivot and move really quickly.

    Ms Balter said the past year had improved internal appreciation of the importance of data analytics.

    Last year we couldn't have done it without the amazing team that we've got in, and we're still looking for a whole lot more.
    I think the rest of the business got a whole newfound appreciation for the data and analytics team and what they can do, and...[for] building the underlying platform for them as well to work off.

    Ms Balter also said the retailer introduced some analytics self-service capabilities for internal teams, particularly supply chain.

    Supply chain has been really important over the past year in terms of getting the right products into the stores where customers wanted them.
    For us it was about [the data and analytics team] not being effectively the nerve centre for that...but actually upskilling the supply chain team and working with them in partnership.
    So we moved to a self-service model which I think was really key for the supply chain team over the last year in particular.

    The Home Depot

    Everything around digital transformation at The Home Depot comes back to analysing and understanding data, according to senior vice-president of IT, Fahim Siddiqui.

    It begins with understanding what needs to change and how customers want to engage with an organisation. The retailer is tapping into Google analytics technology to gain this type of data and knowledge.

    Google Cloud's BigQuery is used to provide up-to-date data to help manage 50,000+ items stocked at over 2,000 locations, ensure website availability and provide accurate and appropriate information to customers via the corporate call centre.

    Mr Siddiqui is leading a team that is charged with application development for Home Depot's online, marketing, merchandising and supply chain functions. Its role is to create and support technology platforms that provide the retailer with an interconnected and seamless experience, both for employees and external customers. This was vital during the COVID crisis when Home Depot stores were able to remain open and it experienced a hefty uptick in demand. Mr Siddiqui explains:

    As an essential retailer, we must be able to provide our customers with the critical items they need and what they need most. In facing those challenges, our ability to quickly adapt our operations to meet those objectives was quite important. This was really based on a strong culture, our dedicated associates and our flexible and scalable technology. And when all that came together, we were able to pivot adopt and meet the needs of our customers as well as of our associates.

    Everything comes back to the underlying data. He said:

    When we think about digital transformation, a lot of time our eyes are drawn towards what systems changes are we going to make and what is it that we are going to automate? But really, the journey of digital transformation starts in all the different areas of the business. So as we start, we'll start really looking [from] the 'customer back' view and how customers are choosing to engage with us. What do we need to change to really connect with the customers in terms of our processes, our platforms and also, just how the work gets done together?

    This is a long game, he adds, and one that involves a degree of re-evaluation and re-appraisal of established practice. Mr Siddiqui said:

    It's not easy, because you have to unlearn a lot of the things that made you successful and to learn new things. The Home Depot has been on a digital transformation journey for a few years. Within that context, not only have we invested in new systems, we've also closely re-evaluated our legacy systems and understood what to retire, what to re-architect, and, more importantly, how to create an interconnected ecosystem, so that we can actually bring together the install journey, the online journey, the in-app journey, as one customer journey end-to-end. When all of that ties in together, you really can do magic.

    Magic was in demand when COVID hit. Although Home Depot was able to keep its doors open, it wasn't a case of business as usual, explains Mr Siddiqui. There was an acceleration of transformation activities. He said:

    For instance, our teams were able to deploy curbside delivery in a matter of days, and in some cases in hours. That's just something that we had never done before...
    As home became a place where you are actually teaching and working, people started looking at their spaces differently. And as they did, that inspiration to action, identification of projects, identification of products, the selection of vendors, became a continuum and we started seeing more and more of the journeys starting in the digital channel.

    This resulted in a philosophical change in terms of how customers engaged with the retailer online. Mr Siddiqui said:

    When we talk about e-commerce generally, we think of 'Hey, I need this product, I click here and it gets delivered'. Now it's about, 'I have an inspiration. How do I connect that inspiration to what will fit?'. More of our customer journeys are inter-connected, meaning they start digitally, but the purchase may be completed online, in the app, or somebody might go to the store.

    Such a shift put additional demands on the fulfilment capabilities of Home Depot and its IT team as provider of the underlying tech enablement. He said:

    We had to really grow our technical capabilities. For instance, in a store you have a limited assortment. You still want to see that faucet, but you want it shipped in carbon black. Probably we won't carry carbon black in the store. For customers to know what's available in store, what can be delivered to them and by when and to bring all this information together really was a continuance of our online capabilities and our supply chain capabilities.

    Once again, it all comes back to data and how Home Depot understands and manages it. Mr Siddiqui said:

    Our merchandising data really becomes the fuel for this. This whole experience and connecting it all together becomes quite important. Many times, it's not about a family of hardware that you want to buy. You may end up buying five different products from five different vendors, but they're all connected through our AI/machine learning project graph, so that you can know that they'll come together. We partner with Google to make sure that we bring those best practices in and really deploy the pipeline, using BigQuery [in] our data analytics pipeline.
    We are on a journey of really consolidating our data, from real time to historical, in one place. We actually migrated all of our data warehouse to BigQuery over the last three years. The upside of that is now we have a lot more of this data together. There's only one place of truth, so there's never an argument in our organization about whether your copy of the data is the real truth or my copy of the data is the real truth. Once you agree on that basic principle, everything else becomes much easier, because now you are actually tying real time analytics to the view of the customer to the view of the product to the regions.

    What this means it that Home Deport can have access to genuine insights into what is it that customers are looking for today and what they will - perhaps - be looking for tomorrow, something that has come in particularly handy over the past several months of the COVID outbreak. Mr Siddiqui recalls:

    As we started in the pandemic, we were very concerned how many of our stores would be shut down and maybe only could do deliveries. To react to that, for instance, we looked at the trends on online. Our online business grew by more than 80% year-over-year, which was amazing. But over a period of three weeks, we actually took a market delivery centre and changed it to a parcel delivery centre. Those are the types of things you really get to know when you have confidence in the data and you have confidence in the truth and you can then interpret and project.

    Mr Saddiqui took part in the US-based National Retail Federation's Big Show - Chapter One virtual event in late January 2021. This interview originally appeared on diginomica.com.

  • Sources: Dubbo Photo News, IT News (Australia) and diginomica.com
  • bigbox

    Europe update

    Kingfisher beats analysts' FY forecasts

    A pandemic-inspired DIY boom and ecommerce sales contributed to the home improvement group's annual results

    Kingfisher, parent company of the B&Q and Screwfix retail brands, has reported a surge in sales and profits for 2020 as a locked-down United Kingdom turned to home improvements.

    At the announcement of its latest results, Kingfisher chief executive, Thierry Garnier said the company has seen "extraordinary demand" in the past year as people adapted and updated their homes and gardens to cope with new demands prompted by restrictions on travel, socialising, schools and leisure.

    Mr Garnier said that a "younger generation of DIYers" emerged as people turned to home improvement projects in months of lockdown. He highlighted that 18-to-34-year-olds had done more home improvement than any other age group, with 20% doing DIY for the first time.

    He also suggested that increased home working after the pandemic would prompt living space adjustments and would create more wear and tear throughout the home, encouraging further investment in home improvement.

    The pandemic supercharged its digital business, accelerating the shift to online shopping by two years and attracting 10 million additional online customers.

    As stores were forced to close in the UK, B&Q employees started picking online orders straight off shelves. The retailer expanded click-and-collect to hundreds of sites. At the peak of the pandemic, one store in south-west London handled 1,500 orders in a day. It typically does about 200.

    Ecommerce sales rose by 158% last year, powered by growth in click-and-collect and faster home delivery. Click and collect sales surged 226% to account for more than three-quarters of all e-commerce sales, up from 62% in the previous financial year. Online now accounts for 18% of total group sales, up from its 8% share the prior year.

    Full-year like-for-like sales rose by 7.1% compared with the previous year, and were up by 15.5% in the fourth quarter, Kingfisher said.

    The home improvement group reported an adjusted pre-tax profit of GBP786 million for the year to January 31, up from GBP544 million a year earlier. Analysts had expected GBP757 million.

    Sales climbed to GBP12.3 billion from GBP11.5 billion. Kingfisher's statutory full year profit was GBP756 million, up from GBP103 million a year earlier, when the company suffered charges relating to the exit from its Russia business, restructuring and other matters.

    Mr Garnier said sales growth would continue over the next five or six months but was then likely to go into reverse in the second half of 2021, as the company would struggle to beat nearly 17% sales growth in the second half of 2020.

    ...[T]he exceptional demand we have seen over the past year may moderate as vaccines are rolled out and restrictions for our customers become less prevalent.

    The company also flagged "continued uncertainty related to Covid in continental Europe". Nevertheless, Mr Garnier said he was "confident of continued outperformance of our wider markets" despite the uncertain outlook.

    Since the end of January life-for-like sales have risen more than 24% compared with the same period in 2020. Mr Garnier said:

    The Covid crisis has established new longer-term trends that are clearly supportive for our industry - including more working from home, the renewed importance of the home as a 'hub', and the development of a new generation of DIYers - and we expect these to endure. With our strategic progress, we are well positioned to capitalise on these new and positive market trends.

    Kingfisher is among retailers in the UK that have returned emergency taxpayer support to the government. In December, it pledged to repay GBP130 million it received in business rates relief and GBP25 million of furlough payments.

    While his predecessor Veronique Laury had been trying to better integrate its many businesses across several countries, Mr Garnier has been undoing those efforts and the group is now working to decentralise its decision-making and empower local teams. There has been a renewed focus on clear branding and e-commerce.

    Kingfisher said its own exclusive brand ranges, which make up just under 40% of sales, have been popular with customers, too. Mr Garnier said:

    We rolled out our 'Powered by Kingfisher' strategy without delay and even accelerated in many areas. Our distinct retail banners are now empowered and much more agile, which enabled them to react quickly in what was a volatile situation last year, supported by the scale, strength and expertise of the Kingfisher Group.
    We continued to 'focus and fix' key aspects of the business. We have now finalised the fundamental reorganisation of our commercial operating model, and introduced new trading approaches tailored to local markets...
    Throughout this year, we have remained committed to making the right decisions for our colleagues, customers, and our communities. This has included upgrading our safe operating standards, ring-fencing and donating PPE, supporting our colleagues and rewarding frontline staff, returning government support, and developing our plans to help tackle climate change and deforestation.

    Kingfisher has about 1,390 stores in Europe including Castorama and Brico Depot in France, its second largest market after Britain. It employs 27,400 people in the UK of its 62,500 staff worldwide. The company has been allowed to remain open during the pandemic because it is deemed to be an "essential retailer".

    Related: Kingfisher is hoping to cash in on the trend of a younger generation returning to DIY.

    B&Q looks to Instagram generation - HNN Flash #29, January 2021
  • Sources: The Times, Financial Times, The Guardian, RTE Ireland, Shropshire Star and Telegraph.co.uk
  • bigbox

    Big box update

    Progress on Mount Isa and Plainland stores

    Bunnings responds to concerns from a Tasmanian environmental group that is against the practice of removing tree ferns which are sold through a number of its retail outlets

    A builder has been appointed for the construction of the new Bunnings Mount Isa store in North West Queensland. Bunnings area manager Michael Rodwell told The North West Star it has appointed a builder and expects to "provide the local community with an update on construction timelines in the coming weeks".

    In 2019, Mount Isa City Council said the old council works depot and storage yard site at 89 West Street was purchased for about $500,000 and had a development permit valid until 2022.

    Council had discussions with Bunnings back in 2009 for the purchase of the site, and the big box retailer lodged a development application (DA) in May 2017 to build a store on the site.

    The original DA said the build would include a main warehouse, timber trade sales, a building materials and landscape yard, bagged goods canopy, an outdoor nursery, main entrance and outdoor display areas.

    In the Lockyer Valley (QLD), the Gatton Star reports that staff are being hired for the Bunnings Plainland store.

    The store is expected to open in the second quarter of 2021, as long as weather does not impact construction by delaying it.

    Related

    Mount Isa City Council confirmed that an agreement was in place to sell the former works depot site located close to the current Bunnings Mount Isa store.

    HI News 5.4: Big box update - Mount Isa, page 24

    It has been stated previously the $19 million Bunnings store being built at Plainland was expected to open by Easter 2021.

    Hi News 6.3: Big Box update - Plainland, page 18

    Tasmanian tree ferns

    Environmental group, Blue Derby Wild recently met with Bunnings representatives via Zoom to protest against the practice of removing tree ferns. These ferns are sold through a number of Bunnings stores, according to The Examiner.

    Since the virtual meeting, the group has sent Bunnings an open letter with about 3000 signatures. It has also carried out a state-by-state audit of Bunnings websites and outlets, claiming the tree ferns were only for sale in Tasmania and not on the mainland. However, Bunnings confirmed it has not changed its sales policy.

    Blue Derby Wild's opposition to the practice centres on the ancient role of native tree ferns in Tasmanian rainforests and its claim that their removal is unnecessary as they often grow in areas with little timber value, and can die once harvested. The tree ferns can be hundreds of years old and grow between 3.5 and 5 centimetres per year.

    Bunnings merchandise general manager, Adrian Pearce said they were continuing to consider the invitation from the environmental group. He told The Examiner:

    We have met with Blue Derby Wild to understand their concerns and we have received their invitation to visit, which we thank them for, and are currently reviewing that option.

    Bunnings sells the Tasmanian tree ferns - Dicksonia antarctica - to be planted in gardens, and also sliced as stepping stones as well as tree fern planter garden features.

    While they also grow in Victoria and NSW, Tasmania is believed to be the only state that provides them to Bunnings for sale, largely from the state's North-East.

    Blue Derby Wild co-ordinator Louise Morris said the group would continue to lobby Bunnings to stop selling the tree ferns, but the retailer has stated the harvesting sites had Forest Practices Authority approval.

  • Sources: The North West Star, Gatton Star and The Examiner
  • bigbox

    Big box update

    Bunnings Trade sponsors Perth SuperNight event

    Woolworths is developing a one-stop shop for pet insurance, veterinary services, food and other pet-related products

    Bunnings Trade recently announced an expanded partnership with Supercars, taking on naming rights for key events; and Woolworths is launching a new initiative targeting Australia's $10 billion pet industry.

    Bunnings Trade

    The popular Perth SuperNight motorsport event will be known as Bunnings Trade Perth SuperNight in 2021 and 2022 as part of a two-year deal with Supercars.

    The event is Western Australia's largest motorsport event, with Wanneroo Raceway to light up later this year, according to Supercars.

    In 2021, the circuit will feature night-racing again during 11-12 September. The Perth event in 2019 was contested under lights and proved enormously popular for fans and competitors alike.

    Fans will also see the Bunnings Trade PowerPass return in 2021. The PowerPass highlights the best overtaking moves in each race of the Repco Supercars Championship.

    The official Repco Supercars Championship tipping competition is now open for 2021, with the largest prize pool ever on offer for the top tipsters. Supercars Tipping presented by Bunnings Trade allows fans to start or join a league to compete against family, friends and colleagues, or go head-to-head with thousands of other Supercars fans.

    Related: In 2019, Bunning Trade was a partner in Supercar events.

    Bunnings targets tradies with Supercars - HI News 5.2, page 19

    Woolworths

    Woolworths has entered into a joint venture with South African billionaire entrepreneur Richard Enthoven called PetCulture that is 60% owned by the supermarket retailer, according to an exclusive report in The Australian.

    Over the past year, Woolworths said it has witnessed growth in the pet category in its supermarkets and Big W businesses, and PetCulture has been tasked with building a digital platform to provide dog and cat lovers in Australia with a personalised experience in how they explore, shop, learn and provide health and wellbeing for their pets.

    The PetCulture site is still in the early stages of beta testing, which will allow Woolworths and its joint venture partners to learn from customers to better shape the offering to the community of pet owners in Australia.

    PetCulture is different from what Woolworths already offers in-store and online, with a focus on providing dog and cat owners with premium support. It is being operated as a start-up digital business and the management is separate to Woolworths and PetSure.

    Woolworths chief executive Brad Banducci told The Australian the supermarket group was already one of the nation's biggest pet insurers, with Mr Enthoven's PetSure a long-standing underwriter of its insurance products for several years.

    Mr Banducci said there had been strong growth in the pet industry, insurance and pet food during the pandemic. A huge uptake in pet ownership through lockdowns saw the price of purebred cats and dogs skyrocket and many pet stores sell out of animals.

    ...There have been a lot of COVID-19 pets and we are one of the biggest insurance companies, and what we wanted to do was share our joint knowledge and really do a better job of engaging with pet owners and providing them with a very holistic experience for food, or veterinary advice or whatever the case may be for the members of their family, the furry members of their family.

    Mr Enthoven is the founder and CEO of global insurance company Hollard Group, and sits on the board of the Insurance Council of Australia. His family also owns the Nando's restaurant chain.

    The PetCulture joint venture was formalised in September and its directors include representatives of PetSure and Mr Enthoven, as well as key Woolworths executives including Woolworths director of people reward, risk and compliance Marcin Firek, Woolworths venture capital arm W23 managing director Ingrid Maes and Woolworths digital arm WooliesX director of digital and media platform Faye Ilhan.

    Documents lodged with ASIC show Woolworths' shareholding in PetCulture is owned via its W23 incubator.

    In other related news, Australia-based Mad Paws is a pet care services marketplace that includes sitting, walking, grooming and boarding.

    The company is aiming to raise $10 million as part of an IPO and start trading on the ASX in late March with a market cap of more than $40 million, according to The Courier-Mail.

    Launched in 2014, the business connected more than 70,000 customers with 20,000 pet carers in its first five years in operation. That translated into about 180,000 services booked via either its app or website. It turned over almost $2 million in the last financial year.

    The Mad Paws business model is very similar to Seattle-based Rover, which launched in 2011 and is now active across North America and Europe. It will start trading on the NASDAQ soon, valued at USD1.6 billion.

    Related: In 2019, HNN looked at the growing pet industry in Australia.

    Big business in pet care - HNN Flash #3, July 2019
  • Sources: Supercars, The Australian and The Courier-Mail
  • bigbox

    The Home Depot results FY2020

    Sales, earnings surge

    While the future is less certain, 2020 proved a strong year, with comp sales reaching new highs

    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.

    bigbox

    Lowe's Companies results for 2020

    Strong boost in its numbers, but a less certain future

    Lowe's has managed to increase its EBIT by over 50% for the year on the back of improved demand, and some very good strategy shifts.

    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.

    bigbox

    Wesfarmers-Bunnings 2021 H1 results

    Bunnings headlines with 34% EBIT growth

    Bunnings has shown outstanding growth for the half, increasing sales by $1.7 billion, and comp sales by nearly 28%. Both trade and DIY sales showed strong growth

    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

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    Big box update

    Camo look for proposed Bunnings Dubbo

    A Bunnings store has been acquired while it is being constructed and extension for Indooroopilly development

    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).

    Big box update - HNN Flash #30

    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.

  • Sources: Dubbo Photo News, The Australian Financial Review and The Courier Mail (Online)
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    Big box update

    Bunnings Port Kennedy to shut down

    Caboolture (QLD) will get a Bunnings store and the big box retailer will spend $30 million on a bigger warehouse in Dubbo (NSW)

    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.

    Bunnings buildout continues - HNN

    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.

  • Sources: 917 Wave Radio, The Courier-Mail, Western Advocate, and Daily Liberal and Macquarie Advocate
  • bigbox

    Big box update

    Bigger Bunnings Dubbo store proposed

    New Seymour outlet is about to welcome customers and there are no longer plans for a new warehouse store on at Carrara on the Gold Coast

    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".

  • Sources: The Daily Telegraph, Seymour Telegraph and Gold Coast Bulletin
  • bigbox

    Home Depot's evolving rental strategy

    Starting to offer larger equipment

    The Home Depot Rental has also opened eight new rental centres following the recent launch of two rental operations facilities

    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.
  • Sources: Rental Equipment Register and KHL
  • bigbox

    Lowe's digital transformation continues

    National Retail Federation 2021 virtual event

    The home improvement retail giant said it has moved on from being a conventional brick-and-mortar retailer with an outdated tech infrastructure and an obsolete e-commerce program

    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.
  • Sources: Biz Tech Magazine and HomeWorld Business
  • bigbox

    B&Q looks to Instagram generation

    The UK falls back in love with DIY

    Parent company Kingfisher hopes the tide has permanently turned after decade of decline

    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.

    Kingfisher online: the need for speed - HI News, page 86
  • Sources: The Guardian and City AM
  • bigbox

    Big box update

    Sponsorship deal with league football

    Brunswick store battle is ongoing, and Bunnings expands retail network in WA and QLD with latest openings

    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.

    Bunnings re-signs NBL sponsorship - HNN

    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).

    Big box update: Brunswick - HNN

    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.

    Big box update: Stores in development around Australia - HI News, page 25

    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.

    Big box update: Seymour - HNN

    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.

    Big box update: Alexandria - HNN

    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.

  • Sources: Herald Sun, The Daily Telegraph (Online), A League Football, Albany Extra, The Gold Coast Bulletin, Seymour Telegraph, The Courier-Mail, The Australian Financial Review and Timaru Herald
  • To read the latest edition, please download HI News:

    Download hinews-6-04

    bigbox

    USA update

    Home Depot adds more home decor to its online offer

    Lowe's has partnered with home services platform Handy so its US customers can use Handy Pros for installations

    US home improvement retailer The Home Depot has expanded its online inventory to add more home decor, including furniture, towels and wine glasses, according to an exclusive report in USA TODAY.

    Jeanine Huebner, Home Depot's senior vice president of interconnected merchandising, said the company started adding more decor items before the pandemic but has seen interest grow.

    Since COVID, people are engaged in their home they're undertaking work at home projects. Kids furniture and office furniture is just off the charts and people are now investing because they want to make sure that they're comfortable.

    Ms Huebner said the plans are for most of the new home decor categories to stay online only.

    There's been a huge shift in the whole industry this year to online that we're also seeing the benefit of. Our stores aren't getting bigger, and we just wouldn't have the space to really offer you the collection you'd want to see.

    In late 2017, Home Depot acquired The Company Store, a 109-year-old brand known for its high-end linens and down comforters.

    The assortment on the retailer's online decor business called HD Home includes interior furniture, wall decor, home accents, housewares, tableware and even cookware. The products are designed for people to complete their projects and rooms, it said.

    Ted Decker, the company's president and chief operating officer, said the home decor market has been hit by store closings, including department stores, which he believes is where shoppers previously turned for decor.

    The traditional outlets that a customer would go to literally are closing their doors and this type of product selection is increasingly moving online.

    As part of its "strategic investments", Home Depot has been "leaning into several home decor categories", Mr Decker said in an earnings report.

    The company's trend and design team found that customers were more interested in items that make them feel "comfortable at home", which the company said falls into the home decor categories.

    And with the resurgence of COVID-19 cases in the US keeping consumers homebound now more than ever before, having that comfortable living space has proven to be even more important.

    With "record levels" of online traffic, Mr Decker said the company has seen "significant, outsized sales growth" with HD Home.

    As consumers shop fewer and fewer retailers, our research showed that our customers were increasingly looking to HomeDepot.com to help with project completers like room decor and textiles.

    Related: Home Depot acquired The Company Store, an online retailer of home decor and textile products in 2017.

    Home Depot gets in touch with its softer side - HI News, page 60

    Lowe's home services

    Lowe's and web-based platform Handy have formed a partnership to offer the home improvement retailer's customers on-demand home services at checkout.

    Right at checkout, Lowe's customers can now book a Handy Pro to help them install plumbing purchases, garage door openers, lighting fixtures, window air conditioner units and more. It is available online and in over 1,000 stores.

    It follows Handy's launch with Target (US) and expanded partnership with Walmart in December to install holiday lights. Handy said it provides home service solutions with flexible scheduling options and preferred pricing, all backed by the Handy Happiness Guarantee. In response to COVID-19, Handy has also implemented safety standards. Handy CEO and co-founder, Oisin Hanrahan, said:

    Handy continues to be the installer of choice for leading retail brands. Together with Lowe's, we're bringing more installation options to consumers that want to make their homes safer and more convenient as we all spend more time at home during this challenging time.

    Founded in 2012, Handy offers services such as furniture assembly and television mounting and home decor installations through partnerships with retailers such as Crate & Barrel, Walmart and Wayfair.

  • Sources: USA TODAY, Yahoo Finance, HomeWorld Business and Chainstore Age
  • To read the latest edition, please download HI News:

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    bigbox

    Biggest Bunnings store in WA opens

    Replaces current Midland store

    It has features and displays not seen before in a WA Bunnings store and will allow it to compete more directly with IKEA

    The newly built $55 million Midland store is 21,000sqm - nearly 7000sqm larger than the existing store - and the largest in Western Australia.

    It is the first Bunnings store in WA with a hybrid tradie-everyday shopper concept, offering bulk building materials in an enclosed area with five lanes of undercover carparking - enough to accommodate 32 vehicles at a time. Tradies will have their own self-checkout section to keep queues short at the other check-outs.

    In another first for a WA Bunnings outlet, the store has a wardrobe section (typically seen in IKEA), showing how items can be mixed and matched to suit a space, and low-height kitchen and bathroom tap displays so home builders and renovators can get a close look and feel of the range.

    These features are part of its eight bathrooms and 12 kitchens that are showcased in-store.

    The new Midland also store has a large garage storage section, with mix-and-match shelving and toolboxes all in the same space. This is an Australian first concept for a Bunnings store.

    Complex manager Justin Myles said the layout has been planned to ensure products that are often bought together are located nearby in the store. He said there has been an emphasis on big growth categories such as smart home technology. He told NCA NewsWire:

    Indoor plants [are] also huge - it's very on-trend to have the inside of your house looking like the outside - so people were going nuts for indoor plants and all the garden decor that goes with it to make that homely feel.
    And moving into this time of the year, it's all about making your backyard ready - lots of people host Christmas, [they] want to make that big family experience and bring people together - so outdoor furniture and barbecue [products] are on-trend.

    The store has invested in the low, slow barbecue cooking movement, offering a range of flavoured wood smoking chips, pellets and meat probes, as well as complete outdoor kitchens.

    Other features include a landscaping materials section and a nursery.

    Easy access is a theme throughout the store with walk-throughs in between the long aisles so customers can cut through areas.

    WA is set to get similar Bunnings store concept in Albany, in the state's Great Southern region.

    Related: Construction of the new Midland store began earlier this year at the old Midland saleyards.

    Store network additions and replacements - HI News, page 23
  • Sources: NCA NewsWire, news.com.au and The West Australian
  • bigbox

    Lowe's unveils "Total Home" strategy

    Plans to capture market share from rivals

    At its virtual investor update, the home improvement retailer said it expects sales to grow by about 22% in fiscal 2020

    After working for the last two years on its turnaround efforts, Lowe's CEO Marvin Ellison said the company will now focus on strategic moves to win more of the approximately USD900 billion US home improvement market.

