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.

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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

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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

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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.

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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.
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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
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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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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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Big Box Update - HI News Vol. 4 No.7
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Bunnings results for FY2017-18

Revenue of $12.5 billion, EBIT of $1.5 billion

Bunnings gears up for a new future as it is defined as a centre of investment and growth by its parent Wesfarmers

The parent company of Bunnings, Wesfarmers, released its earnings for the FY2017/18 on 14 August 2018. The reported year has been both a difficult and a dynamic one for the company. Wesfarmers acquired a new managing director, Rob Scott, and a new chief financial officer (CFO), Anthony Gianotti, divested itself of its failing Bunnings United Kingdom & Ireland (BUKI) operations, divested its Curragh mining operations, and announced that it would split off its major revenue generator, Coles supermarkets, as a separate entity.

In what the market and most commentators greeted as a welcome change of direction, the company has recommitted to its Bunnings Australia & New Zealand (BANZ) home improvement retailer, and made a strong move into data analytics as a means of boosting its operations, especially the retail ones, which include Bunnings, Kmart, and Target.

According to the results announcement:

Following the demerger, Wesfarmers will have a portfolio of cash-generative businesses with good momentum and leading positions in growing markets. Continued earnings growth is expected across the Group's retail businesses. Growing addressable markets will remain a focus, along with ongoing improvements in merchandising and service, further enhancements to the customer experience both in-store and online, and investments in value supported by operational efficiencies.

BANZ saw its revenue break through the $12 billion mark, reaching $12,544 million for FY2017/18. This is a more than $1 billion increase over its FY2016/17 result, which came in at $11,514 million, and represents an 8.9% increase. EBIT also grew strong, coming in at $1504 million, up by 12.7% on the pcp.

Statements by the managing director of Bunnings, Michael Schneider, laid out be three main "themes" to upcoming changes to Australia's largest home improvement retailer. The first is the introduction and better use of certain core technologies, including data analytics. The second is a what could be a move away from the standard concept of "efficiencies" that Bunnings has successfully pursued for a long time, towards an approach to performance improvement through "lean" thinking (originally developed by Toyota in Japan in the 1960s and 1970s), which instead seeks to eliminate waste.

The third change could be a shift in the way Bunnings seeks to relate to its suppliers. There is a possibility in what Mr Schneider had to say, that Bunnings might be shifting to an approach that is more inline with the approach of US big box home improvement retailers The Home Depot and Lowe's Companies to their supply chains. This is a more active engagement in product development and design, somewhere between the advice and approval arrangement Bunnings currently has with many suppliers, and its closer ties to captive brands, such as Ozito power tools and Tactix tool storage.

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Big box disruption 2020

Bunnings, The Home Depot, Kingfisher and Lowe's Companies are all disrupting themselves

As technology and other forces come to bear on them, most big-box home improvement retailers across the world are disrupting their businesses, which will have consequences for smaller independent retailers as well

If we had to place a label on the next five to six years of development for big-box retailers in the global home improvement sector, it would most likely read "the era of self-disruption".

The four big-box home improvement retailers whose recent results HNN has profiled in this issue - Bunnings, The Home Depot, Kingfisher and Lowe's Companies - are all companies currently undergoing a form of self-disruption. All four of them, we believe, have arrived at disruption after undergoing quite similar experiences, though at different times and under different circumstances.

Looking at the history of the four big-box home improvement retailers we are considering, it's possible to see some similarities in the patterns of their development. One constant is that all four have encountered an event, or a series of events, that have frustrated their plans for expansion, and led them to rethink their growth strategies.

The general pattern is that these companies find themselves close to maturity in certain markets under existing business models. Typically they are not in contraction, but growth rates have slowed, or they have become sensitive to certain fluctuations.

To grow and expand, they seek out additional markets. This could mean exporting their business model to new geographical markets, or applying the familiar model to additional categories in home markets.

These efforts fail, typically, because they are usually an attempt at a type of evasion. The existing business model is well-known, comforting, familiar, and not only has proven to be a good success in the past, it isn't really in trouble, yet. It's still producing revenue and EBIT, just not enough to justify ongoing capex investment.