    In the year ahead, he said the company will have a "Total Home" strategy. It will expand its online only assortment from kitchen appliances to home decor. It will test ways to speed up and lower the cost of fulfilling online orders by freeing up more space in the back of its stores. And it will localise products on shelves in different markets, so it doesn't have snow blowers at stores in warm climates or riding lawnmowers in big cities. Mr Ellison said:

    At Lowe's we will be committed to offering everything a homeowner needs to provide a 'total home solution' across every area in the home. This includes products and services for everything needed to repair and improve the home, for DIY and Pro customers alike, across all decor categories including paint, as well as simple and complex installations.
    Our Total Home strategy will enhance customer engagement and grow market share by intensifying our focus on the Pro customer, expanding our online business, modernising installation services, improving localisation efforts and elevating our product assortment.

    The investor presentations included the company's strategies to drive productivity and deliver a seamless, omnichannel experience.

    Lowe's chief financial officer Dave Denton said its efforts in the months ahead will lift the company's sales per square foot. He said it expects to have USD423 per square foot by the end of this year and it will raise its goal to USD460 for the future.

    2020 was a pivotal year for the company, and we are taking market share earlier than we expected, and we are making the right investments for future growth. We are committed to investing in the business, including expanding our supply chain network to enhance our omnichannel capabilities.

    Mr Ellison also said the retailer has overhauled its website and added new signs to help customers navigate its stores as the company gets a boost from the popularity of home improvement projects during the coronavirus pandemic.

    Our commitment to retail fundamentals has been essential to our 2020 financial success. Our supply chain, in-store and digital systems would have collapsed under the weight of the unprecedented customer demand created by the pandemic without this focus.

    Mr Ellison highlighted improvements that the retailer has made across its brick-and-mortar and digital businesses since he took the helm two years ago. Among them are its recently launched loyalty program to gain more business from home professionals, such as electricians and contractors. And its digital fulfillment options such as curbside pickup and in-store lockers.

    He said the company has come a long way from Black Friday 2018 when its website crashed. Now, he said, the retailer is handling a surge in e-commerce demand day after day because of the pandemic.

    The company reiterated its outlook at the investor conference, saying it expects sales to grow by about 22% this year. Same-store sales are expected to increase by about 23% during the same period.

  • Sources: CNBC, HomeWorld Business and Lowe's Companies
  • bigbox

    Home Depot offers skilled trades education

    Tradies in training

    The big box retailer is providing an omnichannel job training and placement program

    The US based hardware-home improvement giant is expanding its commitment to train 20,000 tradespeople over the next 10 years with a new education and job placement program called Path to Pro. It pledged USD50 million towards these efforts in 2018, offering resources and training for people to pursue and grow their careers in the trades.

    Path to Pro aims to educate more people in the skilled trades, connect skilled tradespeople with jobs and careers, and generate interest in trade professions through educational campaigns. Home Depot is investing in training from entry-level to advanced certifications, and recently sponsored its first weeklong boot camp to teach job site safety, tool usage, material handling, and communications.

    The boot camp is piloting in the Atlanta, with plans to expand into additional markets in 2021. Graduates earn a Home Depot certificate that recognises construction skills and professional fundamentals.

    In early 2021, Home Depot will also launch a website to be a centralised resource for people to search local training programs, licensing requirements and open jobs in the trades. The site will feature day-in-the-life videos and stories for each trade, with projected growth and salary information in industries like electrical, carpentry, plumbing, and HVAC.

    The retailer will introduce a proprietary online platform to increase access to networking between skilled tradespeople and the company's Pro contractor customers. Training program graduates will be able to showcase their work portfolio, experience and additional qualifications, and be contacted by Home Depot Pro customers in their area looking for skilled labour help.

    In 2018, The Home Depot Foundation launched its trades training mission to help fill the skilled labour gap through programs in high schools, technical colleges and military bases across the US.

    It works with the Construction Education Foundation of Georgia and Home Builders Institute (HBI). In partnership with HBI and 10 military bases, service members are trained and certified, helping them launch their next career. The Home Depot is also the trades industry sponsor for the Center for Workforce Innovation at Atlanta Technical College which is providing skills to help students attain economic mobility in the trades.

    The foundation's trades-focused partnerships have exposed more than 15,000 people to the skilled trades and certified 3,600 participants in its first two years.

    bigbox

    Big box update

    Bunnings Young store has opened

    The big box retailer also plans to build a trade centre in New Zealand and the Bunnings Mascot site has been sold

    The town of Young in New South Wales has its own Bunnings Warehouse; a trade centre will be built in Invercargill, New Zealand; and the site of the Bunnings Mascot store located in Alexandria (NSW) has been sold to a major property investor.

    Young

    The Bunnings store in Young spans over 5,500sqm and includes an enclosed timber drive through with 10 indoor car spaces, a newly designed trade desk and car parking for over 85 cars.

    As part of the store opening, the team has provided support to local community groups with gift card donations. Young Bunnings store manager Matthew Ross told The Grenfell Record:

    So far, we've provided a $1,000 gift card donation to the local Men's Shed and we've also provided the Young Local Aboriginal Land Council with a $1,000 donation towards their school education and sustainably projects.
    We're also running a competition among local schools in the area, asking them to create and paint a banner of the Young Cherry Festival.
    Because the festival was cancelled this year, we thought we'd try and keep the festival spirit going and create a bit of fun in the town. We've got 10 banners on display at the store and the local community will pick two schools as winners, who will also receive a gift card donation to go towards school sustainability projects.
    Once we're able to get back out into the community, we look forward to assisting more groups in the area with hands-on projects.

    COVID-19 restrictions will be in place throughout the store during and after the opening.

    Invercargill

    The NZD7 million Bunnings trade centre in Invercargill (NZ) is expected to open in the second half of 2021, and measure about 4000sqm.

    With seven other locations around New Zealand, Bunnings trade centres cater for specialised trades such as electricians, landscapers and plumbers as well as farmers and the rural community, according to Bunnings New Zealand director Jacqui Coombes.

    Demolition of existing buildings on site had recently begun and construction should begin in early 2021. Developer and director of CPMC Developments, Martin Russell told The Southland Times:

    We're very pleased to be commencing construction on this exciting new addition to Invercargill's growing commercial district. This project will generate upwards of 80 jobs during delivery and provide a valuable resource for the local community.

    Invercargill-based Archer Construction director Kerry Archer said he wasn't surprised Bunnings was moving in, as there had been rumours for years. Invercargill was already well supplied with trade merchants but he believed a bit of competition was always a good thing.

    But Mr Archer said Southlanders were loyal to their merchants. He also told The Southland Times:

    You generally build up a fairly good relationship with one or two and they are your main suppliers, it takes quite a bit to change that relationship and it's normally going to be priced based.

    He said he would check out Bunnings for pricing to see how it stacked up.

    It's good they have the forethought that the market will stay strong and they can see positives down here.

    Alexandria

    A 1.9 hectare site at 520-530 Gardeners Road in Alexandria where the Bunnings Mascot store is located was sold to ASX-listed property fund Charter Hall for $70 million. Corporate lawyer David Gonski, philanthropist Simon Mordant and businessman John Curtis purchased site in 2015 for $16 million. They are the three directors of South Central Sydney Pty Ltd, the vendor of the Alexandria property.

    The Bunnings store has been on the site for 20 years and has about four years remaining on its lease on the site, according to a report in the Sydney Morning Herald.

    However Charter Hall negotiated a lease-surrender package with the big box retailer, which no longer needs the facility, to vacate immediately. Bunnings has two other stores close by.

    Charter Hall fund manager Simon Greig said the property provides redevelopment options including the ability to develop a high-profile logistics or last mile facility under the current zoning.

    He told the Sydney Morning Herald that South Sydney has emerged one of the most sought-after industrial precincts in Australia given its access to major transport hubs, the CBD, Port Botany, Sydney airport and surrounding residential precincts.

    The acquisition is part of an emerging trend of retail-to-logistics conversions driven by the rise of e-commerce and the growing demand for fulfilment centres close to urban centres to ensure speedy delivery of goods.

  • Sources: The Grenfell Record and Bland Advertiser, The Southland Times, Sydney Morning Herald, and The Australian Financial Review
  • bigbox

    Home Depot buys HD Supply Holdings (again)

    Pandemic brings another strong quarter

    The big box retailer is also giving USD1 billion in raises to its retail employees as it makes pandemic bonuses permanent

    Home Depot has agreed to buy HD Supply Holdings for about USD8.7 billion, reuniting with a former subsidiary it sold off in 2007 as the home improvement giant looks to strengthen its ability to distribute industrial products amid the pandemic.

    HD Supply is one of the largest distributors of maintenance, repair and operations (MRO) products in the multifamily and hospitality markets throughout the US and Canada. It provides everything from bleach, to doors and ceramic tile, electrical, plumbing and other supplies to about 500,000 customers from 270 branches and 44 distribution centres.

    The acquisition brings back together two companies that used to be under the same roof and will give Home Depot more exposure to the professional contractor side of the business.

    It will allow Home Depot to expand into projects in the education and healthcare sectors, according to Jefferies analyst Jonathan Matuszewski. Analysts at Wells Fargo also said the deal will accelerate Home Depot's ability to provide job-site delivery.

    The acquisition fits well with Home Depot's larger strategy as it has been leaning into the professional segment. HD Supply commands more than 4% of the addressable USD68 billion MRO market the big box retailer has identified. This market remains highly fragmented. Home Depot only has a mid-single-digit percentage of the market, so the acquisition of HD Supply will help broaden its base of professional customers, wrote Mr Matuszewski in a note to clients.

    Home Depot chairman and CEO Craig Menear said in a prepared statement that the acqusition aligns with Home Depot's goals to reach a larger share of the MRO business. He said:

    That is a huge opportunity for the Home Depot to continue to grow, not only on the MRO side, but as we build relationships with customers on the MRO side, we build relationships to be able to participate in capital refreshes of those facilities as well, which is something that we're pretty focused on.

    Professional customers currently account for about 45% of Home Depot's sales, and HD Supply could help it cement its leadership position, said Drew Reading, an analyst with Bloomberg Intelligence.

    Though HD Supply has exposure to slower growth commercial end-markets, sales trends among pros continue to improve and may accelerate in 2021.

    Home Depot initially bought HD Supply in 1997 but sold it in 2007 when it began to focus more on its retail operations. It was sold to a group of buyout firms - Carlyle Group LP, Bain Capital LLC and Clayton, Dubilier & Rice LLC - that took it public in 2013.

    The HD Supply transaction is expected to be completed in Home Depot's fiscal fourth quarter, which ends January 31. HD Supply competes with Fastenal, W.W. Grainger and Home Depot's own Pro division.

    Management sees the acquisition adding to Home Depot earnings in 2021.

    Q3 results

    Home Depot has reported strong sales growth in its latest quarter as it continues to thrive from people spending more time on home improvement projects during the coronavirus pandemic.

    In the third quarter, the company's revenue rose to USD33.54 billion, up 23% from a year earlier. Analysts surveyed by FactSet were expecting revenue of USD31.83 billion. Same-store sales grew by 24% year-over-year overall, and by 25% in the US.

    As Americans have spent more time at home during the public-health crisis, many have turned their attention to DIY and renovation projects, shifting money they would have otherwise spent on vacations, gym memberships and other activities that have been postponed to prevent the spread of the virus that causes COVID-19.

    During the pandemic, Home Depot offered some temporary benefits to workers, including more paid time off and a weekly bonus program, leading to costs of about USD355 million in the latest quarter. The company said it plans to make some of these compensation benefits permanent for its front-line retail workers in a program that will cost about USD1 billion a year. The company said:

    We believe that our associates are a competitive advantage to the Home Depot, and they're critical to the overall customer experience.

    The number of customer transactions for Home Depot in the quarter rose 13% year-over-year to more than 453 million, with an average ticket size of USD72.98. Sales per retail square foot increased more than USD100 to USD552.85.

    However chief operating officer Ted Decker noted that the continued increase in demand has pressured supply chains. He said the company is adapting by introducing new products, adjusting assortments and "in some cases, reducing the number of [stock keeping units] in certain categories to focus on the highest demand products".

    As a result of all these actions, we have seen reduced product lead times and continued improvement in our in-stock positions. While we are pleased with these results, we are not at pre-pandemic levels.

    Still, Mr Decker said the company is "in a great position" heading into the holiday season.

    Related: Home Depot built HD Supply in the 2000s through an acquisition spree led by then chief executive Robert Nardelli.

    Disruption 2020: Home Depot - HI News, page 70

    Related: Home Depot re-entered the MRO market in 2015 when it spent USD1.6 billion on Interline, now called The Home Depot Pro, in 2015.

    Pro customers deliver for Home Depot, Lowe's - HI News, page 66
  • Sources: Bloomberg, Wall Street Journal, Associated Press, Telegraph Herald, Investor's Business Daily, Business Insider (US edition) and CNBC
  • bigbox

    Big box update

    Hervey Bay to get a new Bunnings

    Analysts believe Bunnings will continue to dominate DIY retail in the next 10 years and more stores sold off

    Bunnings has been given the green light for a $56 million development in Hervey Bay (QLD); an analysts' report finds that Bunnings is on track to increase its market share; and property fund investor Charter Hall has purchased six Bunnings Warehouse stores for $353 million.

    Hervey Bay store

    Fraser Coast Regional Council has given its approval for a Bunnings Warehouse development. The $56 million project will involve the construction of a new, larger Bunnings store on the vacant block of land, next to the existing Bunnings located on the corner of Boat Harbour Drive and Main Street in Hervey Bay.

    Mayor George Seymour opposed the development, but council voted 10 to one in favour of the proposal. According to The Courier-Mail, he said:

    I am very concerned this movement from the current Bunnings site will impact upon an already very difficult intersection [on] McLiver Street and Main Street.
    Good town planning is central to the role of local ­government. While I disagree with my colleagues on this application, I will work to ensure we get the best possible outcome from the development.

    Councillor David Lee supported the motion, but also had reservations about the impact of the project.

    Cr Lee said he was empathetic towards people living near the site because of the traffic congestion the project would likely cause. Despite this, he said:

    It is my submission this application has been assessed against the relevant benchmarks. I support this development proposal on the merits it has predetermined zoning under our planning scheme.

    Councillor Denis Chapman said he was proud Hervey Bay had been chosen for the large development.

    This is going to be a lot better for our builders, a lot better for our community to use ... I commend Bunnings for bringing this here and having the confidence in the Fraser Coast.

    Future growth

    Bunnings is "on track to dominate the Australian market over the next 10 years", based on new report from stock analysts, Morningstar Equity Research. It has forecast the big box retailer will gain more market share and grow annual sales year-on-year.

    However Morningstar's analysts said sales would comparatively slow after Bunnings boomed during coronavirus-enforced lockdowns. In a recent trading update, Wesfarmers told shareholders:

    In the short term we continue to expect weaker sales growth as Bunnings laps unusually strong sales growth induced by temporary shifts in consumer spending patterns toward home improvement during COVID-19.
    We have slightly downgraded our near-term sales forecast due to a more cautious outlook on consumer price inflation and population growth.

    The next goal is to improve Bunnings' digital offering as consumers turn to options such as click and collect and online shopping, according to Morningstar's analysts.

    Real estate sale

    Charter Hall Group and two Australian superannuation funds have acquired a $353 million portfolio of six Bunnings hardware stores.

    The outlets located in Bonnyrigg (NSW), Caringbah (NSW), Windsor Gardens (SA), West Footscray (VIC), Underwood (QLD) and Virginia (QLD) have a weighted average lease expiry of 10 years and 2.5% annual rent reviews.

    The properties, which formed CBRE Global Investors' Asia Pacific Bunnings Trust, were sold in an off-market deal representing a yield of 4.63%. It is understood Charter Hall is also acquiring CBRE GI's last remaining Bunnings asset, in New Lynn, an outer suburb of New Zealand's Auckland, for about $50 million.

    The investors including Victoria's state investment agency, Victoria Funds Management Corporation (VFMC) and TelstraSuper, the super scheme for Telstra, are partners of Charter Hall in what is known as the LWHP partnership.

    Apart from LWHP, Charter Hall also manages special mandates from super funds which invest in Bunning stores. Charter Hall managing director and group CEO, David Harrison, said:

    Across the Charter Hall platform we now have in excess of $2.4 billion invested in 59 Bunnings stores, 50 of which are located in metropolitan locations.
  • Sources: The Courier-Mail, Channel 9News, IPE Real Assets and The Australian Financial Review
  • bigbox

    Big box update

    Trading update

    Fresh new flooring and garage storage displays at the Nowra store and expansion planned for Bunnings in Brisbane's north

    Wesfarmers has released a trading update for its retail operations. Speaking of trading conditions overall, the company's managing director, Rob Scott, stated in the update that:

    The trading restrictions in Melbourne were difficult for team members and customers, and it is encouraging to see progress with the reopening of stores over recent weeks. As a result of significant pent-up demand, the trading performance across stores in Melbourne has been very strong since they re-opened to retail customers on 28 October 2020.

    Bunnings reported ongoing strong growth for both DIY consumers and tradies. On a comparative basis, if Melbourne stores are excluded (due to the lockdown) the company reports an outstanding 29.3% growth in sales revenue. Including all stores, sales growth would be 25.2%. Bunnings also reports that online sales are now responsible for 3.8% of its overall revenue. The hardware retail group commented that:

    Consumer sales remained particularly strong as customers spent more time undertaking projects around the home.

    Nowra store opening

    The new Bunnings store in Nowra (NSW) measures 14,130sqm, an increase from 6,248sqm of the previous outlet. The former store was demolished in late 2019 to make way for the $27.8 million building.

    COVID-19 restrictions will be in place when the store opens, so children won't be able to use the indoor and outdoor playgrounds yet, and the cafe will be operating as takeaway only.

    It has more than 400 car parks and an escalator will take customers from the undercover parking level up to the store.

    Bunnings Warehouse Nowra has a larger main warehouse, a timber trade sales area with a five-lane timber drive through, an outdoor nursery and landscape yard. It also has the latest in-store concepts including wardrobe and bathroom displays, as well as a kitchen design centre with 12 brand-new kitchen concepts.

    As part of the store opening, the team has provided support to local community groups with product donations. Complex manager Richard Jenkins told the South Coast Register:

    So far, we've provided help to Anglicare by donating equipment such as gardening tools, seedlings and fruit trees, as well as variety of edible plants to help establish their community gardens in local indigenous communities.
    We also provided Havenlee School with a kitchen and supplied plywood to the Northern Shoalhaven Community of Schools Project.

    Stafford location

    Bunnings has submitted a development application after two years of preparation and negotiation with the Brisbane City Council (BCC) to extend its pre-existing store at 450 Stafford Road, replacing the previously approved display and sales area with a timber trade sales area.

    If the application is approved, Bunnings will also repurpose buildings located at nearby 33 Windorah Street to construct a fully enclosed building materials and landscape yard, a nursery area, two showrooms and 176 additional car parks.

    There is expected to be a new access road via Windorah Street and truck access along the entire length of the site's western boundary.

    The proposal was first taken to the BCC for a pre-lodgement discussion in 2018, in which city planners identified potential problems with land use, access and parking.

    The plans lodged recently seem to have addressed those concerns with an extensive, drought-hardy landscaping plan, alternative truck access through Windorah Street, widened driveways to facilitate truck movements and a number of additional parking areas across the site.

    The BCC is yet to make a decision regarding the application.

  • Sources: Wesfarmers, South Coast Register and The Courier Mail
  • bigbox

    Big box update

    Bunnings works towards 100% renewables

    Managing director, Michael Schneider, sees continuing robust trading in hardware retail because ongoing travel restrictions will turn people's attention toward their homes, using the DIY skills they gained during the pandemic

    Bunnings is the latest major Australian retailer to pledge to source 100% renewable electricity for its operations by 2025.

    It recently announced this commitment, alongside plans to roll out 20 new solar rooftop solar systems and upgrade 10 of the existing 70 PV (solar photovoltaic) panels systems already installed across the company's stores.

    Bunnings said it had been installing solar systems across its retail network since 2014, which currently supplied an average of up to 30% of a store's energy needs.

    Some of Bunnings' energy efficiency and emissions reduction efforts to date include 150 sites in its network using LED lighting, which the company said reduces a store's energy consumption by more than 20%. Bunnings has also been trialling daylight and motion sensing technology, which it said can reduce lighting related energy usage by 25%.

    Battery storage has been added to the PV solar system at the Bunnings store in Alice Springs (NT), allowing the system to provide up to 80% of its energy needs. This could potentially be an option for its other stores.

    The hardware retailer said it had worked to develop renewable energy solutions "over many years," starting in 2009 with PV system at Bunnings Belconnen (ACT) and wind turbines at Bunnings Port Kennedy and Bunnings Rockingham, both in Western Australia. Bunnings managing director, Michael Schneider, said in a statement:

    We recognise that business has an important part to play in reducing carbon emissions and addressing climate change.
    This is a journey we started some time ago, but we know that we have a long way to go. We are absolutely committed to finding solutions that benefit our business, our customers and the environment and we are excited about what the future looks like.

    Where Bunnings will source the rest of the renewable energy required to meet all of its retail and operational energy needs was not specified in the statement it released. It said only that "new pathways" were being developed to transition the hardware retailer entirely to renewable sources.

    Bunnings' commitment to renewables follows the announcement from parent company Wesfarmers that its retail businesses that also include Kmart, Target and Officeworks are now aiming to achieve net-zero scope 1 and scope 2 emissions by 2030, mainly by tapping cleaner and more efficient energy.

    The retailer's commitment was welcomed by Greenpeace Australia Pacific's Reenergise Campaign, which noted that Bunnings ranked the equivalent of number 55 on the list of Australia's largest electricity users in 2018-19. Reenergise Campaign director Lindsay Soutar said in a statement:

    As one of Australia's biggest users of energy, this is a fantastic shift away from polluting sources of the past and towards clean, modern renewable energy. Bunnings is known for its lowest prices, but now lowering emissions is just the beginning.
    Committing to 100% renewable electricity and net zero emissions is a great win for the climate and for helping create local future-proof jobs in renewables.

    Research by Deloitte Access Economics suggests Australia could adopt a net-zero emissions policy at a fraction of the cost of dealing with the pandemic that would help grow the economy over the next half century and add a quarter-of-a-million jobs.

    According to the report, delivering net zero emissions over the next 30 years could add $680 billion to the economy and create 250,000 jobs by 2070.

    If Australia does "limit global average warming to 1.5 degrees Celsius along with the rest of the world," it could create 250,000 jobs and grow the economy by 680 billion dollars, the report states.

    IKEA in Adelaide

    Home improvement big box retailer, IKEA said it will initially place a large solar installation on its roof at its Adelaide Airport site, coupled with battery back-up, to provide 70% of its energy needs.

    This project is backed by a $1.95 million grant from the South Australian Government's Renewable Technology Fund. The company said in a statement to the Adelaide Advertiser:

    As part of the project, electric vehicle chargers will be erected on site for customers, co-workers and the Ikea delivery fleet servicing South Australia.

    In the second stage of the project, the IKEA carpark will be covered with timber shade structures topped with solar panels, which will bring the site's renewable generation up to 100% of its needs.

    The first two stages of the project are expected to be complete by 2025, with stage one comprised of 1.2MW of solar panels coupled with a 3.4MWh battery.

    IKEA Australia chief executive Jan Gardberg said the Adelaide site would be a "first mover" and the ambition was to "inspire other IKEA stores to install larger solar installations, batteries and digital solutions".

    Related: IKEA has already spent more than $4 billion on making its stores focused on cleaner energy. In Australia, 20,000 solar panels have been installed across its sites.

    Ikea Australia to sell solar panels - HI News, page 47

    Retail optimism

    Speaking at The Australian Financial Review CFO Live event in Sydney's CBD, Mr Schneider said:

    We have quite an optimistic outlook on what's going on around Australia. People see the home as the safest place to be. We've all learnt new skills over the last few months.

    He believes people gained enormous satisfaction from mini-renovations and doing small projects during the pandemic. Bunnings will be increasing the number of DIY classes and tips offered to customers because there was an enormous appetite among householders.

    Mr Schneider said October, November and December were traditionally strong months for the hardware and DIY sector, and as warmer weather approached, he expected sales to rise in products such as outdoor furniture and barbecues.

    He said the focus by some people on shifting to regional centres or seaside communities outside cities was also driving more spending on renovations. Mr Schneider expected this trend in pursuing a "tree change or a sea change" to accelerate as people eyed potential locations in provincial and regional towns.

    He also said the group wanted to accelerate its organic growth.

    It's very much a growth mindset, predominantly organic growth.
  • Sources: One Step Off The Grid, Sydney Morning Herald, Adelaide Advertiser, The West Australian and The Australian Financial Review
  • bigbox

    Keeping hardware customers post-pandemic

    The Home Depot's tech investments pay off

    The retailer won a lot of customers during the pandemic and credits its digital technology for attracting DIY consumers

    In the US, Home Depot reacted to the rapid spread of COVID-19 by cancelling annual sales events and pulling many marked-down goods off the shelves to keep crowds away from stores. But rather than experiencing a drop in traffic, amid lockdowns and social distancing, customers began flocking to its physical and online stores. They were spending stay-at-home savings and government stimulus checks on home improvement projects.

    The digital technology needed to meet that rush in demand fell to Matt Carey, Home Depot's chief information officer. Mr Carey and his team quickly created a feature on the company's mobile app and website to let customers pick up items in front of the store if they didn't feel comfortable going inside. It also developed real-time inventory-tracking software, among other tools.

    Mr. Carey spoke to The Wall Street Journal (WSJ) about the efforts Home Depot made to get its technology in place and how it's handling the surge in business. Here are edited excerpts of the discussion.

    WSJ: Hardware stores were declared an essential service. But how did you keep stores open?

    Mr Carey: We went to crowd-limiting very early. Within 24 hours, we had an app deployed, running in the cloud, that allowed our associates to control the crowds coming in and out of the stores. You have a person who has a hand-held device in front of the store. As one customer goes in, you add them, and as one comes out, you subtract. Nothing high tech, but it did the job.

    WSJ: What have you learned, and what would you do differently?

    Mr Carey: The past several months provided us a wealth of customer feedback, in a compressed time frame, related to the digital capabilities we offer. Take our curbside rollout, for example. We started with a very scrappy, manual process where a customer would arrive at the store after ordering online, inform an associate of their order number, and then the associate would get the order and bring it out. Associates were actually making handmade signs that said, "Curbside pickup, park here." We were able to introduce enhanced features very quickly. The experience today is now fully embedded into our app - customers can even opt-in to location-based alerts that let the store know they've arrived to pick up their order.

    WSJ: What was happening at the online store?

    Mr Carey: There was a significant spike in our online business. Because we earlier had invested in moving that platform to the cloud, it went off just great with no issues and we continue to handle that volume without a problem.

    The great thing about the cloud is that you don't have to order hardware, bring it into your data centre, get it set up on the data-centre floor and wire it up. Obviously, there is lead time there. It's pretty clear that we would not have been able, had we hosted it ourselves, to withstand the volumes that we experienced, and are still experiencing, on the online platform.

    WSJ: What's one example of how the online software might help customers get what they need for the project they're planning?

    Mr Carey: When a customer is searching for a term such as "fence" or "fencing," we will return a range of results based on the various fencing needs they may have. As an example, within a couple clicks, we can determine that the intent of the project is to install a wooden fence for a yard, and we will help the customer with suggestions for additional tools and materials to complete the project. Suggestions may include concrete for the footings, hinges for a gate, and even a how-to guide for installing a backyard fence.

    WSJ: How did you handle the pandemic's impact on logistics?

    Mr Carey: The supply chain in general across the US, just finding drivers and trailers, was a challenge. Making sure we could get products to the stores, a lot of that was human resources, a need to staff up. But we also had a brand-new distribution centre that was going to come online. Within two weeks, the use of that building was pivoted to become an online fulfillment centre, to help offload the volume from the other online fulfillment centre. The flexibility of our software allowed us to do that.

    Essentially, what we did was turn a market-delivery centre into a direct-to-home pick-pack-and-ship centre. It was a bulk distribution centre and required a whole different software stack. You're not planning routes at fulfillment centres. You're forwarding packages to UPS and other home-delivery carriers. As a result, customers weren't experiencing the long lead times that they were from competitors.

    WSJ: How were you able to help DIY home improvement shoppers?

    Mr Carey: We have a home-measure service, whether it be carpet or other products. We want to be able to engage a customer how they want to be engaged with. If they want to order a sample online, we want to get those to you. We can help you know how many bolts you might need. We have a tool to calculate how much it will cost to buy new countertops. All the things that help you assess a project. Anything to remove the friction that prevents a customer from doing a job, even connecting them with a professional. We have these online services.

    We're also using AI and natural-language processing to help connect the customer to a product they're looking for. In some cases they don't know what to ask.

    WSJ: How are the stores seeing their customer change? Are more novices still jumping in?

    Mr Carey: We are seeing customers take on expanded projects throughout their homes that, in turn, create additional activity across the store. We are seeing their confidence grow after they complete their first DIY project - it may be a garden or it may be painting. With that confidence, we see them take on the next project that may grow in complexity, like installing ceiling fans or light fixtures.

    WSJ: How has this crisis had a lasting impact on the way people shop for home products?

    Mr Carey: In many ways, COVID-19 has fundamentally changed how consumers shop. For many customers, homedepot.com or the mobile app is the new front door to the store. Our digital sales increased by roughly 100% in the second quarter, with 60% of those sales being picked up at our stores.

    WSJ: How is Home Depot planning to keep that pandemic home-improvement surge going? How are you going to keep people coming into your stores and not your competitors? And once people are able to leave their homes, do you expect a decrease in home-improvement interest? If so, how can you win them back?

    Mr Carey: We continue to invest in capabilities that make it easier for customers to choose however, whenever and wherever they want to shop with us.

  • Source: Wall Street Journal
  • bigbox

    Big box update

    Bunnings responds to restrictions in Victoria

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Yeppoon store

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

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

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

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

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

    Mental health initiative from Bunnings

    Founding member of Corporate Mental Health Alliance Australia

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

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

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

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

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

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

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

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

    Non-profit alliance

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

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

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

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

    Re-opening

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

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

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

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

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

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

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

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

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

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

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

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

    US retailer lessons from the pandemic

    Lowe's and Home Depot

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

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

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

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

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

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

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

    The results

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

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

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

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

    Lowe's Companies

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

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

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

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

    The Home Depot

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

    According to Mr Decker, speaking at the results announcement:

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

    Company commentary

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

    Lowe's Companies

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

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

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

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

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

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

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

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

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

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

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

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

    The Home Depot

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Analysis

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

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

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

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

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

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

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

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

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

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

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

    bigbox

    Bunnings Wagga store plans on show

    A $55m Bunnings outlet for Pialba

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

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

    Wagga Wagga

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

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

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

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

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

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

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

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

    Pialba

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

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

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

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

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

    Panorama

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

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

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

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

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

    Will digital change Bunnings?

    To succeed the retailer will need to evolve

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

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

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

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

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

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

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

    The Amazon-shaped gap

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

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

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

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

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

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

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

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

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

    The fragility of online

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

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

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

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

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

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

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

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

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

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

    Digital Bunnings

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

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

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

    The search

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

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

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

    Analysis

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

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

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

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

    bigbox

    Big box update

    Proposal for new Subiaco store

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

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

    Subiaco

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

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

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

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

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

    Brunswick

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Seymour

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

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

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

    Store buildout in Australia and New Zealand

    Wollongong gets new Bunnings Warehouse

    Different merchandising in recently opened branches at Kembla Grange and Palmerston

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

    Wollongong

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

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

    Palmerston

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

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

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

    Inverell

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

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

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

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

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

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

    Wangaratta

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

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

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

    Plainland

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

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

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

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

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

    Queenstown (NZ)

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

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

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

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

    Related:

    Bunnings NZ rejected for Queenstown store - HI News, page 18
  • Sources: Herald Sun, The Courier-Mail, Illawarra Mercury, The Northern Territory News, The Inverell Times, Wangaratta Chronicle, The Chronicle and Otago Daily Times
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    Kingfisher online: the need for speed

    Focus on the customer, not group structure

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

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

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

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

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

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

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

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

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

    China experience

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

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

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

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

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

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

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

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

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

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

    Screwfix openings

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

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

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

    Digital strategy

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

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

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

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

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

  • Sources: Reuters, The Times, Internet Retailing, Evening Standard and Essential Retail
  • To read the latest edition, please download HI News:

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    Home Depot in the delivery economy

    Three new distribution centres

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Sources: Wall Street Journal, CNBC, Atlanta Journal Constitution and HomeWorld Business
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    Bunnings drops VicForests wood products

    The retailer will stop selling timber logged by VicForests

    The timber company was found to have broken environmental laws by cutting down trees in endangered possum habitats

    Bunnings said it will no longer sell timber logged by VicForests in the light of a federal court ruling that it had breached laws protecting threatened species including the greater glider and the Leadbeater's possum. Bunnings' director of merchandise, Phil Bishop, said in a statement to The Guardian:

    Bunnings has a zero-tolerance approach to illegally logged timber that dates back two decades and our commitment is to only source timber products from legal and well managed forest operations.

    Bunnings said it will only source legal timber from sustainable operations as it ends its timber supply contract with the state-owned logging agency.

    VicForests was found to have broken the law in May, when the court found in favour of a community environment group - Friends of Leadbeater's Possum - that argued the agency breached the law by failing to protect the endangered Leadbeater's possum when it logged 66 sites designated for logging in the Central Highlands. It found that because VicForests had breached the code of practice, its exemption from national environment laws did not apply. Mr Bishop said:

    We will be discontinuing all sourcing of timber from VicForests and will no longer be accepting raw material input into our supply chain from VicForests as of 30 June.
    Ultimately, we believe that customers and team members have the right to expect that the timber they purchase is sourced from responsible and lawful forestry operations.

    Bunnings said it sold only a small portion of VicForests' harvest but it would work with affected suppliers on a transition plan. That would include buying any timber already processed by the affected suppliers and discussing whether those suppliers could obtain timber from alternative sources.

    Sources of timber

    The decision by Bunnings to not stock VicForest timber products due to illegal logging would seem to point to a significant change in the industry. There has been a shift from supporting timber operations in remote locations, to preserving forests for future generations (climate change, etc). HNN spoke to Jacinta Colley, national sales director at VIDA Wood Australia to comment on the following questions.

    Q1. This shift indicates that consumers, both private and corporate, are becoming less concerned about country-of-origin (ie, Australian-produced), and more concerned about the ethics and sustainability of the timber supply. How does Vida Wood Australian ensure its timber supply is ethically sourced, and what are some of the advantages this offers to your customers?

    Sustainability, tractility and the carbon footprint have become the most important topics in our industry. Australia quite rightly introduced a system where suppliers, depending on the country of origin, need to full fill certain criteria when entering Australia with their timber products.
    Our countries of operation are Sweden and Canada, known for its political and juridical stability and their long history of well managed forests - all our operations are PEFC and FSC certified.

    Q2. In terms of supply, how has the current pandemic affected your sourcing of timber, and the logistics of getting it to Australia?

    Given the magnitude of this pandemic, our operations and logistics have managed to supply our customers all over the globe with only minor interruptions. At this stage, we do not foresee any bigger problems either, however some challenges remain.

    Q3. What do you see happening in terms of timber demand over the next two years? Do you think that, in net terms, there will be a reduction in demand, or more a redistribution of demand, with FY2020/21 lagging but FY2021/22 compensating?

    Globally, without COVID-19, demand would have outstripped supply already in March this year. Timber is now finally recognised as a main contributor to reduce the CO2 footprint in new constructions. New building solutions like CLT, other engineered wood products and pre-manufactured trusses and wall elements are experiencing strong growth especially in Europe but also starting to grow in North America.
    The huge advantages of timber over other building materials are finally reaching all corners of the European, North American and Australian building industry - multi-storage buildings and wooden sky scrapers are becoming a common sight - this in return will boost our industry further.
    The long-term trend is crystal clear - more timber will be used and we believe in a further growth in demand over the next two years globally - but as always it will never be a straight line and will vary from country to country.
    The current increase in demand for timber products in North America and Western Europe is a very good example. Only two months ago we thought "the world had come to an end" and we had to temporarily close a couple of mills, just to see today that all our mills are in full swing (total capacity of 11 million CBM output per year) and are sold out until August and parts of September. [These are] interesting, unprecedent and uncharted times.

    Reactions

    VicForests labelled Bunnings' move as "extraordinary" and warned Victorian communities that relied on timber work for jobs and income would be devastated. A spokesman for VicForests told The Guardian:

    VicForests has already advised our customers that we will be appealing the Friends of the Leadbeater's Possum court decision, once final orders are made by the court.
    We regrow all harvested coupes with their original species, all timber harvesting and regeneration operations are conducted to conform with Victoria's strict environmental regulations."

    Gippsland East MP Tim Bull also condemned Bunnings management, saying the decision would cost jobs and that it pre-empted VicForests' court challenge. He told The Age:

    This woeful decision from Bunnings could not have come at a worse time. Our communities have been impacted by drought, fire and now COVID-19 and the local economy is really struggling.
    For Bunnings management to come in on the back of that and make this announcement shows no understanding of our plight. I want to stress this is not about the staff on the ground in local stores. I have several friends who work at Bunnings in Bairnsdale; this is purely a criticism of management.

    Victoria plans to end native forest logging by 2030, but Amelia Young from the Wilderness Society believes support for workers needs to be made available now. She told ABC News:

    The market is clearly rejecting products supplied by VicForests so the state government needs to work with VicForests and workers in the industry to make sure that workers facing inevitable change are supported through this transition.

    While Bunnings is not a major retailer of VicForests products, it is a symbolic blow for the industry due to the company's high profile. Mr Bishop confirmed Bunnings would continue to source native timber from Tasmania, NSW, Queensland and Western Australia, all of which he said met Bunnings' policy requirement of legal, well-managed and responsible operations.

    He also said Bunnings would "remain open to sourcing from VicForests in the future", should they attain Forest Stewardship Council Certification and avoid breaching the code.

    Sourced from The Guardian Australia, ABC News and The Age

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    Bunnings expands categories through MarketLink

    Rattan furniture collection and indoor plant

    The popular air fryer appliance is also being sold by Bunnings, following stockouts at Aldi and Coles

    Home cooking in the era of COVID-19 lockdowns has helped fuel the popularity of the air fryer and Bunnings has quickly responded to this trend by stocking the appliance through its MarketLink channel. Prior to this, Coles and Aldi released their own versions but sold out quickly, frustrating customers. It has also been reported that Kmart is struggling to keep them in stock.

    For many people, the product first appeared en masse as part of Aldi's Special Buys that led to their increasing demand. Soon after, Coles added the appliance to its Best Buys range.

    Unlike the supermarkets, Bunnings is offering a range of air fryers from known brands like Philips and Tefal.

    Scandi-style designs

    Earlier this year, Bunnings released a rattan furniture and homewares range that includes a lounge set, dining table, chairs, bar stools, foot stools, coffee table, chairs and other pieces.

    Social media influencers such as @thediydecorator and @addicted_to_bargains have shared and created awareness of the collection with their combined 300K+ followers.

    The range of chairs are supplied by Home Bazar. The brand began stocking its sustainably sourced products at Bunnings in April 2020.

    Fiddle leaf plants

    A post on a Facebook group dedicated to indoor plants - Crazy Indoor Plant People Australia - has also helped increase sales of the Fiddle-Leaf Fig plant after a user mentioned it was being sold through Bunnings at the budget-friendly price of less than $4.

    Fiddle leaf figs are a current favourite with gardening fans around Australia, and generally retails for $19.98 but can go up to $200 depending on its size.

    The Facebook post quickly generated over 100 comments, with many members saying they would be heading to a Bunnings store to buy the plant.

    Recent research commissioned by Bunnings found 64% of people surveyed were tackling DIY once a month and two in five were planning on sprucing up their gardens. Bunnings national greenlife buyer Alex Newman told News Limited newspapers:

    We've seen an increase in popularity across all plant types over the past few months. Our customers are tackling everything in the garden from growing their own food to updating their garden landscapes, as well as adding greenery inside their homes with indoor plants.

    Related: Bunnings has increased its selection of furniture and homewares over the past few years. And in a relentlessly competitive retail environment, the homewares category is popular among shoppers.

    Homewares, the next retail battleground? - HI News, page 32

    The COVID-19 economic climate has also led Bunnings to offer products such as treadmills and exercise bikes.

    Pandemic opens up new and different markets - HI News, page 22

    Sourced from The Daily Mail, thelatch.com.au and Seven News

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    Lowe's launches accelerator program in India

    Reimagining home improvement retail

    The US-based retailer is betting big on the Indian startup ecosystem. Participants in the program will have the opportunity to showcase their solutions.

    Lowe's Innovation Labs, established by US home improvement retailer Lowe's, has launched its first accelerator programme for startups named CONSTRUCT.

    (It has been reported that Bunnings is setting up a dedicated technology development centre in Bengaluru, India, known for being a major international software hub.)

    Seven startups from across India, representing a diverse range of interests including merchandising, AI (artificial intelligence) trend forecasting, automated content generation, talent acquisition, and AI-driven sustainable home construction technology were selected after a five-city roadshow.

    The retailer wants to work with startups that bring diverse, global perspectives. Ankur Mittal, vice-president of technology and managing director of Lowe's India, said the focus has always been to use deep technologies such as AI, analytics and robotics to "power tomorrow's retail".

    Our vision at Lowe's India is to transform home improvement retail by building world-class experiences for our customers with the right products and technology.

    According to the company, CONSTRUCT is designed to be a flexible alternative to traditional corporate accelerators. In keeping with Lowe's Innovation Labs' mission to use exponential technology to "accelerate experiences that customers expect today and to deliver tomorrow's breakthrough capabilities", the program is open to companies of all sizes and at all stages.

    Lowe's start-up partners receive personalised attention from senior executives at Lowe's, as well as external mentors from venture capitalist firms and other supporting companies. Current participants include:

    Stylumia

    Provides product insights through its AI-powered consumer-driven, demand-sensing technology engine.

    Infilect

    Strong computer vision capabilities and AI platforms, helping brands and retailers in measuring, monitoring and improving processes such as product distribution, placement and sales.

    StoryXpress

    An NCR-based startup with an end-to-end video marketing platform that enables brands and retailers to convert their e-commerce product catalogues into videos at a fraction of the standard time and cost.

    Headway

    Powered by AI and behavioural science to help talent acquisition teams function faster with deep talent analytics.

    Siddhi.ai

    Emphasis on using AI to craft actionable insights from the vast, unstructured resources of the open web to help lifestyle brands and retailers personalise product decisions.

    Rephrase.ai

    Builds generative AI tools to make professional automated human-like videos with applications involving "hyper real" AI.

    Nanospan

    Utilises nanotechnology, producing graphene and nano composites with applications in building next-generation homes, defence tech and energy storage.

    The virtual launch event was held in mid-June 2020 with over 5000 participants and speakers from around the world discussing the future of home improvement retail. Abhay Tandon, director - innovation and head of Lowe's Innovation Labs India, said:

    India is home to a wide network of innovators developing solutions to global issues. We have set up CONSTRUCT as a way to partner with the brightest minds to reinvent home improvement retail. It provides startups with an opportunity to apply their solutions in a highly conducive environment.

    Lowe's India is the retail technology and analytics centre for Lowe's Companies, Inc. With more than 2,500 staff, Lowe's India focuses on technology, analytics and shared services.

    Lowe's Innovation Labs also plans to work with academic institutions and is looking to partner with International Institute of Information Technology (IIIT) in Hyderabad to access their research to develop solutions for the company.

    Related: Bunnings' move to Bangalore, India to set up a technology centre comes as it continues to execute its omnichannel strategy. Read more in the following link.

    Bunnings sets up IT in India - HI News. page 26

    Sourced from The Times of India and Telangana Today

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    Bunnings gets 19% lift for March to May

    While costs increase, revenue grows

    Bunnings provided a "retail trading update" in May 2020, which indicated strong growth in the second half of FY2019/20

    Strategy days have been cancelled for just about every ASX listed company, including Wesfarmers. That means that for this year (at least) we will not receive any insights into the strategy settings for Bunnings - which should make for an interesting full year results release in August.

    In the meantime, what has been provided is a "Retail trading update" for the first five months of the company's second half. To put it bluntly, after a moderately successful first half, in the second half Bunnings produced a very good result. Bunnings saw total sales grow by 19.2% over that period, which, combined with its first half sales growth of 5.8%, means the company is on track to close out its FY2019/2020 with growth of around 11%.

    That growth comes with two caveats, however. Firstly, the growth has come at some cost, as Bunnings moves to make its facilities safe for both its employees and customers. As the update states:

    While disciplined cost control remains a focus, Bunnings has invested approximately $20 million in additional cleaning, security and protective equipment to respond to COVID-19 over the last three months. In addition, Bunnings will incur costs of approximately $70 million in the 2020 financial year associated with trading restrictions in New Zealand, the permanent closure of seven small-format stores during the half, and the accelerated roll-out of its online offering, including the write-off of legacy e-commerce platform assets.

    Secondly, the company is also aware that current market conditions are unlikely to continue in any predictable way.

    Significant demand growth has continued in Bunnings and Officeworks as customers continue to spend more time working, learning and relaxing at home. As a result, sales growth in the calendar year to date has increased significantly relative to the levels achieved in the first half of the financial year. Given the significant changes to the usual customer shopping patterns and expected future changes to government measures, it is uncertain whether the higher levels of sales growth will continue for the remainder of the calendar year.

    Speaking to The Australian Financial Review's (AFR) "Chanticleer" column, Bunnings managing director Michael Schneider is reported as saying:

    For the foreseeable future ...that cost base [is going to be] baked in .... We're just not going to compromise on safety for our customers and our team members. I think there's a "new normal" for all businesses on hygiene, health and safety. It's going to be a really slow road back.

    As testament to just how strong the demand has been, and how much it has stretched Bunnings' supply chain, the company experienced such low stock levels on some of its most popular power tools that it removed these from its website, not even listing them as stock-outs. Perhaps most prominent among these were lower-end cordless circular saws from the retailer's Ozito Power X-Change (PXC) sub-brand.

    HNN spoke to Bunnings' media people about the stock situation, and they were kind enough to provide a quote from Phil Bishop, who is director of merchandising.

    Overall, we've been well supported by suppliers over the lockdown period, and we have good availability of products in store. We source products from thousands of different suppliers, from all parts of the world and have options to source from elsewhere should supply from one of those areas be affected.
    We've seen really strong demand for Ozito cordless circular saws over the past couple of months and demand has exceeded supply for some models at a number of our stores. For this reason, we've temporarily taken two of these products down off our website.

    Bunnings also pointed out that these products would be back in stock before the end of June. According to some sources, the stockouts are due to high demand and the same slightly slower logistics in Australia that have affected most retailers. They are not a result of manufacturing or logistical problems overseas.

    Whatever Bunnings is doing, it seems to be working. According to Roy Morgan, Bunnings is once again Australia's most trusted brand in 2020 - with ALDI at number two.

    The many facets of Michael Schneider

    Perhaps partially in response to the lack of a strategy day, Mr Schneider would seem to have something of an increased presence in the press these days. It has been interesting to see how each press outlet has come up with a slightly different version of who he is.

    Like HNN, all respect his talents and capabilities, but the way this gets expressed varies.

    Mike the Teddy Bear

    Australia's CEO magazine is known for its softer portraits of Australian business leaders, but its portrait of Mr Schneider seemed somewhat extraordinary. Written by Wendy Kay, the profile conjures up a cosy image, one which might be not entirely familiar to, for example, some of Bunnings' suppliers.

    Ms Kay begins: "A chat with Michael Schneider is a bit like having a yarn around an Aussie barbie," and continues:

    [T]he first thing that strikes you about Michael is his warmth - the same easy going nature of the Bunnings "reds", the men and women dressed in their natty [sic] red shirts framed by forest green aprons who serve us in one of Bunnings' 380-plus warehouses, stores or trade centres.
    There's no pretence, no spin; what you see is exactly what you get. And what you get is a glimpse of the 15-year-old casual who fell in love with retail while working his first job at Target in Sydney's north.

    OK. Very well then.

    Definitely looking forward to the movie. Guy Pierce, do you think? Hugo Weaving for Mr Gillam, of course - and Erik Bana for Grant O'Brien?

    Are their aprons really forest green? (As Bogart might have said.)

    AFR Mike

    While HNN has long been an admirer of AFR's "Chanticleer" column, it is also true that it's the one place in the business tabloid that really does love a good narrative - even if it takes a bit of creativity to get there.

    As its report begins:

    The inside story of how Bunnings balanced surging sales with the need to adjust its business to a radically different trading environment - and how it will now try to get back to something like a new normal - already has the makings of a great case study.

    Fortunately, facing into the threat the COVID-19 virus posed, Bunnings had Mr Schneider to rely on - bold, intrepid, determined:

    Schneider's challenge went beyond keeping the shelves stocked - something he praises his suppliers for. His biggest task was keeping staff and customers safe.

    Beyond that, though, he also had to keep the digital end of the business running:

    Schneider and his team also had to put the foot down on a digital offering that the chain had been too slow to develop under the previous management. "We've innovated the daylights out of our offer," he says.

    And these frantic, last minute efforts bore fruit:

    Ten weeks later, Bunnings' e-commerce offering is transformed.

    Well, there is a fair bit there that could be picked apart, but really - "the previous management"? Mr Schneider has been managing director since March 2016.

    Facebook Mike

    Facebook Mike appeared in the press in July 2019, after Bunnings adopted the Facebook Workplace platform to drive staff communication and engagement. Mr Schneider spoke at a Facebook event to help popularise the platform, and this boosted him into the media spotlight.

    As a consequence, he was featured in the article every business leader dreads: the "Six leadership tips from a CEO", this time for Inside Retail. His tips were (in order):

  • Create a community
  • Keep it small
  • Communication is key
  • Empower your staff to become leaders
  • Use technology to keep it real with staff
  • Create a culture around authenticity
  • Mr Schneider actually did really well for such a setup piece, despite some poor editing. His last point is:

    There's a real humility in Bunnings and I think that stands through, not just in the organisation, but the leaders that build successful careers there. They're very down-to-earth people, we don't stand on ceremony. There's always going to be hierarchy, bureaucracy and politics in big organisations, but compared to other organisations I've worked in, it's a very free-flowing, down-to-earth, real organisation, and humility is a really important part.

    Will the real Mr Schneider please stand up?

    For those who have been following Bunnings' (and Wesfarmers') leadership for some time, the story of who Mr Schneider is, and specifically who he is to the company, is more complex. One view with some currency is that Mr Schneider was potentially at his happiest when he worked as the company's IC2 under the leadership of John Gillam. There was an incident where, lured onto the stage at the results presentation one year, Mr Gillam turned part of the announcement over to Mr Schneider - with a very audible vocal protest from the latter.

    Which is to say, what makes some of these versions of Mr Schneider really amusing is that he is very much a modest and self-contained man. However, the leadership Catch-22 of retail is, of course, that it's often the person who doesn't quite want the top job that is the best candidate.

    Also, you really cannot fault anyone for having some doubts about following in the footsteps of a manager like Mr Gillam - who remains, in HNN's view, Australia's greatest retailer of the past 20 years. Though it is certainly worth noting that Mr Gillam himself evidently had few if any doubts about the capabilities of Mr Schneider, and his suitability to lead Bunnings - an intuition that has proved to be correct.

    What the various views of Mr Schneider offered by the non-specialist press miss about him is that he combines two characteristics that are rarely found together in top management. Firstly, Mr Schneider is really, truly a very tough guy. He's tough in a way where he applies this toughness to himself first, it's true. But he's also well known for acerbic, deflating comments, often at the very end of a meeting, that are very effective.

    Secondly - and unusually - he does not seem at all egotistical. A word that Mr Schneider uses a lot is "authentic". He's interested in things that have meaning, that are about doing more than saying, and that reflect genuine values, or at least an effort to get to genuine values.

    That said, if "spin" is what is required in a particular situation, Mr Schneider is certainly capable of that. In fact, he's developed his own version of spin, which works by understatement instead of overstatement. Answering a tough question, or one he simply doesn't want to face up to (for strategic reasons), he has a way of making a distracting, undercutting, "adjacent" statement in response. He's a fighter, but it is never about brute force, just weaving slightly out of the way, and staying at least a half-step ahead.

    The weaknesses that Mr Schneider does have are those you would expect from someone who hasn't just come up through the ranks in traditional retail, but who has genuinely really liked that sort of business.

    Despite what the AFR has to say on the matter, Bunnings was at least one year, and probably two years, late in moving to a transactional digital platform. In terms of the pandemic, it only just made it across the line. And the truth of that is, Bunnings wouldn't have moved so fast over the past 18 months if it had not been for the leadership of Wesfarmers managing director Rob Scott.

    It's easy to see how that happens. For traditional retailers, the online proposition just did not make much sense. Traditional retailers really liked the whole thing where customers came to a store, bought stuff off the shelves, and took it home with them. Digital commerce seemed to require a massive investment in an unfamiliar type of infrastructure and personnel, in order to sell goods online at a reduced profit - due both to competition, and the need for final kilometre delivery logistics.