It takes the rough shock of a real failure in new markets for these companies to fully understand that their only alternative to a slow drift downwards is to self-disrupt, change existing business models, and discover new sources of growth. Often the shock, and the need for sharp change is so strong that this move is accompanied by a change of senior management as well.

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USA update

The Home Depot rolls out express delivery

Stanley Black & Decker launches revamped Craftsman products and latest results from Ace Hardware

The Home Depot is providing same-day and next-day local delivery; Stanley is bring out its new and revamped version of the Craftsman brand; Ace Hardware believes it is building an Amazon-proof business; Lowe's is using Pinterest to build customer intent; Reece-owned MORSCO HVAC Supply opens on the East Coast of America.

Same-day deliveries at Home Depot

Home Depot is meeting the needs of shoppers' "need it now" mentality and has begun express same-day and next-day local delivery to 35 major metropolitan areas across the US. This service is for online orders made before noon on more than 20,000 of its most popular items. Products include anything from Halloween decorations to power tools, that can arrive by van or car the same day, starting at a cost of USD8.99.

To use the service, customers simply choose "Express Delivery from Store" through the website homedepot.com or The Home Depot app, where available.

Mark Holifield, Home Depot's executive vice president of supply chain and product development, believes customers "want it cheap, but also want it to be quick". He adds:

We set an overarching goal for our supply chain to be the fastest, most efficient delivery in home improvement.

The big box retailer is partnering with start-up car and van providers, Roadie and Deliv to offer the new delivery options for smaller items and to quicken the shopping process. It is continuing to expand its supply chain network for faster shipments of large bulk deliveries.

Retailers are realising that to compete with Amazon they need to speed delivery of online orders, especially because web purchases are often the fastest-growing part of their business. Online revenue for Home Depot grew more than 20% in this year's first half.

Stores as delivery points

Many retailers are using stores to create an omnichannel network, because they are already closer to their customers than large distribution centres that tend to be on the outskirts of cities or in rural areas.

Using stores as distribution centres has created options that Amazon can't replicate, such as enabling customers to pick up online purchases at the closest location to avoid shipping fees. It has also given physical locations added value.

David Schick, director of research for Consumer Edge Research, told Bloomberg:

...This is the next iteration of giving consumers choice. If this decade proves anything, it's that consumers want control and choice.

But these kinds of deliveries can be inefficient and costly, with trucks not filled to capacity and taking longer in congested city streets. That's where start-up businesses like Roadie and Deliv come into play. They've created Uber-like online platforms that crowdsource delivery from drivers who are independent contractors.

While that helps reduce costs, Mr Holifield said the retail giant isn't passing all of the delivery expense to customers. Thanks to its size - USD100 billion in annual revenue and rising - the company can afford to subsidise some of it. He said:

Delivery can be expensive. What we look at is delivery helping us to make stronger customer relationships.

Supply chain

The expansion of its delivery offerings is part of the company's ongoing supply chain upgrade. This investment calls for additional direct fulfillment centres and more than 100 new distribution sites to further extend delivery speed and reach.

CEO Craig Menear recently said at the Goldman Sachs 25th Annual Global Retailing Conference:

About USD1.2 billion will go into our supply chain over the next five years that will allow us to essentially move to a same day, next day network for roughly 95% of the US population.
...the majority of that investment actually goes into the downstream network, which will move product from stores and distribution centres direct to customers' homes or job sites. And what we're building out is a direct fulfillment capability to handle all the variety of products that we sell in the project business in home improvement. That's everything from a small package that can be delivered in a car, for example, to a pallet of product that needs to be delivered on a flatbed...in a particular location on a job site.

Craftsman tool brand gets a reboot

The Craftsman brand has introduced 1,200 redesigned tools and products made by Stanley Black & Decker (Stanley). The latest range includes categories such as power tools, equipment and accessories, hand tools, storage and organisation solutions, lawn and garden power equipment, mechanic and automobile tools.

This line of products is the result of Stanley's purchase of Craftsman from Sears Holdings Corporation last year. When Stanley bought the Craftsman brand, the deal allowed both companies continue making and selling products under the Craftsman label. It also gave Stanley the right to sell Craftsman products outside of Sears.