    Almost unwittingly, the path Bunnings had started down, after it closed the door on Woolworths' efforts to enter hardware through Masters, was to take as much profit as it could from a declining part of retail. It was a slow decline, and the profit was pretty good, but the problem was that committing to that path meant the resources to go down the higher growth path, with its high upfront costs and more limited profits, were not being developed - and would cost exponentially more to develop the further down the familiar path they progressed.

    What Rob Scott brought to Wesfarmers was the confidence and vision to not go down the pathway of trying to solve problems by developing solutions, but to instead concentrate on building capacity - in data analysis in particular. This drove further developments by offering both easier solutions and available growth paths to the various siloed businesses in the conglomerate.

    While that is a great advance, and Mr Schnieder was able to comprehend what Mr Scott had in mind, and execute on it, this is only just a start - something the current pandemic has brought sharply into focus. The "new normal" Mr Schneider mentioned to the AFR brings with a number of pressing questions. How does Bunnings grow and develop over the next five to seven years? How will it cope with a changed environment?

    One reason these questions are so difficult to answer is that Bunnings has found itself in something of a development paradox. For example, it has become increasingly apparent that the basic Bunnings warehouse, while it continues to perform acceptably, is beginning to age itself out of the market.

    Bunnings has made efforts to improve the format, but this has not been generalised across the existing fleet. That is likely because the improvements the retailer has tried out have been relatively incremental. While that makes them "safe" - unlikely to fail in any spectacular manner - it also tends to make then less than significant.

    The paradox is that incremental improvements are likely to succeed at least to some extent, but the improvements offered will not be enough to drive change. On the other side, more extreme improvements will be more likely to fail, and increase risk, even though they could provide the kind of advantage needed to justify investment in change.

    How do you achieve high-delta value, through a process that quantifies and reduces risk?

    An oft-cited example of a solution to this quandary (first publicly identified in these terms by the computer scientist Alan Kay) is how the first truly successful human-powered flight vehicle was developed. Paul MacCready, an American aviation designer and crack sailplane pilot, took up the challenge in 1972, and solved it six months later - a problem that others had spent decades trying to solve. In the process he won a GBP50,000 prize.

    His first insight was that the problem was so difficult that it was important to start by working out why others had failed to solve the problem. He noticed two aspects to the failures. The first was that the other contestants spent a year or more building an aircraft, flew it, crashed it, and then went back to the drawing board. Incremental development through a test/fail process was almost non-existent.

    The second insight was that the others were designing airplanes. The problem, as Dr MacCready saw it, wasn't to build an airplane, but to solve human-powered flight - and they weren't the same problem.

    Dr MacCready solved the problem by building a lightweight device out of thin plastic tarps and aluminium struts. When it crashed - which it did frequently - it would end up in pieces, but those pieces were easy to put back together or refabricate. His plan called for crashing at least 12 times a day.

    He solved the problem of streamlined aerodynamics - which was why the other aircraft were so elaborate - by just ignoring it. His device aimed for a top speed of 16kmh, and at those speeds, aerodynamic drag was not much of a factor.

    Alan Kay - Normal Considered Harmful, from YouTube 2012 Gossamer Albatross: Flight of Imagination, from YouTube 2019

    Alan Kay summarises the task of understanding the problem as being one of finding "the minimum thing you can do that is qualitatively better". That might seem like a particularly "big ask" for a retailer, but it's worth remembering that the Bunnings Warehouse concept - driven by then-Wesfarmers CEO, and now current Wesfarmers chairman, Michael Chaney - was really the result of a similar process. The "qualitatively better" was selling to consumers at trade prices, and the "minimum thing" was using a retail offer that offered low amenity.

    If HNN were to venture a guess at where the fruitful opportunities for Bunnings might be in the future, we can see two possibilities. In terms of its commercial and trade business, we believe that Bunnings could succeed by becoming a strong sponsor of modularity and pre-fabrication in everything related to building. Bunnings needs to understand, that the more modularity and pre-fabrication influence the market, the more the retailer will succeed.

    For example, take the electrical wiring in a house. It's 2020, and we are still wiring buildings by sticking bit of conductive wiring coated in plastic down plastic pipes, and then manually twisting that conductive wire into plugs and sockets. Modular wiring systems have been developed, but these have encountered industry resistance.

    For the trade organisations involved, rationalising the way wiring is installed - even though it would increase safety and ultimately decrease overall costs - would see fewer jobs and less income for "sparkies".

    There are two reasons why systems such as these would boost businesses like Bunnings. Firstly, developing margin on products such as plastic pipes and rolls of wire is very difficult to achieve, as these are basic commodities. Modular wiring systems, however, are manufactured, and more complex.

    Further, a truly effective modular wiring system should make it easy for homeowners to safely DIY the installation of elements such as more power outlets. A correctly designed system would require little more than some plaster work, and plugging the new outlet into the electrical bus.

    The issue here is that, just as the Bunnings warehouse initially entered the market in such a way that it fundamentally changed that market to better suit its business model, today's Bunnings can equally not afford just to be reactive and passive. It has the capacity to become actively involved in areas such as standards, and to create change that will be a positive both for the company and its customers.

    The real opportunity in the area of DIY, however, may come from a better embrace of what has come to be known as "maker culture". Makers today are what advanced DIYers were 20 years ago. The people who back in 2000 would have built bookshelves in the garage are today hooking up actuators to Arduino processors with a Bluetooth shield so that their toaster oven can "magically" lift out of a kitchen bench at the push of a button.

    Again, though, we return to the need to establish a high delta through understandable risks, to do the minimum thing that is qualitatively better. All too often projects such as these are undertaken by retailers, tested out, do not return sufficient results, and are then discarded. Like the earlier efforts at human-powered flight, they have little incremental development.

    Conclusion

    That oft-repeated statement that "retail is detail" may still apply to current markets and businesses, but over the past decade or so it has been joined by a less-positive (and less assonant) truism: "retail is delay". The chief strategy for many major retailers has been to put off the need to truly change their business models to adapt to changed markets, necessary infrastructure, and new ways of engaging customers.

    As we are seeing from both local and international experience, the idea that economies can somehow "snap back" to 2019 is unlikely to hold true. Without a vaccine for the COVID-19 virus, even when infections are brought down to a low level, the virus is so transmissable that it will flare rapidly back up to concerning levels. That means it is likely the economic slowdown will remain in place through to June 2021 at least.

    What this means is that the time for delay in retail is now over. The very reason that major companies have had to cancel their strategy days is that pre-existing strategies make little or no sense. As we move into FY2020/21, companies that continue to pursue a delay in formulating new strategies will be punished not only by the stock markets, but by customers as well.

    The highly positive article from the AFR referenced above begins by outlining a bold move by Mr Schneider to employ someone to record the history of how Bunnings has coped with the first stages of the pandemic. There is certainly something welcome about that, as it improves the ability of the company to learn from experience.

    But one has to wonder if there is an equal - and as essential - team at work planning for a different future. That's the real question that will need to be answered by Wesfarmers and Bunnings at their annual results presentation in August 2020.

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    Could Bunnings stores get smaller?

    Modbury store on the market

    New store being planned at Tarneit and development application withdrawn in Narrabri

    Retail services director Zelman Ainsworth from commercial real estate company CBRE predicts that retailers like Bunnings were looking for "less bricks and mortar" to reduce operating costs in the future. Mr Ainsworth said:

    Larger retailers in the inner city are looking for smaller format metro stores ... There's a real push from tenants to lease spaces which already have existing fit-outs, so there's less costs involved.

    However, a Bunnings spokeswoman told the Sunday Herald Sun there were no plans to relocate any stores or open up boutique shopping outlets. Bunnings' acting general manager of property Garry James previously told Leader Newspapers:

    We are always looking at opportunities to innovate the design of our stores and we have a number of different formats that cater for the local markets where we operate.

    Full Circle Property Buyers director Rob German said customers of all ages would opt to shop online even after the pandemic, which would encourage businesses to downsize shop space.

    He believes there would be a shift of retailers moving to smaller shops in the same suburb they already operate. But there would still be a place for warehouses and factory spaces in the future because they are "places that online shops can hold their stock". Mr German said:

    People also want to buy more Australian-made products, which could help manufacturers and add demand to warehouses too.

    Tarneit hub

    A 16,5000sqm Bunnings store will be part of the Tarneit Park Hub in a western suburb of Melbourne (VIC).

    Ranfurlie Asset Management, the retail and commercial division of the Dennis Family, is overseeing the Tarneit Park Hub development which will spread over 46,000sqm when complete. In March, chief executive Mark Wilson said the new Bunnings store anchors stage one of the project. He said:

    We are excited to have secured Bunnings. It cements Tarneit Park Hub as a key retail and lifestyle asset for the region...

    It is expected to open at the end of this year and should be open for trade in the first quarter of 2021.

    Leasing agent Tom Perkins, of Leedwell Property, said establishing a Bunnings Warehouse in Tarneit would help to draw business into the area.

    The ability to generate footfall seven days a week and its brand recognition in a community is unparalleled. We have recently completed leasing on a number of new developments anchored by a Bunnings [Warehouse] and they have proven to attract quality, national retailers around them.

    Located within the City of Wyndham, the nation's third-fastest growing municipality, the population of Tarneit and the surrounding suburbs are booming. Mr Wilson said:

    Tarneit Park Hub answers the demand from the community for greater amenity, with great access, proximity to public transport and adjoining Tarneit Central [shopping centre]. It sets an excellent foundation to further enhance the precinct and build on what is already a thriving centre.

    Mr Perkins said Tarneit Central ALDI recently had a major store upgrade as a result of growth in the precinct.

    Narrabri withdrawal

    Earlier this year, Narrabri Shire Council confirmed that the development application (DA) for a proposed Bunnings store at Narrabri (QLD) has been withdrawn.

    A site on the Newell Highway on the northern outskirts of Narrabri had been nominated for the project. However, issues arose which precluded the site from being developed for the store. Narrabri Shire Council executive manager - planning and environment, Daniel Boyce told The Narrabri Courier:

    The NSW Government Roads and Maritime Services lodged an objection to Bunnings Narrabri in January 2018 and council understands that since that time Bunnings has been unable to reach agreement with the adjoining landowner for a shared Newell Highway access...

    In a statement to The Courier, sent in January, Bunnings' acting property general manager, Garry James, said:

    Narrabri remains an area of interest for Bunnings and we look forward to working with council when another suitable site has been identified.

    The proposed Bunnings' development gained both support with some in the community seeing it as an endorsement of the town's potential, while others very concerned it would seriously impact on existing similar businesses.

    The Bunnings DA had identified a total retail area of 5,075sqm for the proposed store.

    Related: In a DA lodged last year, Bunnings had proposed a "smaller format" store for Narrabri. See the link to the previous story here.

    Smaller format store rollout - HI News, page 18

    Modbury store

    A Bunnings store in Adelaide's north-east was offered for sale to real estate investors earlier this year, in the midst of the coronavirus.

    The site at 933-945 North East Road, Modbury is leased to Bunnings and generates a net passing income of approximately $1,432,000 per annum. The 8,055sqm store currently has a 12-year lease in place with 3% annual increases. It occupies a site spanning more than 14,000sqm.

    Major developments in the area include the Modbury Triangle Shopping Centre anchored by a Foodland supermarket and Westfield Tea Tree Plaza Shopping Centre that has a variety of department and supermarket stores attached.

    Sourced from The Herald Sun, Star Weekly, Narrabri Courier and Shopping Centre News

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    Bunnings buildout continues

    Store openings and closures

    The big box retailer continues to bolster its store network with upgrades and replacements

    The $9 million Bunnings store in Young (NSW) is progressing as planned; proposed development next to new Palmerston store in the Northern Territory; the opening date for the Bunnings Gladesville store has been set for September; a development application has been lodged for a $30 million store at Caboolture (QLD); work has been continuing on the Albany warehouse in Western Australia and is on track to open by the end of the year; the Whitfords (WA) store will close its doors after more than 20 years; and two new stores in New Zealand will open with another one planned despite recent closures.

    Young

    The new Bunnings store located at 288 Boorowa Street, Young in NSW is expected to open by the end of 2020. This smaller format store will span over 5000sqm and have car parking for over 85 cars.

    Bunnings area manager James Burke said the new development represents a significant direct investment in the local community and will create a number of new team member positions. He told The Young Witness:

    The new Bunnings Young will create up to 45 jobs for local residents and we're excited to bring a wide range of outdoor living and home improvement products to the Young community.

    Palmerston

    Recently lodged planning documents show the plot of land next to the new Bunnings store in Palmerston (NT) will be turned into a mixed use development with two single-storey buildings and 59 carparking spaces. It is currently being used as a pad site for the Bunnings store that is being constructed.

    The triangular lot is part of a larger 40,000sqm parcel at Pierssene Road, Yarrawonga, purchased by Wesfarmers three years ago, according to The Northern Territory News,

    The $58 million Bunnings Warehouse Palmerston will span over 17,000sqm and is more than twice the size of the current store, and will be the home of Big Kev, the giant fibreglass dinosaur.

    Gladesville

    The $115 million Bunnings store located on 461 Victoria Road, Gladesville (NSW) will be a "direct investment" in the local community with the creation of 140 new jobs.

    On the way to the store being built, Bunnings changed the design to reduce the risk that excavating may have on Victoria Road.

    These changes included greater setbacks to surrounding streets, reducing the size of the store, and vehicle access. Bunnings said one of the main reasons for the changes was to sit the store away from the retaining walls and batters to Victoria Road.

    The previous design required excavating the retaining walls, which could affect their stability and pose risks to public roads, according to Bunnings.

    Caboolture

    The proposed Bunnings store would be situated on the corner of the Bruce Highway and Pumicestone Road, next to local landmark, the Big Fish Tavern. The plans were submitted to Moreton Bay Regional Council after Bunnings signed a lease for the site, according to the Sunshine Coast Daily.

    The store will span more than 13000sqm and have parking space for more than 400 cars.

    Moreton Bay councillor Adam Hain said there was strong demand for another Bunnings in the region. He told the Sunshine Coast Daily:

    All the locals around here have been waiting on bated breath for many years for that site to develop. To hear that Bunnings have announced they're going to move in is just the icing on the cake.

    Cr Hain said the next closest Bunnings in Morayfield was "bursting at the seams".

    The Morayfield warehouse is one of the busiest in Australia. We have people from Bribie Island, from far and wide ... that visit the Morayfield shop. Another one is definitely good.
    Being on the highway, [the proposed warehouse] will also service those in Caloundra South heading home.

    Albany

    The 14,500sqm Bunnings store being built at Chester Pass Mall will feature a carpark with 290 bays. Bunnings area manager Peter Kingwell said the new store represented an investment of $29 million. He told the Albany Extra:

    Bunnings' further investment in the Albany area will provide additional job opportunities for local residents and school leavers. All our team members from the existing Albany store will transfer to the new store once complete...

    Whitfords

    The news of the closure of the Whitfords store comes ahead of the lease expiring in October 2020, Bunnings said in a statement. Bunnings regional operations manager, Hayley Coulson, added:

    The Whitfords Warehouse is one of our older stores and we've made the decision to service customers from our surrounding stores, rather than commit to a further lease term.
    All of the current Whitfords team members will transfer to alternative stores and our focus is on working with them and supporting them throughout this transition...

    The Whitfords store will close its doors on August 30 which will give time to prepare to exit prior to the lease ending.

    Joondalup, which is 6km away, is the next closest Bunnings location to Whitfords.

    New and improved replacement stores are planned for Albany, Midland and Maddington, as well as a new smaller format store in Northam, said Bunnings.

    Westgate, NZ

    Bunnings recently announced plans to open its largest New Zealand store in Westgate and a new Queenstown outlet early next year. Jacqui Coombes, Bunnings NZ director told The New Zealand Herald:

    Last week in July for Westgate and Queenstown in April 2021.

    At 15,544sqm, the Westgate store will be NZ's biggest Bunnings, with an estimated completion value between NZD65 million to NZD67 million. There are also 745sqm of retail tenancies being built, making this complex 16,290sqm on completion, with 318 car parks.

    Bunnings first announced Westgate plans in early 2016. The area already has a Pak'nSave, Mitre 10, Harvey Norman, NorthWest shopping centre and is due to get the first Costco in New Zealand by 2021.

    The new stores in Westgate and Queenstown follows the big box retailer's to close stores in Cambridge, Te Awamutu, Putaruru, Hastings, Rangiora, Christchurch's Hornby and Ashburton, which was recently confirmed.

    Whanganui, NZ

    Bunnings has been given the green light to build a large-format store in Whanganui.

    In January 2019, the big box retailer said if its plans were approved the new warehouse would cost more than NZD19 million and span over 8400sqm, making it well over double the size of the current "smaller format" store. All team members at the current Whanganui store would transfer to the new warehouse and be joined by more than 50 new team members.

    Sourced from The Young Witness, The Northern Territory News, The Daily Telegraph, Northern District Times, Sunshine Coast Daily, Seven News, The New Zealand Herald, Albany Extra and Whanganui Chronicle.

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    Pandemic opens up new markets

    Panic buying found its way into Bunnings' tills

    Many of the products the big box retailer sold were seen as essential for trade customers, emergency services and home maintenance

    The Covid-19 economic climate has led Bunnings to offer products such as treadmills and exercise bikes. The retail chain said it teamed up with third-party sellers to expand its online offer, according to an announcement on its website.

    Bunnings launched its online marketplace, MarketLink, in December 2019 to sell products not traditionally sold in its bricks-and-mortar stores including whitegoods, furniture, bedding and manchester, kitchen and tableware, home decor items and even fresh flowers.

    Bunnings' own online store was also rolled out across the country last year and it now offers click and deliver live in every state and territory.

    Smart home security is another category that has had a boost in sales during the pandemic. As government restrictions set in and more employees are forced to work from home, householders are looking for ways to make their homes safer.

    Bunnings has witnessed steady foot traffic through its doors since the new year and the coronavirus pandemic, with vegetable seedlings and garden products selling well at the moment. Products for jobs seen as "essential services" for trade customers, emergency services and home maintenance such as plumbing, water systems and electrical work are popular.

    Generators, torches, batteries, fire extinguishers, smoke detectors and barbecue gas have also been in high demand.

    Bunnings chief executive Michael Schneider exclusively told The Australian:

    ...Things that keep your home clean and safe are certainly what customers are looking for, and more broadly than that, my sense is that there has probably been an increased focus on the home because customers have a little bit more time they are spending there at the moment than perhaps they otherwise would...
    If you sit at home for a bit longer you start to see some of the things you wanted to do in your home that you haven't done. There is also an element in Bunnings where urgent home repairs, access to wiring, to pipes, hot water systems for tradies, are all very important and a reliability of supply is important.
    The same is true for DIY jobs for changing a light bulb or replacing a smoke alarm. These are all something that might seem little but actually are very important.

    He doesn't believe Bunnings is too exposed to any possible downturn in the large construction market as fears of a national recession grow. He said:

    Our exposure to the heavy construction industry is very low ... smaller tradies, a lot of those business people are operating one, two-people businesses and are providing an essential service to homeowners in particular with repairs and maintenance, whether they are plumbers, electricians or locksmiths. So they play a really important role in the community anyway and we don't anticipate a significant change.

    To read the latest edition, please download HI News:

    Download hinews-6-02

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    ACCC queries Adelaide Tools acquisition

    Fears Bunnings will control too much of the Adelaide market

    The ACCC is considering only Bunnings' influence on the Adelaide market, not wider issues regarding the Australian market

    The ACCC has advanced its enquiry into the acquisition of Adelaide Tools by the Wesfarmers' owned Bunnings to a second stage. On 14 February 2020, the ACCC released a "Statement of Issues" related to the acquisition. The main issue the ACCC has chosen to pursue is this:

    6. The ACCC is concerned that the proposed acquisition may substantially lessen competition in the retail supply of tools, equipment and outdoor power equipment (collectively, T&E) in the Adelaide metropolitan region.

    Later in this document, the ACCC clarifies that this is its primary focus:

    54. The ACCC's preliminary view is that the proposed acquisition will increase concentration and may substantially lessen competition in relation to the retail supply of T&E to customers in the Adelaide metropolitan region.

    One reason for this is that the ACCC sees Adelaide Tools as being an effective competitor to Bunnings:

    57. The ACCC's preliminary view is that Adelaide Tools provides an important competitive constraint on Bunnings in the retail supply of T&E in Adelaide. Market inquiries indicate that Adelaide Tools has a strong reputation and competes aggressively on price, brand and product range, quality of service and a range of other factors, particularly for supply to trade customers.

    Bunnings, however, has responded that its offer differs substantially from that of Adelaide Tools:

    58. Bunnings submitted to the ACCC that it does not compete closely with Adelaide Tools due to the limitations of its big-box store format. In particular, Bunnings submitted that it cannot effectively compete for supply to trade customers because it has less floor space for T&E, it does not stock the highly specialised trade quality T&E, its sales team has less technical expertise and it does not offer the same level of after-sales service and support.

    The ACCC is not persuaded by these arguments:

    59. ... the ACCC considers that there is a significant proportion of trade customers who require less specialised (but still trade quality) T&E and do not require much advice as they are frequent and informed users of T&E. Therefore, these customers may be likely to readily substitute between Adelaide Tools and Bunnings for their trade quality T&E purchases. Bunnings' significant sales to trade customers reflect this.

    It is perhaps worth noting that the way in which Bunnings has characterised itself here is somewhat at odds with the way the company self-describes in another recent submission to the ACCC. The other document is in response to a "Resale price maintenance notification", where Stanley Black & Decker (SBD) is seeking to prevent resellers from advertising prices below the non-discounted invoice price they are charged (representing the net price, but not the net net price). The Bunnings submission opposing this states in part:

    Bunnings agrees with SBD's claim ... that Bunnings is not a 'low service' retailer, and provides a significantly higher level of service than many other retailers.

    To be fair, Bunnings sees itself as a "mid service" retailer rather than a "high service" retailer, offering limited help on demand.

    Market complexity

    The ACCC has been very careful to explicitly state that in looking at this acquisition it is solely concerned with matters local to the Adelaide market. The Statement declares, in paragraph seven:

    The ACCC's preliminary view is that the proposed acquisition is unlikely to result in a substantial lessening of competition in the wholesale supply of T&E in Australia.

    Even with this more limited view of the issues to be considered, it is not clear that the ACCC has entirely grasped all the forces at play in considering the market for trade-oriented tools. What is important to realise is that not only has this market changed substantially over the past 10 years (even just the past five years, in fact), but also that there is ongoing change and development at work as well.

    The move to cordless power tools has made power tool brands more important than ever. Tradies do not so much buy individual tools as "subscribe" to a brand's battery/charger system, then buy tools that match up with this. You need only look at the website home page for Adelaide Tools itself, which banners the brands Milwaukee, Makita and Festool, to see how important these have become.

    In fact, HNN would suggest that it is difficult to understand the Bunnings/Adelaide Tools situation without knowing about the conflicts around one brand in particular: Milwaukee, which is manufactured by the Hong Kong-based Techtronic Industries (TTI).

    Bunnings has a deal with TTI to be the exclusive distributor in Australia for two of its power tool brands, Ryobi and AEG. It has, however, been completely locked out of any distribution arrangement for the Milwaukee brand.

    Ryobi is regarded as something of a "DIY" brand, but it is more complex than that. It's the only global brand that manages to crossover between DIY and "pro" brands. It is a favourite with the slightly more serious home handyman, but it is also popular in areas such as repair, maintenance and improvement (RMI), as a reliable, low-cost alternative with some fleet characteristics (such as six-battery chargers).

    Similarly, AEG is a popular brand with tradies who use a limited range of power tools, but it also crosses over into the "prosumer" end of the DIY market. Its tools are often slightly unique (for example, AEG offered a heavy-duty oil-pulse impact driver before that became a more common product) and feature more attention to aesthetic/functional design than many trade tool brands.

    Milwaukee, however, is without doubt TTI's leading brand when it comes to technical excellence. There are four major generalist trade brands: Bosch's "blue" tools, Stanley Black & Decker's DeWalt, Makita and Milwaukee – five if you include Hikoki/Metabo. Makita is the most unique of the three, following a pattern of innovative tools that rely on values of balance, sturdiness and a high degree of repairability. The others compete on the basis of providing the power of corded tools in a cordless package, ever-larger batteries, compact size, wide range of speciality tools, and, increasingly, data-sharing through Bluetooth connectivity with smartphones.

    Milwaukee has been the major pioneer in that last category. In terms of the future of this part of the power tool industry, that advantage is likely to be crucial. The construction industry, especially for government-funded projects, is likely to see enhanced building information modelling (BIM) requirements come into force in the near future.

    For example, Hilti has introduced a range of concrete anchors that are laser-etched with unique visual codes, similar to QR codes. These can be scanned at the time of installation to record details. In the near future we are likely to see record made of the tool used to install the fastener, the time, the day, the subcontractor, and the tool settings. This will significantly contribute to construction auditing, diagnosis of later problems, and eventually liability as well.

    While in the past Bunnings has largely accepted being locked out from the Milwaukee brand, what has changed recently is that the Metcash-owned Independent Hardware Group (IHG) has gained access to Milwaukee for its Mitre 10 brand.

    In that context, part of the significance of Adelaide Tools is that it represents a way for Bunnings to gain access to Milwaukee. This casts a different light over the market situation that the ACCC has outlined in Adelaide.

    Breaking down the ACCC analysis, it basically states that, while the trade market Bunnings services is much wider than that serviced by stores such as Adelaide Tools, there is significant overlap. Another way to examine that situation is to look at the areas where retailers such as Adelaide Tools do not overlap with Bunnings and provide a unique offering. That is partially through offering tools from more specialised brands such as Festool, but a significant part of it is also through having had semi-exclusive access to the Milwaukee brand.

    Where assessing the competitive situation gets complicated is that the argument could be made that this semi-exclusivity to Milwaukee enjoyed by many independent tool stores has been broken by TTI granting access to that brand by IHG's Mitre 10 retailers. In that case, the move by Bunnings into Adelaide Tools does not specifically target the independent tool stores, but is a competitive move in reaction to IHG.

    From yet another viewpoint, independent tool stores are now coming under increased pressure from IHG. That could be one of the triggers that made Adelaide Tools more willing to sell its operations than it might have been in 2018, for example. The acquisition of Adelaide Tools by Bunnings, then, is a continuation of this change in the market, not its instigation, or even the most significant shift.

    Margin quest

    While the ACCC seems to have concentrated mainly on sales, it is also the case it might do well to consider margins as well. It has become something of an assumption that most independent hardware retailers do not manage to make all that much margin on the power tools that they do sell to tradie customers. The general feedback HNN receives is that low prices that Bunnings charges can keep margins down.

    That is one reason why there has been steady growth in tool specialist retailers. The power tool companies do see them as key to market access, and they seem to have been able to negotiate better margins. It's also the case that their speciality lines fall outside of those offered by Bunnings, so that the resulting margin from the mix of sales is better.

    The picture is very different, however, when it comes to power tool accessories. There is a far wider range of suppliers for these, and competition is intense enough that even those ordering smaller volumes can expect prices low enough to guarantee decent margins.

    Thus many of what the ACCC terms "multi-category retailers" carry power tools both for completeness of range, and to help ensure sales of accessories. They certainly participate in the market, but they tend not to compete that much on either price or service.

    Online

    If there is one area where the ACCC's analysis of the trade tools sales does not seem to be well-considered, it is in its approach to online sales. This is a little puzzling. The Statement declares:

    29. Market inquiries indicate that online sales act primarily as a complement to in-store sales. Customers use online stores to conduct research, compare prices and check stock availability. Information obtained by the ACCC indicates that online sales typically constitute less than 10 per cent of most retailers' total sales and growth of online sales has not been significant to date.

    This is a statement that seems to discount the importance of online sales. There would be very few retailers that would see a sales channel that generates 10% of revenue as not being significant. It's also worth noting that Bunnings has only recently launched its online sales capability, and that there are other significant players in that market, such as Amazon. Not to mention a range of suppliers selling solely through their own web and eBay stores, such as Trade Tool Supplies.

    There is a rather obvious bias problem if the ACCC is relying for its forecast of future online sales of trade tools on information from retailers operating physical stores with relatively inactive online stores. It might have done better to consult current online-only retailers to obtain a more balanced view.

    The "Resale price maintenance notification" lodged by SBD with the ACCC mentioned earlier also plays into this. It has been something of an open secret for some time that other power tool companies have had both formal and informal processes in place to get the same result - control over prices advertised online. Some of these are of rather questionable legality. This situation speaks to the overall power of online in influencing sales in this area.

    Finally, the ACCC has identified that Bunnings does service a range of tradies who are happy to buy a wide range of tools from that retailer without much in the way of customer service or advice. That is partly because, for those who care to do a bit of research, there is a wealth of information available online, from websites wholly devoted to tools, to reviews of tools by actual users on YouTube, not to mention social media, and so forth.

    Analysis

    HNN would suggest that this objection by the ACCC to the acquisition may go somewhat beyond what it appears to be on the surface. There are, after all, something like over 12 hardware stores, excluding Bunnings, in the greater Adelaide area, plus three Total Tools stores, a Hilti store, and few more tool stores.

    Among those hardware stores are five of IHG's Mitre 10 stores. IHG was formed through the ACCC giving the go-ahead for Mitre 10 and the Home Timber & Hardware Group to merge - in large part justified by this creating an independent group that could compete more effectively with Bunnings. There is little doubt that IHG gained the rights to sell Milwaukee tools largely as a consequence of that amalgamation. We could say that this merger is working as expected by the ACCC when it comes to fostering effective competition with Bunnings.

    Adelaide Tools is certainly a well-known and much respected retailer, with a large footprint. However, the most likely outcome of Bunnings acquiring the store is that there will be some additional investment into the region, and the store might expand its range and lower some of its prices.

    So, from the immediate perspective of the trade tool consumer, it seems unlikely that there will be much harm done and some benefits may be delivered. That leaves us to consider, from the point of view of the ACCC's remit, how competition and the market itself will be affected.

    In HNN's opinion, the ACCC is aware that in trade tools (and elsewhere in hardware as well) the market has actually become dysfunctional. As HNN has suggested before, historically what has happened to the market is that in the early 2000s Wesfarmers and Bunnings realised that the supply chain offered strong prospects for growth. Other firms, such as pre-Metcash Mitre 10 and Danks, saw strong prospects in improved retail outlets.

    Both were, in a sense, right - but Bunnings was more right, with the growth that was delivered through the supply chain turning exponential, outpacing the growth that came through improving stores. Coupled with everyday low pricing (EDLP), the Bunnings model effectively reduced margins to the extent that its competitors were not able to fund the research and development needed to develop innovative approaches to the market.

    Bunnings certainly has taken advantage of a central fragility in the trade and also DIY markets. That fragility is that it turns out pricing as a marketing signal can outweigh almost every other signal, including pre- and post-sales service, and even relationships. However, the company did not create that fragility.

    The real surprise in these markets is that they have not been able to develop counter-strategies that could overcome the current market situation. One of the features of modern retail and other businesses as they have evolved in the 21st Century is that we see a move from products to services, with services proving more profitable.

    We need to ask why these smaller trade tool businesses have not evolved a model of "tools as a service", where they effectively leased a fleet of tools to trade businesses, providing more flexibility, and eliminating problems for their customers such as a lack of tool availability during repair cycles.

    The real question faced by the ACCC is actually a much larger one than just whether the oversized market presence of Bunnings needs to be braked and inhibited in some way. It is, rather, whether the market benefits from supporting businesses that are at risk because they have not been able to evolve their business models.

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    Bunnings in brand refresh

    "Lowest prices..." tagline being dropped

    The big box retailer said it is about simplifying its message to customers but is yet to reveal the new slogan

    Even though Bunnings has been synonymous with the slogan, "Lowest prices are just the beginning", the hardware retailer recently confirmed it has been phasing it out since 2018.

    The 25-year-old slogan no longer appears on the company's website and is not being used in new advertising campaigns or on its warehouse stores, and it will be removed from the green aprons worn by staff. Bunnings managing director Mike Schneider said in The West Australian:

    After 25 years, customers understand our lowest prices policy and price guarantee, so we thought it was timely to update and refresh our branding.
    We are incredibly and genuinely committed to our policy of lowest prices. We invest over $5 million a year in a very robust system to constantly check competitor's prices online and in store - nationally and regionally.
    In stores, we have pricing integrity team members who check the local market.

    Marketforce Group chief executive Adam Marshall said seeing the iconic slogan disappear would change consumers perceptions of what that brand stands for. He told The West Australian:

    This is a big deal. In the past when major brands have changed things like taglines, it often comes with a huge amount of advertising and PR support. This one is a bit of a stealth change that they're trying to sneak through on people.

    Mr Marshall said Bunnings expanding its online presence could complicate its trademark use of the slogan.

    The risk is if you're going to stick with it, then you've got to be able to back it up. And that means you're going to have to constantly price check, you're having to constantly lower prices. So your profit margin is constantly going to be under threat.

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    Emerald could be a Bunnings location

    Bunnings anchored retail complex sold

    The site in Emerald is currently owned by Spotlight and the Rockhampton complex was sold by Charter Hall

    Bunnings has not yet confirmed an agreement is in place for a store in the rural town of Emerald (QLD) despite a tender description suggesting one may be built, reports Central Queensland News (CQN).

    In January 2020, Hutchinson Builders were calling for tenders to deliver a site near the Central Highlands Marketplace to include a 8011sqm Bunnings store, a 270sqm United petrol station, along with large and small retail tenancies.

    The site is located on the corner of Capricorn Highway and Chalcedony Road, which a Bunnings spokeswoman said was owned by Spotlight. The project has a budget of $5-10 million and tender applications closed on January 14.

    Bunnings director, property, Andrew Marks, said Emerald was an area of interest for the hardware chain to expand into, but nothing had been set in stone. He told CQN:

    We can confirm Emerald is a possible location of interest. However, no agreement is in place for a Bunnings in Emerald.

    In other store development news, an application has been lodged for a new Bunnings store in Ulladulla (NSW), according to the Milton Ulladulla Times.

    Rockhampton complex sold

    Real estate fund manager MPG has purchased the Bunnings complex in Norman Gardens near Rockhampton (QLD) for $43.5 million. The 18,319sqm site also includes speciality retailers Autobarn, Petstock and Freddy's Fishing and Outdoors, and 1060sqm of vacant space is supported by a three-year rental guarantee. The Bunnings store itself is 13,242sqm.

    MPG chairman Trevor Gorman said in The Mornington Bulletin that the MPG Bunnings Warehouse Rockhampton Trust closed two times oversubscribed. In a letter to investors, Mr Gorman wrote.

    With the Australian sharemarket at record highs and with RBA cash rates at historical lows, the income characteristics of property with cash returns in the vicinity of 6 to 8% are looking very attractive to investors compared to most cash and fixed interest investments.

    The Bunnings complex is 94% leased with an 8.5 year weighted average lease expiry. It is expected to meet its 6.5% distribution yield for the 2020 financial year.

    The site was originally tenanted by Masters, which closed its doors for the last time in December 2016. The site sold in 2009 for $11.2 million and again in 2017 for $37.5 million. It has a land valuation of $5.2 million, zoned as a retail warehouse.

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    Adelaide Tools deal delay, says ACCC

    It has been looking at the deal since November 2019

    The ACCC typically takes eight to 12 weeks to release its findings, and each merger has different factors that need to be taken into consideration

    The Australian Competition and Consumer Commission (ACCC) has delayed its decision on Bunnings' acquisition of Adelaide Tools to 14 February, from 7 February. The competition watchdog said it needs more time to consider the matter. It also said the provisional decision date may be a final decision or release of a statement of issues.

    The ACCC's investigation is focused on the impact of the proposed acquisition on competition in South Australia and nationally. In particular, it has sought views on:

  • how closely Bunnings and Adelaide Tools compete with each other and for which products/services
  • which other retailers compete with the tools, hardware and power equipment offerings available from Bunnings and Adelaide Tools
  • the likely impact of the proposed acquisition on prices and/or service quality.
  • As HNN has reported previously, the Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools. At the time of the acquisition, Bunnings managing director, Michael Schneider said in a statement:

    The acquisition ... will allow us to improve the way we connect, serve and engage with trade customers and is aligned with our strategy to accelerate the growth of the trade business.

    Other key points about the acquisition are:

  • Bunnings will not change the name of Adelaide Tools
  • Adelaide Tools is a family-owned business that has five tool stores in Adelaide, plus a mower store
  • Its online store lists over 8000 products
  • The company has an established reputation, built up over 70 years
  • Bunnings' deal to buy the Adelaide-based business is worth an estimated $30 million. It is expected to be approved. But Bunnings' size in the industry means the ACCC looks at any of its acquisitions to assess any potential breach of its provisions.

    Related:

    Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools - HNN

    Sourced from the Herald Sun and Inside Retail

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    Home Depot's DC made for trucks

    Piloting visual search kiosk machines

    It is revamping distribution to better serve its professional end-users, while the kiosks scan and locate parts for in-store customers

    The US home improvement retailer is developing more ways to better serve its professional customers, and has created a flatbed distribution centre (DC) where large semi-trucks and rail cars roll through the building.

    The new 800,000-square-foot facility opened in Dallas, one of its largest markets. It plans to open similar ones in other cities as part of a USD1.2 billion, five-year investment in its supply chain. (See One Home Depot article.)

    While only 4% of the company's customers are professionals in the remodelling and maintaining the residential market, they represent 45% of Home Depot's annual sales. Stephanie Smith, Home Depot's senior vice president of supply chain told The Dallas Morning News:

    Customer expectations are definitely rising, and pros want speed and reliable service.

    In the DC, flatbed trucks can roll through the middle of the massive building as heavy products such as timber, ladders, pipes and roofing materials can be added from either side.

    Flatbeds can hold multiple deliveries, and the facility can handle up to 65 to 75 trucks going out per day. That's thousands of deliveries per week to customers within a 75-mile radius of Dallas, Ms Smith said.

    That compares with smaller trucks loading a couple of orders from each store and then returning and doing it again and again. Stores try to make next-day deliveries, she said, "but now we can guarantee it."

    Home Depot has discovered that as the largest purchaser of timber in the US, it can leverage its position to manage the rail and truck inbound deliveries to DCs.

    The flatbed fulfillment centre in Dallas is on a rail line that's been extended into the building and can hold 10 railcars. An outside yard can handle 20 more railcars. The system allows Home Depot to take control of that entire supply chain, from the timber mill all the way to the customer, according to Ms Smith.

    Bill Lennie, executive vice president of outside sales and service for Home Depot, said the pro customer in the old days operated with a tape measure on his belt, but today's pro is shopping online and looking for reliable deliveries. He said:

    The younger pro in the market is coming in with their touch screen devices. And with a shortage of people in the trades such as plumbing, everyone is trying to make their crews more efficient.

    The retailer is also building a 1.6 million-square-foot fulfillment centre for online shopping next to the Dallas flatbed facility. When completed, Home Depot will have 4.5 million square feet of distribution space in Dallas, Ms Smith said.

    Kiosk trial

    In another initiative, Home Depot is piloting four "part-finder" kiosks at a store in Philadelphia that will scan, identify and illustrate exactly where in the store to find a certain product.

    Customers seeking a replacement screw, hinge or bolt, for instance, can place the part in the kiosk to find out which aisle and where in that aisle to find the part.

    It is working with Slyce, a company that makes visual search software for retail, that developed the kiosk machine.

    Slyce CEO Ted Mann said while its retail-focused technology is cloud based, the kiosk is programmed to know the specific store's inventory of products. That means someone has to take a bunch of photos of every one of the about 5,000 screws, bolts and nuts in Home Depot's fasteners section, which the kiosk is servicing at the moment.

    At first, Home Depot shipped Slyce a bunch of products to photograph. But that was not the most scalable way to do this, Mr Mann said.

    So Slyce built a training mode into the kiosk that will allow someone in the store to scan a product and upload it to the cloud along with its barcode and location in the store.

    The company has also pushed these "learned" products to the machine's cloud, so all four kiosks currently being piloted have knowledge of the department's full inventory.

    Sourced from The Dallas Morning News and Technical.ly

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    Bunnings reaches out to Gen M with "Make It Yours"

    Can Bunnings get popular with Millennials?

    Hardware and DIY are not top of the shopping list for most Millennials, but Bunnings is working hard to turn that around.

    Bunnings, as HNN has suggested in the past, traffics in part, in surprise. It's the surprising low price that encourages consumers to buy, or a surprise in the width of range. Increasingly, they are surprising the hardware retail industry itself, with the launch of online marketplaces such as MarketLink. Most recently they've also surprised with the launch of a new video series aimed directly at the Millennial market, titled "Make It Yours".

    The Millennial/Boomer market dilemma

    Hardware retailers face a difficult market situation in the DIY/consumer part of their businesses. Increasingly this is a market that is dividing sharply between the "boomer" generation, and the "Millennial" generation, with "Generation X" somewhere in-between. The Millennials represent the future of hardware, but the boomers are currently - for most retailers - the largest market segment.

    What makes this split difficult, is that it is hard to imagine two more different groups of consumers. Boomers are spending big on home renovations, either upgrading or downsizing their current homes. Millennials are mostly buying a first home or first investment property, or - more likely - renting to save for a future home.

    There are also differences in terms of culture. Boomers tend to believe that more is better than less, and newer is better than older. Millennials place a greater emphasis on "the right thing" - though it's possible they place an even greater emphasis on not buying "the wrong thing". Boomers collect, Millennials curate.

    In the DIY realm Millennials often get somewhat unfairly "dinged" for lacking basic skills. Where boomers were subject in their youth to helping Dad and Mum paint the nursery or the kitchen walls, Millennials were more likely to be holed-up in their rooms learning conic sections and the fun bits of integral calculus.

    There may be some truth to this stereotype of a lack of basic skills, but it is also true that Millennials have other, different skills, ones that boomers don't always adequately value. Their sense of style is more advanced. They tend to be more consultative in their approach to tasks. They are, a little surprisingly, less influenced by advertising directly, but more influenced by peer opinion, especially peer opinion that is transmitted via social media.

    The part of Millennial culture that hardware retailers continue to struggle with today, is their ardent desire to not own anything that resembles a tool, unless they really, really have to. After decades of selling more and more to boomers, who were eager to expand their DIY universe with quality power tools once well beyond their price range, this new attitude is a hard one to cope with.

    There is a solution, of course, which seems just slightly counter-intuitive: sell versatile, multi-use tools that provide great functionality, even if they cost more than standard tools. So far, the only power tool company to really catch on to this market is Bosch, with its EasyCut line of saws, the EasyImpact 12 drill/driver, and, most recently, the EasyCurvSander 12.

    Beyond that, though, the secret of Millennials is that they are very focused on the results of DIY work. DIY is less a joy and a pleasure to them, and more a necessity. They want results, and they want those results with the smallest possible risk of failure, the lowest expense, the fewest purchases, and the biggest possible effect.

    Solutions

    That last sentence could well have been a part of the inspiration for the "Make It Yours" video series.

    The premise of the series appears at first to be nothing all that new. Bunnings has bought a house in an unidentified suburb of Melbourne, and has assigned a number of teams to lightly renovate different areas, such as the kitchen, bedroom, livingroom, and bathroom, as well as the front and back yards.

    This doesn't seem all that different to other efforts by Bunnings in the past. Bunnings has already purchased a house and renovated it, making videos of the renovations as part of their online information base.

    That said, the older series was a bit advanced at times in the renovations it demonstrated. HNN's favourite episode is one where one of the Bunnings staff whips out an arc welder and does a casual bit of welding (and a very good job, too) on a gate. Ten points for going all-out on the job, but maybe only two or three points for really knowing what the market for the video is.

    "Make It Yours" is pretty much the exact reverse of that approach - ten points for knowing the audience and six points for demonstrating DIY know-how. That is not to pan the series at all - sneaking in six points worth of DIY is actually quite an achievement.

    This is achieved by employing a familiar modern marketing tactic, but one done at Bunnings scale. All of the renovation work is done by Millennial "influencers", who have already gained an audience via social media, and often are on their way to developing their own personal "brand".

    That could, of course, not have worked out all that well, but Bunnings has succeeded in selecting influencers who are down-to-earth and pleasant, then combining them with a good camera and directorial team - and some really first-rate post-production editing. As a result, the show is clean, crisp, attention grabbing, and very watchable not only by Millennials, but other generations as well.

    The caveats

    With hundreds of viewing experiences just one mouse click or finger-tap away from any video content presented online, it's evident producers need to keep the interest level high. Unfortunately, that means this new form of DIY video tends to lurch into the "here's one I prepared earlier" school of presentation.

    For example, on many of the episodes, the DIYers rely on that incredibly photogenic and helpful tool, the nailgun. With the least expensive nailgun at Bunnings running to $290 (the Ryobi Airstrike), plus another $80 for a battery and charger, it's an unlikely tool to find in the toolbox of any young and "financially-challenged" DIYer. Especially because, let's face it, the nailgun would only get used a couple of hours a year, at most.

    It's also remarkable, as is stated in the first episode of the series, just how quickly the flooring they use gets put down. That might be in part because there are bits that never get discussed, such as having to horizontally rip the first row that goes down to make sure the end finishes correctly, and adding mouldings along the edges to cover the expansion gap. And, while it's understandable they use vinyl flooring, as it is simpler to cut and lay, let's face it, it still looks like vinyl, while laminates continue to improve at a rapid rate.

    There are other omissions as well, of course. It's a series that, in the balance between inspiration, and practical know-how, leans more towards the former.

    The non-caveats

    However, all of that is forgiven, because Make It Yours does one outstanding thing that has long been missing from DIY videos: the episodes show mistakes. In the episode on the lounge design, the two presenters disagree slightly about the colour of paint to be used. The result is a room where blue and green walls meet up - almost never a good thing. They end up repainting one of the walls, in a really good-humoured and valuable way.

    Similarly, in one of the slightly funnier episodes, the male part of a New Zealand design couple redoing the bathroom ends up getting stuck in the bathroom, because he mis-installed the door knob. The couple also scornfully discards the hinged "Australian" shower heads, replacing them with graceful "New Zealand" fixed heads - which turn out to be too low for practical use.

    This is very good for a whole range of reasons. It breaks through that "everything is perfect" feel that so many DIY videos provide, it adds real entertainment value, and it makes the influencers who present more approachable and more "real".

    Analysis

    While this is a great step by Bunnings, it should be only be the start to the retailer's efforts to better connect with the Millennial generation. Marketing is great, but there are some really low-level moves that need to be made as well.

    For example, if you look at the kind of brands - both external and its captive brands such as Tactix and Ozito - the company stocks, these are overwhelmingly designed to suit the needs of the boomer generation. For Millennials, trying to shop at Bunnings can feel like rummaging through the stuff their parents buy, rather than finding something they themselves can connect to.

    One way out of that is for Bunnings to ask itself what the pathway would be for Bunnings itself to become an influencer. The lesson of the Millennials isn't just that it is possible to build a personal brand, one that acts as a kind of passkey in the world of social media. The real lesson is that, for the Millennials, all brands are ultimately personal.

    Boomers grew up with brands that were built through manufacturing and hence design processes. Car brands, for example, were important because they indicated durability and reliability - something we almost don't think about anymore, as the general quality of cars has vastly improved.

    Brands today instead relate to the notion of personal curation. They are driven by the desire to connect with others, and to have others connect with the consumer as well. As such, they no longer signal social status as much as they once did. Instead they indicate a cultural set, the influences to which a consumer chooses to subscribe.

    So the question is, who is Bunnings as a brand? That is the identity, the personal one, that will be important in the future, not corporate messaging, or assurances of community involvement - both of which are, ultimately, "lazy" half-solutions.

    The role of all good marketing is to, of course, raise better questions. That is certainly one thing that Make It Yours has done well. It has almost turned it up to eleven.

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    Bunnings moving into ex-Masters site

    Retail sites sold

    Bricks-and-mortar buildings located in Victoria and Western Australia are being sold or auctioned off

    The big box retailer has confirmed to The Adelaide Advertiser that it will open a store on Sir Donald Bradman Drive in the warehouse once occupied by Masters Home Improvement, at Adelaide Airport.

    Work has begun on a $15 million redevelopment of the site, opposite Ikea, with the 13,000sqm store set to open mid-next year.

    Adelaide Airport property executive general manager James Sangster welcomed the addition of Bunnings to the airport. He told The Advertiser:

    Bunnings' presence will create more retail jobs at the airport on top of those already being created by (the airport) as part of the expansion of our main terminal.

    Bunnings acting general manager - property Garry James said the new store was a "significant investment" for the hardware retailer. Masters had two locations in South Australia and two under construction when it closed all stores in December 2016 after enormous losses.

    Real estate sell-off

    In other developments, Bunnings has also been selling off some of its real estate holdings around Australia.

    Horsham

    The building that houses Bunnings Horsham has gone to auction and is expected to have a sale price of $9.25 million. The 9581sqm site has three street frontages on Horsham's Wilson Street. It is the only Bunnings in the Wimmera.

    The property returns $560,766 per annum and is on a 12-year lease until 2025, with a further four five-year options until 2045.

    Melbourne-based commercial real estate agency Burgess Rawson has auctioned the property. Burgess Rawson director Shaun Venables said the property's location added to its appeal. He told The Wimmera Mail-Times:

    Horsham is the capital of northwestern Victoria and it's a really captive catchment endorsed by the fact that all of the major supermarkets are represented. Coles, Woolworths, Aldi and Kmart are all within 500 metres of the site.

    Perth

    The Charter Hall Direct Consumer Staples Fund has bought a Bunnings-anchored retail centre in Perth in an off-market deal worth $35 million.

    The property at 303 Stirling Highway in Claremont has 5460sqm of space across three levels. The Bunnings store accounts for 93% - a little more than 5000sqm - of the total retail space and has a lease expiry of 2027 plus options.

    The property is located about 10 kilometres south-west of Perth's CBD.

    Charter Hall also announced its Long WALE REIT had made several off-market property acquisitions collectively worth $331.5 million, including a Bunnings Warehouse site in Darwin.

    The deal, worth $41.3 million, was transacted on a passing yield of 5.7% with a 12-year lease to Bunnings.

    Warragul

    Newmark Capital has acquired a $51 million large-format retail centre in Warragul (VIC), anchored by Bunnings and Kmart. The 25,238sqm centre on a 5.7-hectare corner site is about 107 kilometres south-east of Melbourne.

    It will sit within the Newmark Hardware Trust, which owns three Bunnings properties in Launceston, Lake Haven and Maroochydore.

    A 6% yield is anticipated on the completed development, which Newmark purchased with development deals in place with Ballarat-based Troon Group.

    Newmark Capital joint managing director, Chris Langford said since restructuring and opening the Hardware Trust to new investments, $20 million of fresh capital had been raised.

    The Warragul centre includes nine tenancies and is 85% pre-leased, including leases to Bunnings and Kmart. The site settled in July and construction has commenced, with completion expected next June.

    Mr Langford said the retail centre was in an area of strong population growth. He told the Australian Financial Review:

    [Nearby Pakenham] is going like blazes. It has the highest population growth in the state at 3.5% per year.

    Clyde North

    Bunnings has placed its recently opened large-format Clyde North warehouse in Melbourne's south-east up for sale.

    The 16,634sqm retail warehouse and 372-vehicle car park will be sold with a new 12-year lease in place, bringing in net income of about $1.9 million a year. Based on a yield of around 5% struck for similar Bunnings assets, it could be worth about $38 million.

    The Clyde North Bunnings is on Berwick-Cranbourne Road and fronts developer MAB Corp's Element Park, a 30-hectare master-planned business and retail park.

    Ballarat

    Ballarat's original Bunnings Trade Centre in Mitchell Park (VIC) has been auctioned. Bunnings Trade was a tenant at the warehouse at 19 Waringa Drive until November but moved out before that after the opening of the new Bunnings store in Delacombe.

    The 6738sqm property includes surplus land that could be developed or sold. Graeme Watson from Burgess Rawson commercial real estate said the location capitalises on an upgraded road network, which services the western part of Victorian and connects to Melbourne.

    Sourced from The Adelaide Advertiser, Wimmera Mail-Times, Australian Financial Review and Ballarat Courier

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    Adelaide Tools acquisition attracts ACCC attention

    Findings due in late January 2020

    The Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools, signalling a potential shift in the market

    The competition watchdog recently launched an informal review into Bunnings' planned purchase of Adelaide Tools. It is looking at the impact of the proposed acquisition on competition in South Australia and around the country, reports the Financial Review.

    The Australian Competition and Consumer Commission (ACCC) has sought submissions from interested parties on how closely Bunnings and Adelaide Tools compete with each other. It wanted to know which products/services they competed over, which other retailers competed in the tools, hardware and power equipment categories, and the likely impact of the acquisition on prices and service.

    The ACCC review will look closely at competition between bricks and mortar and online stores. The findings from the are expected to be announced in late January next year.

    Bunnings said the acquisition was always subject to regulatory approval and the review was part of that process.

    About the acquisition

    As HNN reported previously, the Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools. It could signal an increased interest in developing an online driven trade brand similar to the UK-based, Kingfisher-owned Screwfix.