That means a Craftsman cordless power drill or red metal toolbox can come from either Sears or Stanley, depending on where it's purchased. US consumers will continue to see Sears' version of Craftsman in Sears and Kmart stores, as well as Sears Hometown and Outlet.

Stanley's take on the brand are being sold through Lowe's and Ace Hardware stores. Metal storage products will go on sale on Amazon later this year, with more added in 2019.

Competing versions of a brand sounds like a recipe for customer confusion, but Stanley spokesman Tim Perra said the company isn't concerned.

Both companies have agreed to a set of brand standards and guidelines, Sears spokesman Larry Costello said.

Regardless of where the product was purchased, customers can expect that these tools meet the highest performance standards.

Under the deal, Sears will benefit from Craftsman tools sold by Stanley, which will pay royalties for 15 years.

In addition to the opportunity to expand Craftsman's reach, Stanley saw an opportunity to update the brand's look and feel, though the red colour scheme will remain, Mr Perra said.

Among the revamped products is a battery that can be removed from a drill and installed in a lawn mower, eliminating the pull start that makes it easier for users. The battery also can be used for other garden tools.

Other updated tools is a new Craftsman wrench, with its 27 tooth gear design increased to 120 teeth. And 30 Craftsman drills are smaller, lighter and feel better in the hand.

Stanley also wanted to make more Craftsman products in the US, though it wasn't a response to the Trump administration's protectionist trade policies or an effort to avoid tariffs, Mr Perra said.

In an interview with The Street.com, James Loree, Stanley chief executive officer said "one of the strategies behind rebooting Craftsman is to revitalise the products and make as many (of) them in America as possible".

We ended up simply buying the brand because the products had been left to devolve over time to the point where they weren't high-quality, respectable products they once were. They had migrated from made in America to virtually everything being made in China and Mexico.

Initially, 40% of the products will be made in America, with the share rising to 70% over the next few years, Mr Loree said.

Ace Hardware invests in supply chain, digital

The hardware retailer reported record second quarter revenues of USD1.59 billion, an increase of USD95.5 million, or 6.4%, from the second quarter of 2017. Net income was USD54.8 million for the second quarter of 2018, an increase of 7.2% from the second quarter of 2017. Same store sales were up 3.3%. President and CEO, John Venhuizen, said:

We continued to see revenue growth across all of our business units in the second quarter, with the strongest results coming from our local owners in the domestic business which increased almost 6%. And I'm delighted with our 7.2% net income growth despite the expense pressures from our material investments in both our wholesale infrastructure and our digital expansion. We successfully shipped our first order from our new 1.1 million square foot retail support centre...and launched our new hyper-localised Acehardware.com website...which was up 34% in the second quarter.

Mr Venhuizen told the Fox Business channel that the company is having success taking on Amazon. He said:

Don't misunderstand. We all know Amazon is the most disruptive company in human history. But there is a desire of ours to be owning the home preservation business - and a lot of that has to do with feel and touch. And we are sort of blessed that tends to be a little bit more insulated from the convenience of commoditised one-click ordering.

Ace Hardware currently operates 5,161 stores worldwide. It opened 39 new domestic stores in the second quarter and closed 34 stores. The company's total domestic store count was 4,423 for the second quarter, which was an increase of 66 stores from the second quarter of 2017. On a worldwide basis, Ace added 59 stores in the second quarter of 2018 and cancelled 35.

Ace "most helpful"

The Illinois-based hardware cooperative also topped a recent survey about US consumers' favourite home improvement chains.

In a new Market Force Information poll of more than 4,000 consumers, Ace earned a score of 68% on the composite loyalty index, far exceeding that of competitors Menards (57%), Lowe's (54%), Home Depot (53%) and Walmart (36%).

It ranked first in scores for many of the store attributes that matter most to consumers, including value for the price, store cleanliness, checkout speed, store layout and merchandise availability.

Respondents, with 64% identifying themselves as DIY enthusiasts and 68% saying they've watched a DIY tutorial video, especially love Ace's loyalty program, at 70%. And while Lowe's ranks second by that measure and has invested heavily in promoting MyLowes, its score was just 28%.

Brad Christian, chief customer officer for Market Force, highlighted what may cause a retailer like Ace to score markedly better than competitors in surveys:

Service is of the utmost importance in any retail situation, but particularly in the larger-format stores that are commonplace in home furnishings and home improvement. The customer experience relies on being able to find what you need and someone to help. Otherwise customers can quickly become frustrated and that can lead retailers to a missed sale.

The Market Force survey was conducted online in June 2018. The survey represented a cross-section of the four US Census regions and reflected a broad spectrum of income levels, with 55% reporting annual household incomes of more than USD50,000.

Lowe's suggests purchases on Pinterest

For the past five years, social media platform Pinterest has been helping Lowe's customers visualise home improvement projects by serving up products or collections that appeal to them based on their Pinterest profile interests.

Now the retailer will be adding transaction data to customer Pinterest profiles so it can suggest products as advertising, according to Digiday.

Transaction history will further personalise suggestions for customers based on data. For example, if the home improvement retailer knows a customer repeatedly purchases living room furniture, it can offer up pins that align with these interests.

The retailer wouldn't say if the test would be applied to all customers who are Pinterest users or a selected group of them, but Lowe's is growing Pinterest as a product discovery tool to learn more about customers' future intent - a way to target sponsored ads and content as it builds its relationships with customers and prospects. Shannon Versaggi, vive-president of targeted marketing at Lowe's, said:

One of the things we're exploring is the value of sharing our transactional data. We think there's an opportunity to better understand the customer journey using that combined data, to show interest and inspiration and when they pull the trigger to buy.

Lowe's plans to test the addition of transaction data with customer Pinterest profiles in 2019. It is also partnering with a location-based data provider to test the relationship between Pinterest interactions and traffic to physical stores.

Retailers that are selling or marketing home improvement projects to consumers are increasingly looking to Pinterest to assess and build customer intent to purchase products.

In June, Home Depot rolled out a feature called "Shop the Look" that lets customers peruse through curated Pinterest boards that suggest and pair products of interest to customers.

HNN covered this story earlier this year:

Home Depot expands decor strategy - HI News, page 71

For Lowe's, Pinterest stands out among platforms because customers keep coming back to it as they plan their projects. According to Ms Versaggi, many customers who use Pinterest look at the boards months later - a strong signal of future intent.

Customers on Pinterest are also more likely to click through ads. For example, Lowe's said customers on Pinterest have a 20% higher click-through rate on shoppable pins compared to the average rate from Pinterest campaigns.

While customers searching on Amazon or Google likely already have an idea of what they're searching for, Pinterest lets customers get creative with design and conceive of ideas even though the purchase may take place months after the initial Pinterest exploration.

While customers don't directly convert from initial interactions on Pinterest, it's an early indicator of future intent that's measurable and where customer journeys can be mapped. Pinterest also has the added benefit of not presenting sponsored pins or ads in an obtrusive manner for the customer. Instead, it is just seen as part of the product discovery process.

Despite the brand lift with Pinterest, the challenge is to generate the level of interaction to ultimately build a noticeable bump in sales. Lowe's Pinterest page has more than three million followers and 10 million monthly viewers, according to the company.

East Coast expansion for MORSCO

US distributor of commercial and residential plumbing, waterworks and heating and cooling equipment (HVAC), MORSCO has acquired Ott Distributors, through its subsidiary MORSCO HVAC Supply. Texas-based MORSCO is owned by Australia's Reece Group.

In the transaction, all Ott Distributors staff and its location in South Carolina will operate under the Ott Distributors/MORSCO HVAC Supply brand. This will be the first MORSCO HVAC Supply branch on the East Coast.

Ott Distributors has been serving Charleston and the surrounding area with parts and equipment for more than 40 years.

MORSCO launched the MORSCO HVAC Supply brand in April 2018 to better focus its HVAC operations. Jim Mishler, president, MORSCO HVAC Supply, said:

The acquisition of Ott Distributors establishes our presence on the East Coast, where we see a large, attractive opportunity to expand and reach new customers.... We are excited to continue our growth strategy within our organic markets as well as expand into new markets via additional acquisitions and new locations.