    In the media release that announced the acquisition, Bunnings managing director Michael Schneider stated:

    The acquisition ... will allow us to improve the way we connect, serve and engage with trade customers and is aligned with our strategy to accelerate the growth of the trade business.

    Bunnings also said it will to continue to run the business as Adelaide Tools.

    Established in 1949, Adelaide Tools is headquartered at Mile End and has stores in St Marys, Pooraka, Lonsdale and Gawler, as well as Oaklands Mower Centre at Somerton Park. Its online store lists over 8000 products.

    Analysis

    The acquisition, as with all acquisitions by Wesfarmers, will be subject to regulatory approval. However, as HNN has remarked in the past, the amalgamation of the Home Timber & Hardware group with Mitre 10 has lessened many of the competitive checks that might previously have applied to Wesfarmers.

    In an immediate sense, the acquisition of Adelaide Tools is unlikely to have a direct impact on revenue or earnings before interest and taxation (EBIT) for Bunnings. The impact on the company's future strategies, however, is likely to be outsize in proportion to the acquisition's financial weight.

    It's worth noting that press releases from Wesfarmers in general usually bear some analysis. They are never directly misleading, but they do tend to direct the attention of the media away from the core issues.

    In this case while HNN is sure that the comments of one of the directors of Adelaide Tools are heartfelt when he says that "this [acquisition] shows a vote of confidence in the South Australian retail market", it seems unlikely that this is factually the case.

    Bill Peach and his co-directors have built a great company that is well-regarded, and should be proud of that achievement, but it is doubtful Bunnings expects the Adelaide market to experience a building boom in the near future.

    There are, however, two aspects to the strategic leverage we are likely to see result from this acquisition. The first is Bunnings' stated intention not to rebrand these operations in line with its Bunnings retail warehouses. An additional part of this puzzle is that Adelaide Tools has established such a strongly competitive position online, with its prices often matching leading discounter Sydney Tools (which has long been the subject of "grey market", parallel importing rumours).

    Added together, it's tempting to suggest that Bunnings might be planning on launching something like UK home improvement company Kingfisher's Screwfix operation, which continues to drive growth, even as its traditional DIY sales decline in profitability. Screwfix began as a catalogue company for tradies, then expanded to a same-day delivery operation online. It has begun expanding its physical store presence over the past three years.

    The potential for Bunnings would be a separate brand with a major online presence and limited physical store presence, but offering click-and-collect as well as servicing drop-off through Bunnings warehouses.

    The second, major aspect to this acquisition is that Bunnings will, for the first time, be selling Techtronic Industries (TTI) Milwaukee brand in Australia, through Adelaide Tools. (HNN confirmed this with Bunnings.)

    With Metcash's IHG now selling Milwaukee tools in some regional stores, it may be possible that Bunnings was able to wrest a concession to sell Milwaukee through stores it owned that were not branded Bunnings - subject to similar constraints to those placed on independent retailers.

    Extending from that, it would seem possible that a new Bunnings-owned retail brand might be permitted to sell other TTI brands, such as AEG and possibly Ryobi. While Ryobi is not warrantied for professional, trade use, it has become a popular brand with businesses in the repair, maintain and improve (RMI) industries, as its fleet costs are around half of those of brands such as Milwaukee and Makita.

    Even if these two possibilities do not develop beyond Adelaide Tools, it's likely this acquisition will have something of a chilling effect on some sectors of the professional tool market. Total Tools would be one company that could suffer from this kind of direct competition, along with a number of smaller, non-franchise retailers.

    Finally, HNN has to say that we have, once again, been surprised by the astuteness of Bunnings. Adelaide Tools is very close to being a perfect acquisition. While larger operations might be tempting, Adelaide Tools has long been recognised as one of the canniest operators in the tools business, with a particularly strong presence online, and a good record of ethical business practices.

    It marks, in HNN's opinion, a return to the kind of strategic practice Bunnings pursued pre-BUKI, with innovation rather than scale as a strong focus for growth.

    Related:

    Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools - HNN Flash #10

    Sourced from The Australian Financial Review and Adelaide Advertiser

    To read more in Big Box Update, please download HI News:

    Download hinews-5-04

    bigbox

    Ikea focuses on "home" in smarthome

    Tech companies are seen as collaborators

    Ikea Home Smart is a newly formed business unit and is responsible for developing the smart home business, end to end

    Home improvement retailer, Ikea is connecting all of its smart tech developments into a single division. It recently announced that it plans to invest heavily in a newly established "Home Smart" business unit that will have end-to-end responsibility for its growing portfolio of smart devices.

    The chief executive of Inter Ikea, which owns the Ikea brand, told the Financial Times (FT) that the group was looking at products such as air cleaners to add to its growing list of smart products including speakers, blinds and lightbulbs. Torbjorn Loof said:

    We see it as a very interesting area for us to embark on. We want to simplify it and make it affordable. I think Ikea could have a leading role in the smart home arena.

    The new business unit is helmed by Bjorn Block, and sits alongside Ikea of Sweden's ten other business units that include Lighting, Livingroom & Workspace, Textiles, Kitchen & Dining, Children's Ikea and Ikea Food. In a statement, Mr Block also said:

    At Ikea we want to continue to offer products for a better life at home for the many people going forward. In order to do so we need to explore products and solutions beyond conventional home furnishing.

    Mr Block also said the big box retailer was taking a different approach to tech and ecommerce giants such as Google and Amazon and start-ups that have dominated the area. He told the FT in separate interview:

    For us, home comes first. When we meet some of the tech companies they come from smart but we come from the home.

    Restructure

    The smarthome unit is part of Ikea's biggest transformation since its founding 76 years ago in Sweden as it reacts to dramatic changes in the retail industry with rapidly increasing ecommerce sales and dwindling visits to malls and many shops.

    Placing the Home Smart business unit on the same footing as its Kitchen & Dining or Children's Ikea division indicates the importance the retailer is assigning to technology as a lucrative revenue stream.

    Key to this is the revamp of its Home Smart app and its shift towards to becoming a hub for smarthome hardware from a variety of different manufacturers. Partnerships with other tech firms will help to raise the unit's profile, and that of Ikea as a leader in the smarthome space. Mr Block said in a statement:

    By working together with all other departments within Ikea, the business unit of Ikea Home smart will drive the digital transformation of the Ikea range, improving and transforming existing businesses and developing new businesses to bring more diverse smart products to the many people ... We are just getting started.

    Technology hub

    Mr Block told the FT that Ikea has been hiring software engineers at its main hub in Almhult, in rural southern Sweden, and could also looking at possibly setting up in the US and Asia. He added that Ikea was looking at greatly increasing the number of smart products it had without revealing details, although he added that both water scarcity and air pollution were big global challenges that the company should try to address.

    Beginning in 2012, Ikea's smart range would not fully emerge until 2015 with the introduction of wireless charging tables and lamps. The company has also developed its own smart lighting and launched speakers in conjunction with well-known American consumer electronics brand Sonos - including one integrated into a lamp. It recently added smart blinds to the range that can all be co-ordinated through the same app.

    In Australia, Ikea competes directly with Bunnings and JB Hi-Fi in the smarthhome category, as well as Google and Amazon, among other retailers.

    As an industry observer noted, despite market growth, many customers are still baffled by smart technology, Much of the task, then, will be simplifying the experience to make it useful.

    Related:

    The smarthome market in Australia is now a $1.1 billion market - HNN

    Sourced from The Financial Times, The Verge and CRN

    To read more in Retail Update, please download HI News:

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    bigbox

    Adelaide Tools acquisition sees Bunnings set to sell Milwaukee brand tools

    Family business with bricks-and-mortar and online stores

    The acquisition of Adelaide Tools by Bunnings could signal an increased interest in developing a trade brand similar to the UK-based, Kingfisher-owned Screwfix

    The Wesfarmers-owned Bunnings has announced the acquisition of South Australian-based Adelaide Tools. The managing director of Bunnings, Michael Schneider, stated in the company's media release that:

    The acquisition ... will allow us to improve the way we connect, serve and engage with trade customers and is aligned with our strategy to accelerate the growth of the trade business.

    Some of the key points about the acquisition are:

  • Bunnings will not change the name of Adelaide Tools
  • Adelaide Tools has five tool stores in Adelaide, plus a mower store
  • Its online store lists over 8000 products
  • The company has an established reputation, built up over 70 years
  • The acquisition, as with all acquisitions by Wesfarmers, will be subject to regulatory approval. However, as HNN has remarked in the past, the amalgamation of the Home Timber & Hardware group with Mitre 10 has lessened many of the competitive checks that might previously have applied to Wesfarmers.

    Analysis

    In an immediate sense, the acquisition of Adelaide Tools is unlikely to have a direct impact on revenue or earnings before interest and taxation (EBIT) for Bunnings. The impact on the company's future strategies, however, is likely to be outsize in proportion to the acquisition's financial weight.

    It's worth noting that press releases from Wesfarmers in general usually bear some analysis. They are never directly misleading, but they do tend to direct the attention of the media away from the core issues.

    In this case while HNN is sure that the comments of one of the directors of Adelaide Tools are heartfelt when he says that "this [acquisition] shows a vote of confidence in the South Australian retail market", it seems unlikely that this is factually the case. Bill Peach and his co-directors have built a great company with an established reputation, and should be proud of that achievement, but it is doubtful Bunnings expects the Adelaide market to experience a building boom in the near future.

    There are, however, two aspects to the strategic leverage we are likely to see result from this acquisition. The first is Bunnings' stated intention not to rebrand these operations in line with its Bunnings retail warehouses. An additional part of this puzzle is that Adelaide Tools has established such a strongly competitive position online, with its prices often matching leading discounter Sydney Tools (which has long been the subject of "grey market", parallel importing rumours).

    Added together, it's tempting to suggest that Bunnings might be planning on launching something like UK home improvement company Kingfisher's Screwfix operation, which continues to drive growth, even as its traditional DIY sales decline in profitability. Screwfix began as a catalogue company for tradies, then expanded to a same-day delivery operation online, and has begun expanding its physical store presence over the past three years.

    The potential for Bunnings would be a separate brand with a very strong online presence and limited physical store presence, but offering click-and-collect as well as servicing drop-off through Bunnings warehouses.

    The second, major aspect to this acquisition is that Bunnings will, for the first time, be selling Techtronic Industries (TTI) Milwaukee brand in Australia, through Adelaide Tools. (HNN confirmed this with Bunnings.)

    With Metcash's IHG now selling Milwaukee tools in some regional stores, it may be possible that Bunnings was able to wrest a concession to sell Milwaukee through stores it owned that were not branded Bunnings - subject to similar constraints to those placed on independent retailers.

    Extending from that, it would seem possible that a new Bunnings tool brand might be permitted to sell other TTI brands, such as AEG and possibly Ryobi. While Ryobi is not warrantied for professional, trade use, it has become a popular brand with companies in the repair, maintain and improve (RMI) industries, as its fleet costs are around half of those of brands such as Milwaukee and Makita.

    Even if these two possibilities do not develop beyond Adelaide Tools, it's likely this acquisition will have something of a chilling effect on some sectors of the professional tool market. Total Tools would be one company that could suffer from this kind of direct competition, along with a number of smaller, non-franchise retailers.

    Finally, HNN has to say that we have, once again, been surprised by the astuteness of Bunnings. Adelaide Tools is very close to being a perfect acquisition. While larger operations might be tempting, Adelaide Tools has long been recognised as one of the canniest operators in the tools business, with a particularly strong presence online, and a good record of ethical business practices.

    It marks, in HNN's opinion, a strong return to the kind of strategic practice Bunnings pursued pre-BUKI, with innovation rather than scale as a strong focus for growth.

    bigbox

    Bunnings re-signs NBL sponsorship

    Targeting new-gen apprentices and tradies?

    The multi-year agreement comes immediately after its partnership throughout the 2019 NBL finals

    Bunnings has inked a two-year deal with the National Basketball League (NBL). This follows its initial involvement during the 2018/19 season when it had naming rights of the "Player of the Game" award from Round 13 and branding on the semi-finals courts.

    The big box retailer also sponsored a national "Bunnings Ultimate Team Training Session'" competition, giving one fan and their friends an exclusive training session with an NBL coach in their home state.

    Bunnings has also signed on as a founding partner of NBL1, Australia's premier winter league which aims to strengthen the pathway for the country's best basketball talent. Bunnings general manager - marketing, Keith Murray, has said in a statement:

    Basketball is one of the most exciting and fastest-growing sports in Australia & New Zealand. We are happy to extend our partnership and support the growth of a sport that encourages teamwork, integrity, family-fun and community on and off the court.

    The new season will start in early October when Melbourne United plays new crosstown rival South East Melbourne Phoenix in the first-ever "Throwdown" at Melbourne Arena. NBL chief commercial officer, Brad Joyner, said:

    We are delighted Bunnings has re-signed with the Hungry Jack's NBL after a successful partnership during the 2019 NBL finals. This is an exciting time for basketball in Australia and New Zealand and the 2019-20 season promises to be our biggest and best ever.
    We are also thrilled that it will also become the founding partner of NBL1 which enjoyed a highly successful inaugural season and has strengthened the connection with grassroots basketball and will return in April 2020.

    Related: HNN covered Bunnings signing up for sponsorship with the NBL earlier this year.

    Bunnings teams up with the NBL - HI News, page 21
    bigbox

    Bunnings real estate sell off

    Sites sold in NSW and QLD

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

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

    Griffith

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

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

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

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

    Source: Commercial Real Estate

    Kempsey

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

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

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

    Source: Commercial Real Estate

    Kingaroy

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

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

    Source: NewsMail

    Lawnton

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

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

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

    Source: Real Estate Source

    Norman Gardens

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

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

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

    Source: Property Observer

    Victor Harbor

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

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

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

    Source: Australian Financial Review
    bigbox

    Bunnings grows its strategies

    Strategy Day and Investor Day

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

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

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

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

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

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

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

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

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

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

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

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

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

    The paradox of success

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

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

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

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

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

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

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    bigbox

    Bunnings continues to go beyond DIY

    Deal with Clubs NSW

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

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

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

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

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

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

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

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

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

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

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

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

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    bigbox

    Bunnings at Strategy Day 2019

    Growth into digital

    At the Wesfarmers Strategy Day, Bunnings followed up on strategies outlined earlier in 2019

    Bunnings participated in the Wesfarmers Strategy Day on 13 June 2019. For Bunnings, this followed on from a site visit and presentation for investment analysts provided in March 2019, but also contained some unique content.

    HNN will be covering both events at some depth in our next issue of HI News (Vol. 5 No. 3) but in the interim we wanted to provide a brief rundown of the basic topics covered, and a quick analysis of what these could mean for the hardware industry in its busy fourth calendar quarter of 2019.

    Setting the pace

    The presentation was provided by the managing director of Bunnings, Michael Schneider. While Mr Schneider did introduce his remarks as being, essentially, "business as usual", they were, as you might expect, anything but that.

    On the surface, one of the more exciting elements was Bunnings' ongoing push into digital, with click-and-collect set to be rolled out in the state of Victoria by the end of June 2019. Mr Schneider also remarked that he expected these digital services to be live throughout Australia before Christmas 2019.

    In an interesting remark about this move, Mr Schneider said:

    Digital and data is all about the opportunities for our customers and our team members and our suppliers alike. So it's simply not about selling more products online. That is really, in today's retailing world, very much a hygiene factor. But it's also about efficiencies within the business, efficiencies from a cost point of view, [delivering] a much richer experience for our customers in the way they interact with the brand, whether they're a consumer customer, or a trade customer.

    In business-speak, referring to something as a "hygiene factor" means that, while the activity will not necessarily improve revenues or earnings, not taking care of it will negatively impact earnings in the future. So, to use another colloquialism, selling products online is close to just being table stakes in the current market.

    (David Errington, a senior analyst with Bank of America Merrill Lynch, had some interesting questions around this - which we will take up in the upcoming edition of HI News.)

    Matching customer needs

    The real focus of most of what Mr Schneider had to say dealt with the second set of issues, firstly delivering efficiencies through productivity improvements, and secondly matching what the store provides with the new and developing needs of customers.

    He went on to develop the second part of those points in his prepared remarks:

    Bunnings has a very high brand recall, but we want this brand to be relevant to customers of today, not just a place that the next generation of customers see mum and dad going to shop and not connecting with the brand [themselves].
    So redefining DIY is all about making DIY easier. "MIY" is this idea of "make-it-yourself". How do we actually participate in different projects, and demystify DIY in ways that make it an easy and attractive option for people to do?

    One pathway to this, in particular demystifying DIY, is that Bunnings has plans to make its in-store DIY educational services more free-form than they have been in the past.

    So, as our customers evolve, and as the need for more services presents itself, we think we're very very well positioned now to set ourselves up for deeper engagement with our customers. From a development of the DIY concept [perspective], we want to continue to bring that to life in our stores.
    Shifting from a classroom-based environment to in-aisle demonstrations of DIY makes it a little bit less intimidating. We connect to more customers with more of our amazing team members and also have the opportunity to leverage our suppliers as well in bringing those projects to life, or [bringing] that learning to life in store.

    Installation and assembly

    Another area where Mr Schneider sees opportunities is in connecting the installation and assembly needs of retail customers with the skills and services of its trade customers.

    Perhaps the most exciting aspect, from a pure retail point of view, is that Mr Schneider sketched out a plan to expand the products offered by the company's captive kitchen brand, Kaboodle. One possibility is that this will be achieved through a new kind of retail space:

    What you can see here is a concept [slide 40]. It's a specialist studio around kitchen and bathroom and wardrobe design, studios and al-frescos, under the Kaboodle brand. Kaboodle are one of our suppliers, they provide our kitchens. They are a fantastic, long term supplier.
    And it's the idea of whether or not we can establish in partnership with them a number of specialist studios, where customers can go to be inspired to work solely on the project that they're looking at, at a different price point proposition in terms of value, with different products and services available, including installation, to be able to meet the needs of customers where they've got very niche needs that go beyond what we think we can successfully execute within Bunnings Warehouse.

    Smart homes

    Mr Schneider also revisited the growth in the smart home market, and how he sees Bunnings responding to this:

    You can see from the image on the slide [slide 32] just how many new products are now available in the smart home space... There really has been an explosion in the range, offer and assortment, [as well as] ease of use and choice in this space. We've talked about smart and connected and safer homes for a long period of time as an emerging megatrend. We see that here now and it's an enormous opportunity for Bunnings to establish itself with a strong leadership position.

    The real strategic issue

    While all that is of great interest, what stands out from Mr Schneider's prepared remarks is that there seems to be a big shift in strategy for Bunnings in terms of how it sees itself as a retailer. To some extent, the smarthome category gives some clues to this. We wouldn't expect to see Bunnings selling, for example, audio equipment, but this category runs into elements of that category. In fact, it's quite broad.

    That breadth is something that seems to be part of a new, emerging strategy. We could say that the Bunnings approach of the past has been all about the intersection point between DIY and the home environment - with a few categories stretching beyond that. That is now becoming one point of focus in a broader approach, which is looking beyond where and how people live, and at their behaviours instead.

    So the idea that the small hardware store evolved into a home centre, [servicing] the broader home improvement and outdoor living market, and the way that we've started to think and categorise the market. [That is] for our consumer customers, with the mindset of front fence to back fence for their home, the idea of home and lifestyle as Australians and New Zealanders live their lives in different ways as the next generation of consumer comes through.

    It's a shift from Bunnings being only in the business of hardware and home improvement, to Bunnings working to facilitate the lifestyle of choice for its customers.

    Analysis

    This strong shift in Bunnings' strategy is brought about by a range of factors. One highlighted by Mr Schneider is the need to stay relevant to an emerging demographic that might not relate to Bunnings in the same way as their parents did.

    Further than that, though, is the sense that driving supply and retail prices down further might become more difficult, at least over the next three years. That means there is a need to spend more on sales, general and administration (SG&A) areas to enhance productivity, and expand markets.

    More than anything, though, this is really a realisation about what Bunnings has truly become: not just a niche retailer, but an organisation with broad capabilities, that can be applied to a wider market.

    These are a few of the points that came out of the Strategy Day. The remarks made by the managing director of Wesfarmers, Rob Scott, were also very interesting, as were the questions asked by the investment analysts. HNN will be writing more in-depth about these in our upcoming issue of HI News.

    bigbox

    Big box update

    Bunnings' digital initiative

    Managing director Michael Schneider said the hardware chain will continue to open more physical stores in a presentation to investors earlier this year

    After finding success during a trial in Tasmania, Bunnings will implement a click and collect service throughout its network; and store planning continues in New South Wales and Queensland.

    Click and collect comes earlier

    During a visit to the Bunnings store in Glenorchy (TAS), Bunnings chief executive Michael Schneider told The Australian that a click-and-collect service will be rolled out in the Melbourne metro area before including more country regions. The big box retailer is also examining the potential of an online home delivery service. He said:

    We anticipate the first (mainland) Australian regions will go live somewhere from the first half of fiscal 2020. It will be metro then followed by the regional market, but we would see that as a progressive rollout on a reasonably well-paced basis provided we didn't discover something we don't already know.

    According to the article, Bunnings is releasing its online click-and-collect service around Australia at a faster pace than investors and the market were anticipating. This follows a trial in a Tasmanian store that Bunnings said is delivering a strong uplift in sales as the size of orders placed online is on average larger than the typical basket size of purchases made by walk-in customers. And some categories are proving more popular than others. Mr Schneider told The Australian:

    ...It is varied but what is quite clear is that customers are buying project-based quantities, so they are quite solid basket sizes compared to normal. So a simple project on the weekend might be to update a bedroom, door knobs and handles. A customer might be looking for 20 or 30 door handles, and they will make that purchase online because they can do the whole project in one go, rather than come in on the weekend and top up a few items.
    The basket size has been bigger, for average transactions, and that is what we have seen with our overseas peers.

    The Glenorchy store is typical of the click-and-collect plans for the rest of Australia. It has about 70% of its total products available for online orders to be picked up by customers at a desk within the store. Orders made before 4pm can be picked up by 9am the next day.

    Bunnings' new director of digital and analytics, Leah Balter, has led the implementation of the service. Shelves near the Gelnorchy store entrance are used as the click-and-collect desk. Bunnings staff, no matter what area they work in, can link to a central booking system that allows them to pick up products from the shelf to fill online orders as they walk through the store and deal with customers.

    For now, plants and timber are not available to be ordered for click-and-collect. Hazardous materials - such as chemicals - are also not on the site yet.

    Web traffic

    The hardware chain seems to have a ready-made digital audience based on data from online savings platform Cuponation. It indicates that Bunnings has more online visitors than any other Australian bricks-and-mortar retailer and is the third most visited website after eBay and Amazon.

    Bunnings.com.au had 40 million visitors in the March quarter compared with 32 million for Woolworths, 29 million at JB Hi-Fi, 21 million at Coles, 21 million at Kmart and 20 million at Kogan.com.

    The data includes all visitors, not unique visitors, to the retailers' desktop and mobile sites and was collated using SimilarWeb and Alexa tools. It also showed that more Australians are shopping online via their mobile phones.

    At Bunnings, mobile penetration was well above average, with 65% or 26 million visitors using their mobile phones, reflecting demand from tradies and DIY customers checking specifications and prices on the road or in stores.

    Bricks and mortar show

    Stores are being planned in Campbelltown (NSW), Coolum (QLD), Tempe (NSW), Mt Isa (QLD) and Virginia (QLD).

    Campbelltown

    Bunnings will construct a new store on Blaxland Road after the Sydney Western City Planning Panel gave the green light to the development. This store will be constructed on council-owned land on the corner of Blaxland and Farrow roads, near Campbelltown station. It is expected to replace the existing Bunnings at nearby Kellicar Road.

    A report prepared by Campbelltown Council staff to the planning panel said the development will employ more people than the current store.

    The site of the existing Campbelltown Bunnings sits within land identified by the NSW Government for future high density development, as part of the Glenfield to Macarthur Growth Corridor Strategy.

    Coolum

    The long-running dispute between Bunnings and Sunshine Coast Council and ratepayers' associations was heard in the Queensland Court of Appeal recently.

    Bunnings first applied to build a store on Barns Lane in Coolum in 2006, but the then-Maroochydore Shire Council turned them down. The company applied again in 2012 and in 2016.

    Bunnings is appealing a previous court decision that sided with the council's decision to reject the warehouse's approval. Barrister for Bunnings, Daniel Gore said the judge made mistakes regarding the location of the proposed warehouse in regard to the planning scheme. He pointed to three occasions when the judgment referred to Coolum instead of Coolum Beach.

    Similarly, Mr Gore said the judge had failed to take into account arguments regarding the scheme's definition of a store compared to a showroom. Mr Gore said the planning scheme would not allow for a Bunnings to be built in the Coolum village area, but said the proposed site in Coolum's west met the planning schemes requirements for a warehouse store.

    Sunshine Coast Council's barrister Christopher Hughes said the previous court decision was not made in error and parts of Mr Gore's submissions were "inconsequential" to the planning scheme.

    The court will release its decision at a later date.

    Tempe

    The proposed Bunnings store at Tempe (NSW) has been delayed again after an independent traffic expert said it would have an "unacceptable" impact on local roads.

    The Sydney Eastern City Planning Panel deferred the $70 million proposal for a second time after residents opposed the use of a narrow street as the main entrance for the 20,000sqm store next to Ikea on Princes Highway. The panel has asked the expert, Rhys Hazell of GTA Consultants, to advise what impact the WestConnex M5 tunnels would have on the already congested highway.

    In its reasons for deferral, the panel stated the tunnels' impact "is likely to be of great importance and may make the difference between an acceptable and unacceptable traffic impact".

    Mt Isa

    Plans for a Bunnings Warehouse in Mount Isa are on hold due to the sewer and stormwater mains at the proposed site on the corner of West and Alma streets. The new site was announced in 2017 with Bunnings conducting a public review of plans.

    Mount Isa City Council told The North West Star newspaper that Bunnings was looking into the relocation of the West Street site's sewer and stormwater mains before proceeding with the construction work for the proposed new store. A council representative said:

    The site is currently under contract, and has been for about two years, and the Development Application for the new Bunnings store is approved.

    The new Bunnings store at the old council works depot and storage yard site, would replace the current Bunnings on Camooweal Street. Bunnings general manager - property Andrew Marks said:

    We are still reviewing our options for the new development in Mount Isa and will update the community as soon as we can.

    The development will have a total retail area of 5607.5sqm.

    Virginia

    Construction of Bunnings store in Virginia (QLD) began late last year at 1836-1840 Sandgate Road. It will be the second Bunnings Warehouse to open in north Brisbane this year, following the opening of a store at Newstead in March.