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USA Update - HI News Vol. 4 No.7
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Big box update

Highest levels of satisfaction for Bunnings

Bunnings attempts store in Coolum again, Baldivis staffing and Victor Harbor opening

Bunnings satisfies most customers, according to Roy Morgan Research; Morgan Stanley believes a slowing housing market could hurt Bunnings; another push for a Bunnings store in Coolum (QLD); confirmation for Kingaroy (QLD) opening; expansion for Albany (WA) store; early 2019 launch date for Port Macquarie (NSW); staff restructuring at Baldivis (WA) outlet; employment offered at new Bunnings Caringbah; and Victor Harbor officially opens.

Bunnings "best performer" for customers

Research company Roy Morgan has found that in the 12 months to May 2018, 89.5% of hardware store customers were satisfied, an increase of 2.2% year on year. All other significant hardware retailers showed improvement with Bunnings up by 1.3% points to 89.8%.

These are the latest results from Roy Morgan's "Hardware Store Satisfaction Report" which is based on personal interviews conducted face-to-face with over 50,000 Australians per annum in their own homes. This includes over 9,000 interviews with people who have shopped in a hardware store in the last four weeks.

With eleven million people shopping at Bunnings in an average four week period, they are the dominant player in this market with around 95% of hardware shoppers and have the highest customer satisfaction with 89.8%, according to Roy Morgan.

Its research also revealed Bunnings had an increase of nearly 600,000 customers over the last year and were the only retailer to show an increase, apart from True Value Hardware (up by 1,000).

In second place for satisfaction was Home Timber & Hardware on 89.4% (up 1.5% for the year), followed by Mitre 10 with 88.1% (up 0.1%). These top three performers are only separated by 1.7% points and all remain well ahead of True Value Hardware on 79.3% (up 4.7% year on year). Industry communications director, Norman Morris, said:

Satisfaction levels with hardware stores is higher than most other retail categories and over the last year they are showing that they are continuing their customer focus, with all four of the majors showing improvement.
To date there has been limited competition from online players but our research shows that in an average four week period around a quarter of a million people purchase some hardware online. With increased competition from new players like Amazon, bricks and mortar hardware stores will need to focus even more on customers, particularly the advantage they are likely to have regarding their ability to provide personal advice.

Online visits

Inside Retail also recently published a list of the most visited Australian shopping websites, based on data from coupon site Cuponation. JB Hi-Fi topped the list with approximately 74 million local visits between January and June this year.

Bunnings came second with 68.82 million local visits to its website in the same six-month period, according to Cuponation.

Slower housing impact on Bunnings

Investment bank and financial services group, Morgan Stanley believes Bunnings may start to feel the negative impact of a cooling housing market as lending for renovations appears to have peaked.

Government data seems to indicate that as banks tighten lending, less people are looking to update the house for sale.

Fairfax reports Morgan Stanley analysts suggest that Bunnings' strong trading is likely to slow from the fourth quarter of 2018, based on lower auction clearance rates.

They said, however, that Bunnings' like-for-like sales growth could continue and margins increase as either the housing slowdown reverses or proves counter cyclical. People may not sell but decide to update the couch or kitchen. Analysts said in a report to clients:

We think a combination of tightening lending activity from the banks and home owners losing confidence in the housing market has led to the decline in lending for renovations.

The latest Corelogic data shows that auction clearance rates are down 15 percentage points year-on-year, to 53% in July. Morgan Stanley analysts said:

Whilst Bunnings' Australia and New Zealand like-for-like sales growth has held up so far, we think the second half of 2017 and the first half of the 2108 period was supported by the Masters exit and the third quarter of 2018 result looks to have been assisted 200-300 basis points by weather, meaning that underlying like-for-like sales may have been as low as 4.7%.

According to the latest Australian Bureau of Statistics (ABS) figures, in trend terms, lending for alterations and additions (renovations) of homes fell to 17-year lows of $310.8 million in May, down 22.6% from the most recent peak of $401.3 million in September last year. The annual decline of 19.9% was the lowest in seven and a half years.

Ryan Felsman, senior economist at CommSec, said Aussies had found it incredibly difficult to find a local tradie in recent years as the housing market was going gangbusters. He said:

However, a decline in home prices, particularly in Sydney and Melbourne, and tighter lending restrictions and anaemic wages growth appear to be impacting homeowners' views towards their castles.
In fact, homeowners appear to be less enthused about taking out a loan to renovate their abodes. Loans for renovations fell to 17-year lows in trend terms in May, suggesting that more people are shelving immediate plans to add extra rooms or revamp kitchens and bathrooms as the housing market slows in some cities and regions.

The ABS defines alterations and additions as all structural and non-structural changes which are integral to the functional and structural design of a dwelling. The ABS says examples are garages, carports, pergolas, roofing and re-cladding. But they do not include swimming pools, ongoing repairs, or maintenance and home improvements which do not involve building work. Morgan Stanley analysts said:

Historically, there has been some relationship between lending activity for this purpose and Bunnings Australia and New Zealand like-for-like sales growth, hence we think this is an indication of the headwinds Bunnings faces in the near term.

Bunnings pursues Coolum store

Despite being rejected multiple times, Bunnings is pushing on with its Coolum development, reports the Sunshine Coast Daily.

The big box retailer has said its warehouse, restaurant and servo could boost local employment. However some opponents have cited the project's size and visual amenity as reasons for blocking it.

Sunshine Coast Regional Council recommended rejecting the retailer's plans. So Bunnings went to the Planning and Environment Court in Brisbane.

Bunnings's barrister Danny Gore said the warehouse size differed in the company's two remaining proposals. He told the court one plan was for a 5850sqm warehouse. The other proposed warehouse was 8600sqm. The servo and restaurant were 300sqm each, in both plans.

Judge William Everson said it seemed "very unorthodox" for Bunnings not to have decided which proposal to advance.

"The barrister said although Bunnings had already decided to ditch one proposal, with the two surviving proposals "it really will depend on the way the evidence unfolds". Ultimately, differences between the two surviving plans would probably be "marginal" but that too might change, Mr Gore said. He also provided a traffic engineer's report.

Judge Everson said traffic and parking issues might differ. He told the court that all sides had to agree on what the bones of contention were.

The court was also told local businesspeople and residents, including parents of local schoolchildren, might give evidence.

Related:

Bunnings tries a second time to build in Coolum - HNN

Albany store will be bigger

A time frame on the planned expansion of Bunnings Albany is yet to be decided after a major development of the store was announced late last year.

The hardware retailer is expected to double in size and expand by 6000sqm into three lots but details of when the it will begin are not yet known. Bunnings property -general manager Andrew Marks told The West Australian:

The timing and details of the expansion works have not been finalised at this stage...

The planned development is the first major expansion since the store opened 18 years ago.

Kingaroy store start date

South Burnett Regional Council announced that the Bunnings store in Kingaroy should be open by Easter 2019. Councillor Terry Fleischfresser, who has been working with Bunnings' property development manager on bringing the new store to town, said this was a huge confidence boost for the region. He told the South Burnett Times:

The new Bunnings opening by Easter will create 40 new jobs for locals. There is currently a lot of development in the region which means a strong future for our business sectors.

Cr Fleischfresser said having big retail stores like Bunnings in the South Burnett allowed residents to keep their shopping dollars in the region.

No longer will locals drive to Toowoomba or Dalby (to shop at Bunnings), they can do all their shopping right here.

Construction on the store is expected to start soon.

Port Macquarie warehouse on schedule

Bunnings' state operations manager NSW north, Cheryl Williams, said the construction work on the $43 million, 18,000sqm Port Macquarie store is progressing as planned. It is expected to open its doors in early 2019. She told the Wauchope Gazette:

Once complete, the existing team will transfer to the new store and will be joined by more than 60 new team members. Stock from the existing site will be distributed to other Bunnings stores and racking will be recycled within the store network. Bunnings has been a part of the Port Macquarie community since 2003...

Baldivis staff changes

Bunnings in Baldivis, which employs 108 people, recently offered some of its team members several "employment options", including redeployment to other stores, reduced hours and suspension of work. State operations manager WA Hayley Coulsen said the decision was not taken lightly and Bunnings would continue to work to find the best solution for all team members. She told The West newspaper:

As with any of our new stores we review and adjust team resources as required, and this has been the case for our Baldivis store.
We recently offered some Baldivis team members several employment options, including redeployment to other stores where possible, reducing their contracted hours or suspension of their role with the understanding that as other positions become available within the Bunnings network, they would be offered these roles.
Team members who take up other roles will have the option of returning to Baldivis in the future...