    Documents lodged with Brisbane City Council show the store will have a total floor area of 17,246.11sqm.

    To read more in Big Box Update, download the latest issue:

    HI News 5.2: Big Box Update

    Click to download

    To read the full article, please download the latest issue: HI News 5.2: Big Box Update

    bigbox

    Ikea's digital-first, small format store

    Located in a Sydney shopping centre

    The global home improvement retailer has plans to launch a spate of "mini" stores across Australia

    Ikea Australia has opened its first small-format at Warringah Mall on Sydney's Northern Beaches.

    Customers can purchase their kitchen or storage products online with the items delivered directly to their home. They can shop a digital wall of homewares, which they can add to their virtual bag and transfer to their mobile device for checkout.

    This digital-first, personalised shopping experience is geared towards a different type of customer than the typical Ikea shopper, according to Ikea Australia country manager, Jan Gardberg.

    The home improvement retailer refers to this 100sqm store as a "Home Planning Studio". Mr Gardberg said:

    With the Ikea Home Planning Studio we have reinvented the traditional Ikea experience for a different audience, with different shopping needs putting digital at the heart of the customer's journey. However, the digital experience is delivered in our most personalised approach yet.
    The customer's wants and needs for their kitchen or bedroom storage solution are the starting point, and the experience they will receive in the Home Planning Studio will be personalised from there.

    The studio includes a projector tool, which allows customers to envision what their ideal wardrobe will look like by projecting it onto a wardrobe front.

    Customers can also book a $99 one-on-one planning sessions with staff to design their dream kitchen or bedroom storage solution. The cost is refunded on the purchase of a kitchen within the session.

    These small-format stores are able to be rolled out because the company is finalising its new fulfilment and distribution network. Mr Gardberg told news.com.au:

    That was the key cornerstone we needed to get in place before we started to launch these different formats.

    Mr Gardberg sees scope for about eight planning studios in Sydney and Melbourne and a handful in Brisbane and Perth, if the new outlet in Westfield's Warringah mall is successful during its four month trial. He told the Financial Review:

    Ikea is also working on plans to open about 20 5000sqm stores carrying about 4500 products - half the range available in a full-size store. They will be in shopping malls and will be supported by its online store, which sells about 9000 products.

    bigbox

    Lowe's goes back to fundamentals

    Lowe's CEO Marvin Ellison pursues better performance

    Lowe's has pulled back from some of its previous innovations in an effort to better meet basic goals

    In a presentation at its 2018 analyst and investor conference, Lowe's CEO Marvin Ellison identified areas to improve and on which the home improvement retailer can base strong growth.

    As well as making fundamentals a priority, Lowe's is focusing on its pro customers and has a new marketing approach aimed at a wider audience which includes a new slogan: "Do it right for less. Start with Lowe's".

    Back to basics

    Mr Ellison said the home improvement chain had been geared towards the future, which isn't a bad thing, but channelling investment on things like smart home partnerships or opening branches globally that underperformed distracted from the core responsibility of having the right product, in the right place, and in stock.

    After failing to find a new owner for its Iris smart home business, Lowe's recently announced it is shutting down the platform but allowing customers to be reimbursed for certain devices.

    As he tries to scale back the vision of the company and previous efforts, which he believed was "broader than what it should be", Mr Ellison and his team are working on retail fundamentals. At an event hosted by the US-based National Retail Federation's (NRF) "Retail's Big Show" in New York City, Mr Ellison told a crowd:

    This may not be too sexy or too innovative, but if you're a retailer, you have to be in stock. You have to have an efficient supply chain. You have to have productive use of your space. You have to have online capabilities with easy navigation, search and checkout, and you have to be multichannel, where customers can shop online, in-store seamlessly, and you need great service and good training of your associate population. All of these things are areas where we have to improve upon.
    It starts with retail fundamentals first. … So as a management team, we're trying to be disciplined to focus on the fundamentals and not get distracted by all of the other things that we could be spending time on because we have to get this stuff first.

    Only after these are mastered, "then you can start to have sustainable growth, both at the top line and the bottom line," said Mr Ellison.

    Different customer needs

    How Lowe's caters to its diverse customer base is another way Mr Ellison believes the retailer can improve.

    Its customers vary from ambitious DIYers to customers who are not interested in the building process to professionals who know exactly what they want. According to Mr Ellison, the challenge is making sure staff know how to interact with each of these customers and can provide the level of service that makes sense for them. He told a panel at the NRF event:

    When you try to paint a broad brush and say we're going to serve these customers and train our associates the same way, you miss out on a huge opportunity to serve the unique needs of the customer.
    So we're going back and we're looking at those segments, we're understanding the needs of those customers, spending time with those customers and we're making sure we're addressing those things properly.

    The diversity of Lowe's customer base means that employees at different times need to be relied on for product information, for a project manager mentality and simply to answer questions on when supplies will arrive.

    The home improvement retailer will also step up its game with its pro customer, who spends more but has expectations for service and merchandising that Lowe's isn't adequately supplying. Mr Ellison said it had identified that professionals in construction and related trades spend five times more than the DIY customer. He said in a call with analysts:

    We want to improve our overall service and engage DIY customers, but we want to have a more intentional focus on pro (customers).

    Installation staff

    As part of a transformation for how it operates its stores, Lowe's announced a major restructuring of its workforce. In a statement, the retailer said it is discontinuing its project specialist interiors program, which employs workers responsible for overseeing every phase of complex home projects such as kitchen remodels.

    Eliminating the program is intended to help Lowe's "simplify our operations to better meet customer expectations," spokeswoman Jackie Pardini Hartzell told the Charlotte Observer. The employees in that program can apply for jobs elsewhere at the company.

    Lowe's will still have workers responsible for managing simpler interior installations, such as cabinets or floorings, and keep its project specialist exteriors program, which involves work such as roofing, siding and fencing.

    The retailer's overhaul will also involve hiring 10,000 permanent, full-time workers as part of a merchandising service team focused on inventory management. The team will have an average of eight employees per US store. In addition, it will be hiring 6,000 full-time assistant store manager and department supervisor roles at all of its US stores. Mr Ellison said in the statement:

    We are investing in key leadership positions across our stores to enhance customer service while also creating jobs that will improve the availability of our most popular products, transform our technology infrastructure and provide more access for customers to the home improvement expertise of our store associates.

    Omnichannel & IT

    Furthermore, the retailer is working on its omnichannel capabilities, and Mr Ellison said that's "where the transformation is going to play out," noting that 60% of online orders are picked up in store.

    It is planning to invest between USD500 and USD550 million in capital per year through 2021 on IT to address an "historical underinvestment" in technology. This will involve hiring roughly 2,000 software engineers over the next few years.

    Not much has changed in the actual home improvement sector aside from accessibility in terms of customer's digital and mobile preferences, according to Mr Ellison. He said:

    You want to serve the customer any way they choose to be served whether that's in-store, online, delivery, purchase or pick-up. However, the change in customer preferences is not in an abrupt or aggressive shift.

    The need for data and data analytics will help the retailer fit the experiences each type of customer needs, and the company is working on better leveraging the data it already possesses.

    In terms of deliveries, Lowe's is working with FedEx's same-day delivery services, the SameDay Bot.

    The autonomous robot is designed to provide same-day delivery service for smaller shipments, and is being tested in several US markets.

    To help FedEx and robot developers create the design and application, Lowe's is providing information about the unique delivery needs of its customers and business.

    Don Frieson, Lowe's executive vice president, supply chain, said in a statement:

    The convenience and capability of the FedEx Same Day Bot has the potential to greatly simplify and speed distribution for the full range of our customers. Consider pros who could save time and money by never leaving the job site for the critical tools and supplies they need from Lowe's…

    The technology is also designed to be safe, efficient and environmentally conscious. The bot will travel along sidewalks and roadsides using pedestrian-safe technology. It will be equipped with multiple cameras and machine-learning, allowing it to be aware of its surroundings, navigating obstacles, road and safety rules, various surfaces and even steps leading to a customer's door.

    Paint drives results

    Its fourth quarter earnings report showed comparable sales at Lowe's increased 5.8% in January, which Morgan Stanley says provided the narrowest gap in two years when compared to Home Depot.

    During the earnings call, Mr Ellison said the paint department in Lowe's stores was a bright spot for the quarter. After reporting comparable sales below the company average for the past 10 quarters, paint turned around in the fourth quarter.

    While paint is only one category, it is the first area of the business where we implemented our retail fundamentals of improved staffing and in-stocks while remediating issues with previous resets.

    Now, the retailer is expected take full advantage of its partnership with Sherwin Williams paint in the stores.

    The transformation happened in the paint departments because changes could be made quickly as most paints and related products are sourced domestically in the US. Change is slower in other departments because, in many cases, the products are imported for sales in Lowe's stores, Mr Ellison said.

    Lowe's delivered other mixed results for its fourth quarter. It reported a net loss of USD824 million for the period ending February 1, down from earnings of USD554 million during the same period a year prior.

    Quarterly results included pre-tax charges of USD1.6 billion. That figure included, among other charges, USD952 million of goodwill impairment associated with its Canadian operations, USD208 million in lease obligations related to the closure of all 99 of its Orchard Supply Hardware stores and USD150 million in charges related to the closure of nearly 50 under-performing stores across the US and Canada.

    Sales for the fourth quarter were USD15.6 billion, up from USD15.5 billion in the fourth quarter of 2017. Same-store sales or stores that have been open for at least a year, rose 1.7%. In the US, same-store sales rose 2.4%.

    At its annual investor day in late 2018, Lowe's also confirmed its commitment to return excess cash to stockholders and announced a new USD10 billion share buyback program. The company informed investors that it planned to repurchase shares worth of about USD3 billion in fiscal 2018 and between USD6-7.5 billion in fiscal 2019. Lowe's CFO David Denton said in a statement:

    We are committed to investing in the business while also returning excess cash to shareholders, and strongly believe we can deliver substantial value to all stakeholders.

    New slogan

    Among its transformational changes, Lowe's has adopted a new marketing tagline: "Do it right for less. Start at Lowe's". It marks a strategic shift by Lowe's to win over ambitious DIYers. Compared with most homeowners, that group spends more -- and as a result has long been targeted by Home Depot. Lowe's previous advertising attracted aspiring DIYers, but neglected those who take on the biggest home improvement projects, explains Lowe's chief marketing officer Jocelyn Wong.

    Mr Ellison has also said:

    Our new campaign is less whimsical than our past work and more authentic to what it feels like to do home improvement projects. It highlights real associates and provides a clear value message and call to action. This new creative should help us expand our core customer base to include the heavy DIY customer and create halo with the pro, a critical customer to us, as well.

    A Link to the latest Lowe's ad can be seen here:

    https://goo.gl/B8HVsm

    That pro customer is front and centre in the new marketing initiative, which appears in digital, social media, TV and radio – "where we can use data to identify and target the pro," said Mr Ellison. The traditional airwaves, he added, are a primary medium to reach pro customers, "both on the road and on the job site. We know that the pro doesn't engage with media in the same way as the DIY customer, so we're focused on delivering messages to the pro in the channels that fit them best."

    Mr Ellison has also outlined the company's multi-tier strategy to reach DIY consumers, since many of those "customers don't consume media in a linear way." He said:

    This customer is streaming an episode of his favourite sitcom on his Smart TV when he learns that Lowe's now carries Craftsman products through an online video ad. We targeted him with online video because we have data that tells us he has a propensity to buy tools. He knows he needs a new mechanics toolkit for his latest project, but he is not yet sure which brand to buy. So he does a quick search on Google and clicks on a Lowe's search ad. We know he is close to a Lowe's store and now know that he is most likely to purchase at Lowe's.

    https://goo.gl/XLpKXW

    https://goo.gl/Qa4nUK

    https://goo.gl/AUJqSV

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

    bigbox

    IKEA Australia growing digital

    Online has expanded the home improvement store's regional reach

    Going digital has seen IKEA leverage its limited store network to reach more people around Australia

    Home improvement and furniture retailer, IKEA said it now reaches most of the country via its online shop, compared with 25% of the population a year ago through its big box stores.

    On a recent visit to Australia, IKEA Group global chief executive Jesper Brodin said the company is looking to use big data, smaller-format stores and next-day delivery to take more share of its customers' dollars.

    IKEA did not launch a full e-commerce offer in Australia until about eight months ago. Despite being late to going online, Mr Brodin said IKEA was undergoing a "digital revolution". He told The Australian Financial Review:

    We have given ourselves three years to roll this out – to push out digital across the world. We have been making massive investments in organisational structures in the past few months – the digital revolution is coming and that way, if you are in Sydney or Alice Springs, you have the same accessibility.

    Mr Brodin, who took on the global CEO role in September 2018, said his goal was to offer same-day or next-day delivery of products, similar to Amazon. In metro areas such as Sydney, Brisbane and Melbourne, IKEA customers often can already get next-day delivery.

    Mr Brodin said there has been a shift in thinking at IKEA, and it would use big data to gain consumer insights.

    We are now increasing the knowledge and looking at customer behaviour because of all the activity on the mobile phones, mobile websites and our own website.

    Australia country head Jan Gardberg said that while using big data was key, the shift is also about understanding what worked for families and different life situations.

    At the same time, there will be smaller format stores in Australia. IKEA plans to test stores between 3000 and 10,000sqm and open planning studios between 60 and 100sqm in Westfield centres, where consumers can plan kitchens or cupboards.

    However, many economic observers believe the Australian retail market is mixed at best, and it will not be easy to win consumers' dollars amid a tough backdrop with falling property prices, low wage growth and rising non-discretionary costs. According to Citi, Kmart and Bunnings, sales growth is slowing.

    However, Mr Brodin remains bullish despite a challenging retail environment. He said the higher cost of living in Australia and bigger houses, compared with Europe or Asia, works in IKEA's favour.

    We take market share in downturns. Of course we have concerns about the economy, but there is not much we can do about that but focus on bringing lovely solutions to the home. We have full-room sets for $1000 – you don't have to sacrifice your needs or dreams.

    The IKEA footprint has doubled in Australia in the past five years. IKEA now has three distribution centres to support online shopping, which comprises 12 to 13% of its total Australian sales of $1.39 billion in fiscal 2018.

    Broader kitchen offer

    IKEA's parent firm, Ingka Group, has purchased a 49% stake in US kitchen installation firm Traemand. The two companies have been working together for the last 13 years.

    Traemand partners with the retailer in the US and Canada and connects customers with subcontractors who can help them lay out and install IKEA kitchens. The company said in a statement:

    With the investment in Traemand, the customer experience will be more simple and seamless … It makes it possible to integrate the planning and the installation service in the purchase.

    The investment will also allow Traemand to expand its kitchen service concept beyond the US and Canada.

    The price that Ingka paid for the stake was not disclosed, and leaves the door open for a full acquisition down the road. It follows its acquisition of TaskRabbit a year ago.

    Both moves speak to changing market preferences, and consumers more used to being offered easy at-home delivery as well as installation services. The IKEA model – particularly its DIY home-build focus – has lost some of tis appeal with consumers in recent years. By offering more services associated with its goods –along with upgraded digital commerce portals – IKEA is moving to bring its offerings more in line with what today's customers might want.

    https://goo.gl/16j2Vn

    https://goo.gl/cHZMKv

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

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    Bunnings expands PowerPass

    Part of the big box retailer's tradie acquisition moves

    The PowerPass app allows eligible members to search for products in-store, scan the item and use self-checkout

    At its most recent earnings presentation in February, Bunnings Australia & New Zealand (BANZ) managing director Michael Schneider revealed the big box retailer broadened the scope of its PowerPass app and store credit facility for its trade customers.

    Launched in September 2018, Mr Schneider explained the app allowed eligible members to search for products in-store, scan the item and use self-checkout.

    Already trialled on click-and-collect power tools, he estimated there were already 30,000 users of the app. Bunnings has added trade credit and cash pre-pay facilities to PowerPass that allow online account management for ABN holders.

    According to iTnews, this means that tradies can be steered away from more expensive payment instruments like credit cards and towards cheaper options like BPAY as services such as the New Payments Platform gradually get bigger.

    A PowerPass Credit account for up to $5000 has a rate of 8.9%, much lower than many other credit cards. A 30-day account can run a facility up to $10,000. Interest free periods of up to 60 days and lower rates would also appeal to tradies.

    Bunnings gets to harvest rich data off these customers. Digital receipting would also allow it to send data back to apps tradies use like Xero or MYOB. As payments migrate to digital wallets and phones, that could position Bunnings well in terms of using analytics and customer data.

    Data breach

    Bunnings recently confirmed it notified the Office of the Australian Information Commissioner of a data breach, after an individual staffer set up an employee performance monitoring database on his home computer and exposed it to the internet.

    The information in the database related to a single Bunnings store and was not hosted on internal systems, a company spokesperson told iTnews. It was accessible over the web, and contained staff and customer information.

    Lee Johnstone from security firm CTRLBox reported the data breach to Mr Schneider earlier this year. Within hours of the report, the database was taken down.

    A limited number of Bunnings staff member details such as names and internal identification numbers were in the database, along with comments on employee performance. Most of the comments were positive, Mr Johnstone noted. The database also contained log in credentials for staff and developers. Contact details of almost 1200 customers were exposed, including email and addresses, and phone numbers.

    The Bunnings spokesperson said the company was not aware of any malicious access to the database. Mr Schneider explained in a statement that the database was created by a Bunnings team member as an administration tool, and to assist in keeping local customers updated about activities and events.

    Doing so however was a breach of Bunnings' data policy guidelines, Mr Schneider said, and apologised for what has happened.

    Bunnings will reinforce its data and privacy policies with staff to prevent future data leaks. The retailer has contacted customers and employees affected by the data breach, Mr Schneider said.

    https://goo.gl/63iRAs

    https://goo.gl/r9qxiJ

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

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    Bunnings results FY2018/19 H1

    Growth slows, but results remain consistent

    Bunnings saw store-on-store growth slows to 4.0%, while RoC expanded to over 50%

    The Wesfarmers-owned Bunnings announced its results for the first half of FY2018/19 on 21 February 2019. Revenue was $6909 million, an increase of $343 million or 5.3% on the previous corresponding period (pcp), which was the first half of FY2017/18. Earnings before interest and taxation (EBIT) grew ahead of sales, coming in at $932 million for the half, up by 7.9% on the pcp.

    Total store sales growth was 5.5%, and store-on-store (comp) growth was 4.0%. While these numbers were down on past performance (10.1% and 9.0% respectively for the previous half), they are basically inline with Bunnings' performance pre-2014, which was prior to house prices really spiking.

    The company also delivered an outstanding return on capital (RoC) of 50.2%, up from 47.0% in the pcp. For much of its history, this figure has been under 35% for the big-box home improvement retailer. (RoC effectively measures how well a company is managing the capital invested in it.)

    The overall view of Wesfarmers is somewhat complicated by a series of sales and divestments. This includes the demerger of Coles and the sale of Kmart Tyre & Auto. In terms of net profit after tax (NPAT), the company states that it generated $4.5 billion, which includes $3.1 million from discontinued operations and other non-operational sources. For its continuing operations, Wesfarmers is claiming NPAT of $1.1 billion, which it says represents an increase of 10% over the pcp, which was the first half of FY2017/18.

    Kmart operations excluding the Tyre & Auto division brought in EBIT of$383 million, down by 3.8% on the pcp. Officeworks increased EBIT by 11.8% to reach $76 million. WesCef increased EBIT by 2.2% on the pcp to reach $185 million. Industrial & Safety, affected by weak overseas markets, fell 19.2% over the pcp, to return EBIT of $42 million.

    Bunnings

    As Chart 1 indicates, while the growth in store-on-store revenue was not as good as some recent past results, it's not unusual for Bunnings. Chart 2 shows what the results really look like, which is a steady increase in both revenue and earnings, and outstanding growth in RoC, and even a slight increase in EBIT margin.

    Michael Schneider, the managing director of Bunnings, explained why some of the numbers were not quite as robust as in the past in his initial opening remarks:

    Our performance for the half was underpinned by continued growth in the consumer and commercial markets in all categories and across all major trading regions. This result was really pleasing given we were cycling high levels of sales growth [from] last year, and we experienced a wet and late start to spring early in the half ... as well as softening conditions in the residential housing market.

    Mr Schneider provided some forward-looking statements, which will not come as a surprise to anyone in the hardware retail industry:

    We expect moderating trading conditions to continue in the second half of the year on the back of continued uncertainty about the residential property market. Focused and disciplined execution of our strategy will ensure we continue to build on our recognised market strengths to drive growth and strengthen the core of our business. Bunnings is a good mix of discretionary and necessity spending, and this positions us well for the future.

    In terms of operational matters, the half-year results are usually delivered in a very low-key way, with the division preferring to save any major announcements for the Wesfarmers Strategy Day in June. It's helpful to look at Mr Schneider's comments in three different categories: comments about past and present operations; comments about upcoming operational changes; and comments on new innovations in progress.

    Present operations

    Mr Schneider indicated that Bunnings would be investing in kitchens and bathrooms, which he regards as an area where the retailer has a low marketshare. He also pointed to an expansion for ranges sold for the following categories:

    • home automation
    • independent living (ageing in place)
    • outdoor living
    • outdoor power equipment
    • storage

    Operationally, Mr Schneider pointed to the following areas as receiving additional focus:

    • events
    • workshops
    • in-store activities
    • installation services linked to product sales

    Mr Schneider also pointed to some newer categories the company would be pursuing, including:

    • cordless cleaning
    • outdoor structures
    • trend green life
    • advanced trees
    • turf

    Upcoming operational changes

    Mr Schneider commented that:

    We are increasingly using analytics to help us look at ways to drive productivity, inventory and range optimisation and improve performance. We will continue to evolve our thinking regarding the way we view the market, invest in our supplier and partner relationships so that, coupled with our developing digital and data analytics capabilities, we can continue to elevate our widest range and more value philosophy for the benefit of all customers.

    New innovations

    The innovations nominated by Mr Schneider for comment included: Bunnings' PowerPass app; a click-and-collect trial started at its Craigieburn store in Victoria; and the extension of that trial to Tasmania.

    Digital

    The overall narrative of exactly how Bunnings is setting about its expansion in digital, particularly converting its website to being transactional, is far from clear at the moment. That's largely because, it seems, the company would rather wait until the Wesfarmers Strategy Day in June 2019 to set out its plans. However, given the nature, size and timing of the changes, investment analysts need to know more now.

    So, while Mr Schneider said really very little in his prepared remarks, he did provide more details in response to questions. It's not possible to document these answers by just repeating parts of the Q&A session. HNN would like to acknowledge the really astute questions that were asked by Ben Gilbert, executive director and analyst from UBS Investment Bank, and Bryan Raymond, VP and analyst, Citigroup Inc.

    One of the core questions the analysts posed was whether this move to online sales was just for the sake of the thing, even though it might dilute profits, or if the case were the reverse, and by not moving earlier Bunnings had forgone a measure of sales and profits. Mr Schneider's thoughts regarding this included the following response:

    I think one of the advantages for Bunnings in arriving at this online point at this point in time is that there's a lot of innovative technology and technology that's available that I think will allow us to be very competitive in this space, certainly, relative to our peers but also very much, as I said, focused on what the customers are looking for with the online purchasing.

    This suggests that, in part, the decision was not only based on the internal situation of Bunnings, but also on the way the technology has evolved. The second part to this answer is Mr Schneider's suggestion that the needs of customers had also gradually evolved:

    What this is, is a logical evolution of the business. So there's a recognition that the market continues to evolve and changing customer needs continue to change. We've always had a very interactive website. We have millions of hits a month, customers downloading information on how to do a project or information about products and services. So the sort of natural rollover, it just makes sense at this point in time. It's been about 12 months now since we took the 20,000 or so products we have in our special orders range online. It's there for customers. Customers will use it when it's needed.

    So, changing technology, changing customer needs. Then the way Bunnings sees itself bringing this technology into the company is matching those needs to the technology through the process it calls "test and learn", which includes its pilot click-and-collect project at the Craigieburn Bunnings warehouse, and its later extension into Tasmania.

    So the test-and-learn environment at Craigieburn, the test-and-learn environment we'll create in Tasmania will allow us to understand the model, the costs and the desire. And let us build the offer up from there.
    ...
    But we want to do things in a way that is customer-led and customer-informed. So we haven't started with any predetermined notions around costs or model.

    The other important element analysts sought to clarify was how Bunnings intended to handle the build-out of its logistics capability to cope with home deliveries. Mr Schneider responded in part to this by saying:

    We haven't started with any predetermined notions around costs or model. But we have a big network, we have over 370 trading locations around Australia and New Zealand. So our proximity to our customers is pretty good. We continue to build out the physical network and invest in that as well. So it will give us a really strong all-market, all-channel type approach. But we'll obviously do it in the best Bunnings way we can, which will have a very keen focus on lowest cost so that we can continue to give customers the best offer.

    The last word on where Bunnings – and Wesfarmers – will go in terms of digital transformation ultimately rests with the Wesfarmers managing director, Rob Scott, and the board of the company. Asked about potential future acquisitions, and the direction of the company, Mr Scott had this to say:

    Well, as you know, we don't give too much away on the specifics, but the general commentary I'd provide, there's an enormous diversity of opportunities that we're looking at. Yes, there is a bit of an orientation to the industrial side across a range of areas. There are some areas that we're also looking at that are adjacencies to our retail businesses. And yes, a real combination of some small, really interesting bolt-on opportunities with a bit of a technology digital exposure towards bigger opportunities, some of which we've had on a watching brief for quite some time.
    ....
    And really what it's about, it's not just about relying on where market prices are, it's also leveraging unique capabilities or relationships or synergies that we have. So something we spend a lot of time thinking about is what is it that is going to make Wesfarmers a successful buyer.

    Analysis

    Bunnings faces a series of new challenges as we look ahead to a changed strategy for FY2019/20 and beyond. One of those challenges is that the company is, for the moment, the prime growth engine for the whole of Wesfarmers. Its role in the past was to produce a reliable stream of EBIT, which could be used to, for example, fund the expansion of Coles. Now that Coles is gone, Bunnings is expected to go to a different place on the risk/reward curve.

    Those changed expectations feed into increased pressure for the company to transform itself into more of a digital enterprise. The real question at the base of that transformation is how and where it will be achieved. One option is a "standard" Bunnings, that serves customers through its successful stores, with digital services somehow "bolted-on" – which is essentially what click-and-collect is. Or will everything become digital, in a sense, with its entire logistics strategy re-geared around this?

    For those who are not aware, one reason why digital transformation poses some challenges for Bunnings is due to the nature of its logistics. One of the company's early innovations was to construct a logistics network which did away with the need (mostly) for a centralised warehouse system. Distribution to the store was left in the hands of its suppliers, as part of the supply contract. The only exception to this are Bunnings' captive brands, such as Ozito, where product is shipped directly from China to its own system of warehouses, for on-delivery to stores.

    There are some areas where the company would easily benefit from online ordering and delivery. For example, in more remote areas of Australia, one could imagine Bunnings setting up delivery lockers in small towns, then running a regular, scheduled service that dropped orders off on a once-a-week basis for a nominal fee. For farmers and others who live 100km from the nearest Bunnings, that could save them a couple of hours out of their busy days. Not to mention that such facilities, which would expand the footprint of Bunnings, might play into its overall expansion plans as well.

    In other areas, however, Bunnings will run into the conundrum that most online retailers face: can you charge consumers for the extra work of picking, packing and delivery, or do you absorb some or all of that as essentially a marketing cost? Do you formalise that marketing cost in an arrangement such as Amazon's much-copied Prime service? This is complicated by the fact that, given its logistics structure, all of that process would have to be performed at the store level. It's arguable that these are specialised tasks, so would this fit into its model of using employees in a mixed role of both customer service and stocking?

    What seems likely, over the next year or so, is that we will see click-and-collect spread throughout the store network, and that this will be followed by very selective delivery services. For example, it's common that at certain seasonal points homeowners will buy large bags of fertiliser or mulch for their gardens. Bunnings could introduce something like an annual subscription service for those products, and then run single delivery runs, where trucks set out on a Saturday morning loaded down with bags of mulch, and follow the most effective delivery route through an area.

    In the end, the most we can say about Bunnings' digital plans is that we don't know. Going on past experience, we are likely to learn more at the upcoming Strategy Day, but it's likely even then many questions will remain.

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

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    Quick Fix: Bunnings FY2018-19 H1 results

    Lower sales growth, sustained profit growth

    Revenue was up 5.3%, EBIT up 7.9%, store sales growth up 5.5%. Bunnings plans to expand in kitchens, bathrooms and installation services.

    The Wesfarmers-owned Bunnings announced its results for the first half of FY2018/19 on 21 February 2019. To quickly run through the most interesting numbers: Revenue was $6909 million, an increase of $343 million or 5.3% on the previous corresponding period (pcp), which was the first half of FY2017/18. Earnings before interest and taxation (EBIT) grew ahead of sales, coming in at $932 million for the half, up by 7.9% on the pcp. Total store sales growth was 5.5%, and store-on-store (comp) growth was 4.0%. While these numbers were down on past performance (10.1% and 9.0% respectively for the previous half), they are basically in line with Bunnings' performance pre-2014, which was prior to house prices really spiking.

    The company also delivered an outstanding return on capital (RoC) of 50.2%, up from 47.0% in the pcp. For much of its history, this figure has been under 35% for the big box home improvement retailer. (RoC effectively measures how well a company is managing the capital invested in it. It's evident that Bunnings is doing what it does when markets grow at a slower pace: concentrating on delivering profit, through curbed spending, and entering new product areas that provide better opportunities. One analyst did suggest that falling comp store sales might reflect an increase in "cannibalisation" (intra-network store competition) as Bunnings continues to grow its store fleet. Bunnings managing director, Michael Schneider pointed out that some cannibalisation was actually planned, such as with the Bunnings warehouse opened in Robina, Queensland.

    A good example, is we opened a warehouse in Robina, in Queensland during the half, and it's a fantastic new warehouse, but it's actually taken some pressure off our Burleigh Waters warehouse, which overtrades.

    He also stated, in response to a direct question, that sales per-metre continued to increase — which is the key measure for determining whether expansion is working or not.

    HNN (Hardware News Network) would speculate that one reason for this boost in profitability has been a further increase in the company's share of DIY retail. The Metcash-owned Independent Hardware Group (IHG) in its results for the first half of FY2018/19 reported a shift in its revenue source to 65/35 on the trade/DIY split versus something more like 58/42 in the past. Given that IHG's sales were nearly static at around 1.25% growth in the half, it seems likely that Bunnings picked up the DIY business IHG lost. As is commonly known, margin in DIY is far higher than margin on trade sales.nUnusually, Mr Schneider, was very clear on areas in which the company is pushing harder, as well as some new initiatives. In his prepared remarks, Mr Schneider stated:

    We're investing in categories where we currently have low market share, such as kitchens and bathrooms where we know we can deliver a competitive and quality home improvement solution. Range expansion in categories such as home automation, independent living, outdoor living, power garden and storage have been really well received by our customers as has our growing range of services that connect customers with local experts, making installation easier and more affordable. Importantly, we continue to focus on delivering better customer experiences, whether that is online or in-store.

    Reading between the lines, what we see here is in part a response to demographic change, accommodating a higher percentage of elderly people, while also catering to the tech needs of the Millennial generation, and an increasing trend to combine purchases with do it for me (DIFM). In terms of the plans Bunnings has for the future, Mr Schneider had this to say:

    Looking to the second half of the year, we will remain focused on further investment in customer value and broadening our product ranges in categories such as smart home technology, home storage, cordless cleaning, outdoor structures and on trend green life, advanced trees and turf, just to name a few.

    One of the categories that stands out quite clearly is cordless cleaning. Bunnings has strong ties with Hong Kong based Techtronic Industries (makers of Ryboi, AEG and Milwaukee power tools). That company acquired a vacuum cleaning division five years ago, and has turned it into profitable line recently. This could provide the tools to make this a viable sector for Bunnings.

    Services also remain a key focus for Bunnings:

    We will continue to expand our services offering, creating meaningful and personalised customer experiences and meet their needs as behaviours evolve. Services will include facilitating installation and assembly offers, in-home design consultants to make projects even easier and partnerships with our suppliers to continue to innovate our offer.
    We are also excited about the opportunities in the commercial side of our business. We will continue to focus on building more substantial commercial categories across all channels so that we have — so that we offer relevant brands at an attractive price and increased convenience for our trade customers.

    It's no coincidence that services and commercial potential are mentioned together. The ability that Bunnings has — and which so far has not been matched by other home improvement groups — to provide fixed-price installation services to customers buying goods such as airconditioners will not only help it better secure some markets, but also help it to build stronger relations with tradespeople.

    Digital

    However, the biggest change has been Bunnings' move to focus more on the potential of digital and online retail. The company has already started testing click-and-collect, according to Mr Schneider:

    During the half, we've launched a click and collect trial for our leading range of power tools at our Craigieburn warehouse in Victoria. We have since expanded the trial and now offer more than 20,000 products for purchase online and collection in store. We expect to roll out a click and collect pilot across Tasmania in April with the learnings from this trial to inform rollouts across other states next financial year.

    Later, in response to an analyst's question, Mr Schneider said that company was around 18 months away from rolling out a fully-transactional website, with a broad range of products set for sale.

    Analysis

    HNN will be providing a more in-depth analysis of Bunnings and Wesfarmers in an upcoming issue of HI News. For the moment, it is worth noting that 2019 is probably one of the most significant years in the history of both Bunnings and Wesfarmers — more significant than 2014, when the former managing director of Bunnings, John Gillam, chose to take on Masters Home Improvement directly.

    HNN believes that the internal growth targets being set for Bunnings are something like 50% over its current size over the next five years. This would mean target EBIT of $3 billion. Much of that growth will not be in areas that directly compete with the markets currently engaged by independent hardware retailers — largely because those markets are not profitable enough.

    What we believe the managing director of Wesfarmers, Rob Scott, has spotted — along with Mr Schneider — is that technology, especially digital technology, can provide the way out of the particular box Wesfarmers has found itself in.

    That box is of Wesfarmers' own making, and was, for close to two decades, a particularly profitable box to be in. Wesfarmers identified the use of the everyday low price (EDLP) strategy as key to growing businesses in Australia's newly post-tariff retail markets. It pioneered that model at Bunnings, and then extended it to Coles and Kmart.

    However, once EDLP is adopted by the market at large, it becomes a trap. Businesses cease to deliver a high level of return on investments, and simply grind away at each other. This is what led Wesfarmers to demerge its Coles operations in 2018.

    Digital technology offers an alternative to the low-margin EDLP businesses. In business economics terms, digital enables companies to scale at only a relatively small additional cost. This opens up the possibility of better margins in some business areas.

    One slightly back-to-front way of looking at this kind of development is to ask what exactly Wesfarmers would do with its own data centre? Or, more to the point, what would Bunnings do?nData analytics has been the first answer to this question. Mr Schneider mentioned both bathrooms and kitchens as potential areas for expansion, and it is possible to see that analytics could play a key role in expanding these two lines of business.

    But what else might be in store for Bunnings? There are a wide number of possibilities, from a business model more based on lease/rental of higher priced items such as tools, through to consolidating the data from building information management (BIM) into a repository that could be data-mined.nLikely we will get our first clues of what is to come at the Wesfarmers Strategy Day in June 2019. Until then, we have only the hints that Mr Scott gave in response to an analyst's question about future acquisitions by Wesfarmers:

    Well, as you know, we don't give too much away on the specifics, but the general commentary I'd provide, there's an enormous diversity of opportunities that we're looking at. Yes, there is a bit of an orientation to the industrial side across a range of areas. There are some areas that we're also looking at that are adjacencies to our retail businesses. And yes, a real combination of some small, really interesting bolt-on opportunities with a bit of a technology digital exposure towards bigger opportunities, some of which we've had on a watching brief for quite some time.
    ....
    And really what it's about, it's not just about relying on where market prices are, it's also leveraging unique capabilities or relationships or synergies that we have. So something we spend a lot of time thinking about is what is it that is going to make Wesfarmers a successful buyer.
    bigbox

    Bunnings store builds as plans continue

    Regional Victoria site for larger format Bunnings

    Coolum may still get a Bunnings store and the big box retailer drops an appeal in Keperra

    Foundations are taking shape for one of the biggest Bunnings stores in Delacombe (VIC); a seventh store is being built on the Gold Coast (QLD); Bunnings indicates it is continuing its legal fight to build a store in Coolum (QLD); and an appeal has been dropped against a planned Keperra (QLD) housing estate.

    Delacombe

    A $19 million Bunnings store is set to open in mid-2019 close to the Delacombe Town Centre (DTC) in regional Victoria. Construction works are underway, according to H.Troon developer managing director Steve Troon.

    The Courier newspaper reports the site is owned by a group of Ballarat investors. DTC's flagship tenants are Woolworths, Kmart and Showbiz Cinemas.

    The area surrounding DTC and Bunnings is expected to house as many as 12,000 residents by 2030.

    Robina

    Bunnings will open its seventh Gold Coast store in Robina (QLD). The Bunnings Warehouse, to be built next to Robina Town Centre and Robina Home + Life Centre, will be 12,500sqm and include 320 car parking spaces.

    It is being built at the corner of Scottsdale Road and Christine Avenue on land owned by the Queensland Investment Corporation, which also owns Robina Town Centre. Robina Town Centre general manager Shaine Beveridge told the Gold Coast Bulletin:

    Bunnings is set to complement our popular Home + Life precinct to provide a fully-fledged homemaker, hardware and bulky goods retail offer, alongside the ... retail, lifestyle and entertainment options available at Robina Town Centre.

    Bunnings state operations manager Margaret Walford said the company was pleased to be expanding its presence on the Gold Coast. Construction of the Robina outlet began in September 2018.

    Coolum

    Bunnings has lodged a Supreme Court appeal against a previous court decision not to allow it to build a new store, service station and restaurant in Coolum.

    Bunnings' Planning and Environment Court appeal against Sunshine Coast Council's 2016 refusal of the development application had been dismissed. The council received 982 public submissions in the lead-up to its 2016 refusal, of which 980 were opposed. That development application was Bunnings' third unsuccessful attempt to expand into Coolum.

    But the Supreme Court appeal has breathed new life into the application as Bunnings' lawyers argue District Court Judge Everson erred in law in dismissing its Planning and Environment Court appeal.

    Bunnings' submissions included that Judge Everson had failed to recognise the distinction between Coolum and Coolum Beach when referring to the superseded planning scheme, Maroochy Plan 2000. Its lawyers also submitted the judge had failed to properly interpret the terms "showroom" and "shop".

    Bunnings has named respondents in the action including the council, Coolum solicitor Ray Barber, Coolum Mitre 10 owners Brennan and Jeneane Carolan, Coolum Residents Association and Development Watch.

    Keperra

    Bunnings has dropped its appeal against a large housing estate planned for the Keperra quarry site by Brookfield Residential Properties (BRP). The big box retailer lodged the appeal in December 2017, claiming BRP's 700-home development would cause "unacceptable adverse impacts" from stormwater entering adjoining lots, and the possible impacts from its business on homes in the development.

    It also cited conflicts with the rural and extractive industry zones, and said impacts on "local amenity and values" had not been adequately considered and addressed. Bunnings general manager property Andrew Marks told North West News:

    Following discussions with the relevant parties, we decided to withdraw our appeal.

    Bunnings' Keperra Warehouse, which opened earlier this year, backs onto the BRP site. In addition to the 700 homes, BRP's $313 million plan for the quarry includes a 3000sq m shopping centre on the 48.6ha site.

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    Big Box Update - HI News Vol. 4 No.8
    bigbox

    Exits and sell-off for Kingfisher

    The group continues to manage its turnaround

    Kingfisher still believes its transformation plan will boost profit by GBP500m over five years despite difficult external conditions

    European-based home improvement group, Kingfisher said it will be exiting some of its international business to better focus on its core UK, France, Poland and Romania markets.

    Kingfisher's plan to pull out of its mostly loss-making operations in Russia, Spain and Portugal means stores will continue to trade while it seeks buyers. The process is expected to extend into 2019. Chief executive, Ve´ronique Laury, said:

    We are operating in a difficult retail environment. We face challenges and we are addressing them.

    Moving out of these markets would allow Kingfisher "to apply its strategy with more focus and efficiency in our main markets where we have, or can reach, a market leading position ... by making home improvement accessible for everyone," Ms Laury said.

    The withdrawal from Russia has been interpreted as an admission of defeat for Kingfisher, which has ploughed millions of pounds into opening 20 Castorama stores in the country since 2006. The division made an GBP8 million loss last year despite increasing sales.

    The group has 28 Brico Depoot branches in Spain, where it has traded since 2003, and three in Portugal, where it made about a GBP2 million loss, offsetting a GBP2 million profit in Spain.

    Third quarter

    Pressure is growing on Ms Laury after a disappointing third-quarter performance cast fresh doubt on her ambitious strategy to transform the home improvement group.

    The group reported a lacklustre 1.3% fall in group like-for-like sales in the three months to the end of October, impacted mostly by a poor performance from its Castorama DIY chain in France.

    The company said Castorama had been affected by IT disruption, product and pricing changes introduced as part of the turnaround as well as a weak market. It admitted that Castorama was the "problem child" of the business but said that it had an action plan that focuses on the perception that it was more expensive than rivals among French consumers.

    But difficult trading and national demonstrations over a fuel tax in France that led to blocked roads have taken their toll on the business, and Kingfisher expects this to continue into the next year.

    In the UK, B&Q's comparable sales were down 2.9%, but about 1.5 percentage points of this related to the ending of its loss-making kitchen and bathroom installation services. Screwfix, the builders merchant with a very strong e-commerce model, reported a 4.1% rise in like-for-like sales.

    B&Q store divestment

    In addition to exiting some of its international markets, Kingfisher is seeking to sell six B&Q stores. This is seen as an effort to raise cash to fund Ms Laury's turnaround plan, according to a report in The Times.

    Kingfisher is understood to be attempting to raise GBP125 million by selling and leasing back B&Q stores in Birmingham, Croydon, Southampton and Cardiff, plus two in the northeast of England.

    It will sell the B&Q stores in a subdued market. The shift of retail sales to the internet and persistent uncertainty over Brexit have dampened investor demand for physical retail assets. The company values its property portfolio at GBP3.5 billion.

    Ongoing transformation

    The group is halfway through Ms Laury's One Kingfisher five-year transformation program, which includes simplifying and unifying its ranges across brands, seeking savings and aims to deliver an additional GBP500 million of profit a year by 2021. It also involves boosting e-commerce, lowering prices and launching a new marketing campaign. Ms Laury said:

    We have accelerated our move to an everyday low price strategy and have launched a new marketing campaign to make it visible to our customers, however there is no quick fix.

    Kingfisher's plan for the group is costing GBP800 million over the five years.

    While Ms Laury and Kingfisher insist the plan is on track, in September the group reported a 30.1% drop in pre-tax profit to GBP281 million for the six months to the end of July. It also announced then that Arja Taaveniku, the chief offer and supply chain officer, who was appointed three years ago to operate at the heart of the group's restructuring, was being replaced. Karen Witts, its highly regarded chief financial officer, will also be leaving next year to join Compass, the catering company.

    However Kingfisher pointed out that it had hit all the milestones planned for the third year of the program. It also increased its gross margin in the third quarter, reversing a fall in the first half. The group has also met its aim to return GBP600 million to shareholders through buybacks in the first three years of the plan. Ms Laury said:

    Transformation on this scale is tough, and we are operating in a difficult retail environment. We face challenges and we are addressing them.

    "We have set out a plan that we always said would be back-end loaded," she added, who argued that the revamp is taking time because it goes much deeper than other business transformation programmes.

    Many others are just scratching the surface, adding more cost on top of their existing costs.

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    To read more in Europe Update, download the latest issue by clicking on the following link:

    Europe Update - HI News Vol. 4 No.8
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    Big box update

    Bunnings store development update

    A round up of Bunnings store plan rejections and approvals from across Australia

    A development application (DA) for a Bunnings Tempe outlet has been rejected; work is underway on a Bunnings store in Mernda (VIC); plans for a Bunnings Warehouse at Kembla Grange (NSW) have been approved; a Bunnings store will be part of a retail precinct in Lake Macquarie (NSW); the South Nowra Bunnings DA proceeds to the next phase; Bunnings has failed to gain approval for a site in Coolum (QLD); a Bunnings store is featured in plans to develop a former winery site in Old Reynella (SA); and a proposal for a Bunnings store in Merimbula is expected to be approved.

    Tempe

    Inner West Council has welcomed a decision by the Sydney Eastern City Planning Panel to defer approval of the Tempe Bunnings DA.

    The proposal was for a $70 million 20,000sqm store that would use a residential street as its main entrance for traffic. Inner West Mayor Darcy Byrne said:

    The panel made this unanimous decision based on Council's submission which identified very serious traffic and parking potential impacts from the proposed development.
    Not only did the panel defer approval, they also requested an independent traffic assessment by a consultant mutually appointed by Council and the applicant at the expense of the applicant. This is a very good outcome for the community.

    Council told the panel there were serious issues relating to the proposed development, and that the proponent had failed to address the council's and community's legitimate objections. Mayor Byrne said:

    When I addressed the panel...I told them the impacts on traffic in Smith Street, Union Street, South Street and other local residential streets in Tempe would be completely unacceptable.
    Bunnings and Council will now work together to find a mutually acceptable traffic expert to conduct, at Bunnings' expense, a peer reviewed and independent assessment that includes a local area traffic management scheme.

    Bunnings has been set a 15 December deadline to submit the traffic assessment and management scheme.

    Mernda

    Construction of a 12,000sqm Bunnings Warehouse in Mernda is due for completion in early December.

    The store is a major part of the new Mernda Town Centre, and will include a nursery, cafe and playground. The remainder of the centre will include a Woolworths supermarket, ambulance station and takeaway shops. It will have a mix of retail, commercial and community facilities.

    Bunnings Victoria West state operations manager Tony Manzone told the Whittlesea Leader more than 120 people would be employed at the warehouse.

    Kembla Grange

    A $30 million Bunnings store planned for Kembla Grange was given the go ahead by the Southern Joint Regional Planning Panel. It will be built on a 40,000sqm block in Northcliffe Drive next to the Princes Highway. The store is set to take up about a third of the 40,000sqm site, with parking for 415 cars included.

    Andrew Marks, Bunnings' general manager - property said it was pleased to have received development approval for the new store which will replace the current Bunnings Warrawong Warehouse. He told the Illawarra Mercury:

    To accommodate the additional traffic in the local area, we will be undertaking improvement works to the intersection of Northcliffe Drive and the Princes Highway. Furthermore, Wollongong City Council and Bunnings will also be co-funding the construction of a new roundabout on Northcliffe Drive which will provide safe access to the new store, as well as bring forward a key piece of road infrastructure to service the West Dapto release area.

    Bunnings rent its current site at Warrawong. Mr Marks said team members will transfer from the existing warehouse to the new one, and could be joined by over 30 more staff.

    Lake Macquarie

    Construction is set to start on a $90 million shopping complex in Lake Macquarie that will include a Bunnings Warehouse which will be located at the southern end of the site. It is due to be completed by December 2019.

    The 30,000sqm retail centre is located on the Pacific Highway at Bennetts Green.

    Spotlight Group, which owns the Spotlight and Anaconda retail chains, has received state government approval to start work on the first stage of the development.

    Council initially sold the site for $20.3 million in January 2016 to Hydrox Nominees - a land-holding company for Masters Home Improvement. Approval was granted for a Masters outlet, bulky goods units and a restaurant, but with the retail chain's demise, the land was sold to Spotlight Group.

    South Nowra

    Shoalhaven councillors have helped to push along a DA lodged by Bunnings and Nowra Property Group that could see the South Nowra Bunnings Warehouse expand by almost two and a half times its current size. Bunnings development approvals manager Phillip Drew told the South Coast Register:

    It will be one of the biggest stores in our network.

    The matter was brought to the chamber as the applicants sought a height limit variation of more than 10% (from 11m to 15.5m). It is now up to council staff to make a determination on the DA.

    The proposed expansion of the Bunnings store at South Nowra will take in the car park area and a separate block to the north.

    Coolum

    The Planning and Environment Court rejected an appeal by Bunnings to allow a big box store on the western entrance to Coolum. The site sits opposite Coolum State School and at the gateway to the tourist town.

    Mr Marks said Bunnings would now consider its position. He told the Sunshine Coast Daily:

    Bunnings is disappointed with the Court of Queensland's decision and will now evaluate our options.

    Community organisations including Development Watch, Coolum Ratepayers Association, business owners and individuals joined Sunshine Coast Council in fighting the appeal. The judgment was handed down by Judge DCJ Everson who found the proposals in serious conflict with the superseded planning scheme.

    He said the retailer opportunistically sought to place a large stand-alone Bunnings Warehouse in a location not intended for such use. He said:

    The absence of any master planning makes for an inappropriate utilisation of the site in any event. No grounds have been put forward which are, on balance, sufficient to justify approving either of the proposed developments notwithstanding the conflicts.

    Barrister for Bunnings, Danny Gore said the warehouse size differed in the company's two remaining proposals. Mr Gore told the court one plan was for a 5850sqm warehouse. The other proposed warehouse was 8600sqm.

    The judgment also considered the development would have an unacceptable impact on the Mitre 10 hardware business in Coolum Beach. Peregian Beach Hardware owner Russell Lunn said if the Bunnings appeal had been allowed, it would have cost the business 20-30% of its turnover. Mr Lunn said the proposal had forced him to draw up long-term plans for his business.

    I've had staff who have worked here for 20 years. They are loyal people. Eventually there would have been hard decisions. I've looked for savings but eventually we would have been squeezed out. I don't believe we would have survived long term.

    Development Watch president Lyn Saxton praised the way the town had pulled together to retain the village nature of its retail precinct. She said:

    Coolum is a tourist town and a big box development was not appropriate for the western gateway.

    Ms Saxton said if a Bunnings had been allowed, up to 10 small businesses would have been forced out.

    Prior to the judgement being handed down, economist Marcus Brown said local residents already had access to hardware stores, which include Bunnings stores at Maroochydore and Noosaville. He gave evidence during the Planning and Environment Court hearing.

    Mr Brown said it was a 15-20-minute journey either way on high-speed roads to other Bunnings stores. He described the neighbourhood as a "sub-regional trade area".

    The court heard the "trade area" under scrutiny had a population of 41,000.

    Related:

    Bunnings tries a second time to build in Coolum - HNN

    Old Reynella

    Bunnings wants to open a $29 million, 14,000sqm warehouse on an old winery site in Old Reynella. According to Messenger Newspapers, Tarac Properties, which owns the former Accolade Winery and Distribution Centre, has lodged a DA with Onkaparinga Council on behalf of Bunnings, to convert an existing warehouse into a store on Panalatinga Road.

    The Bunnings store would be part of a $150 million proposal to redevelop the site with housing, retail and commercial businesses, health and wellbeing activities, education opportunities and a childcare centre.

    Under the proposal, there would be traffic lights from Panalatinga Road into Bunnings, One regulated and three significant trees would need to be removed. Mr Marks said residents' traffic concerns would be addressed.

    The development application included a traffic impact assessment report to ensure the safe and efficient use of the surrounding roads.

    The site has a vineyard, warehouses, and state and locally heritage-listed buildings. The proposed Bunnings warehouse is about 100m away from the vineyards.

    There are Bunnings warehouses 8.5km away in Noarlunga Centre, about 11km away in Marion 13.5km in Seaford and another, which is under construction, 14.5km distance in Edwardstown.

    Local resident Maryann Nankivell is continuing her campaign to block the entire redevelopment of the site. Earlier this year, she started an online petition called "Make Old Reynella Grape Again". It has around 1700 signatures protesting against the proposed development.

    She said the setting had too much cultural significance to be razed and should be used for wine production. Ms Nankivell planned to continue her crusade to "save the site", arguing that it should be maintained in its entirety, "just as a winery, and keep with the heritage of the area".

    Merimbula

    A proposal for a Bunnings store in Tura Beach, Merimbula is being considered by the local council. It will consider support for the proposal to rezone the land, owned by Wesfarmers, to a B5 business development zone. When viewed alongside council's Commercial Centres Strategy Review, it is believed the proposal will receive approval from NSW Planning.

    If it does so, the DA which forms part of the document will also receive approval. The proposed Bunnings Warehouse will have a floorspace of 6930sqm. However there are concerns about its proximity to RSL LifeCare's Sanananda Park.

    Merimbula News Weekly understands Bunnings' plans have been altered to accommodate the concerns by placing the car park at the rear of the store to provide a buffer zone. At its closest, the boundaries of Bunnings and Sanananda Park will be 12m and at its furthest 47m.

    In its proposal, Bunnings states the site is the best location on the Sapphire Coast given its "excellent site accessibility, exposure to customers and proximity to trade customers". The company said numbers of new dwellings had increased from 148 in 2012, to 193 in 2016.

    In its market assessment, Bunnings said the new store is forecast to achieve a turnover of $13.3 million in its first year of operation which is taken to be financial year 2019/20. The development is estimated to cost $9.5 million.

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    To read more in Big Box Update, download the latest issue by clicking on the following link:

    Big Box Update - HI News Vol. 4 No.7
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