Caringbah store staff search

The Bunnings store on Koonya Circuit at Caringbah (NSW) is due to open in November, providing120 employment opportunities for Sutherland Shire residents and school leavers.

Complex manager, Emily Sakalis, started her career at Bunnings 14 years ago and has previously held positions at stores across NSW. She told The Leader:

I was the complex manager for the old Caringbah Warehouse, and am excited about looking after this bigger and better store. The Bunnings culture is positive and supportive and we strive to bring an element of fun to every day. This is something I've always valued.

Celebrations for the opening of the Caringbah store are planned for later this year.

Victor Harbor opening

Local community groups were strongly represented at the official opening of Bunnings' $25.3million, 10,000sqm Victor Harbor store in South Australia.

Complex manager Danny Leach outlined the company's policy of a partnership theme - using the skills and materials of Bunnings to support the work of community groups. The store has been involved in Whalers Housing in both Goolwa and Victor Harbor, kids' breakfasts and gardening projects in local primary schools, providing recyclable timber for Encounter Centre and help for dugouts at the Breakers soccer field.

The star of the official opening was AFL legend Malcolm Blight who coached the Crows to two premierships and scored 786 goals during his AFL career.

Quizzed by 18-year-old Bunnings team member Tahnee Thatcher, Mr Blight chose two career highlights - one was playing with his mates in the local Woodville footy team while the other was taking out two premierships as coach of the Crows. He told a captive audience:

Football is a team game so success is shared. People are the common ingredient in success. If you act enthusiastic, then you will be enthusiastic!"
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Wesfarmers Strategy Briefing 2018

Data analytics and a focus on growth

With Bunnings UK gone, Wesfarmers is looking to grow existing businesses, in particular Bunnings

On 7 June 2018 Wesfarmers held its Strategy Briefing Day. This annual event provides a preview of management and strategic thinking the Australian conglomerate will apply to the coming financial year (FY), in this case FY2018/19.

Australia's seventh-largest listed company in the Australian Stock Exchange 100 index by market capitalisation ($55,900 million), Wesfarmers has undergone a somewhat "rocky" FY 2017/18, with the need to shut down an attempt to enter the European market through its Bunnings United Kingdom and Ireland (BUKI) operations. BUKI was initially launched in early 2016, through the acquisition of the UK-based Homebase home improvement retailer. Shutting down these operations solidified an overall direct loss of over $1.25 billion for Wesfarmers.

That major shift in strategy has come as Rob Scott assumed the role of managing director (MD) for Wesfarmers, replacing the incumbent, Richard Goyder. His appointment was initially announced on 14 February 2017, and Mr Scott assumed the role immediately after Wesfarmers' annual general meeting in mid-November 2017.

A number of other top level executive changes took place around the same time. In late May 2017, Anthony Gianotti was announced as the next Wesfarmers chief financial officer (CFO), replacing Terry Bowen. Michael Schneider, who was then MD for Bunnings Australia and New Zealand (BANZ), was promoted immediately to MD, Bunnings Group, replacing long term, highly respected MD John Gillam. (Mr Gillam had moved to an advisory position in December 2016.) Mr Schneider thus assumed responsibility for both BANZ and BUKI.

Mr Scott in his first six months as MD has shown himself keen to change the direction of Wesfarmers' development. The largest such change was the move to divest its largest operational division, the Australian supermarket chain Coles.

The acquisition of Coles was announced in April of 2007, and at the time was Australia's largest, valued at over $19 billion. This acquisition included Kmart, Target, Officeworks and Harris Technology, and became the signature event of Mr Goyder's time as MD of Wesfarmers.

With the exception of Target, the company turned each of these struggling retail enterprises into a success. Coles, for example, achieved a 9.5% compounded annual growth rate (CAGR) between FY2008/09 and FY2016/17. However, the supermarket division absorbed 61% of Wesfarmers' overall capital employed, while it returned only 34% of the company's earnings before interest and taxation (EBIT). In raw terms, the FY2016/17 return on capital (ROC) for Coles was under 10%, while the ROC for BANZ was over 40%.

In the terse language of Wesfarmers:

Wesfarmers is targeting a higher capital weighting toward businesses with strong earnings growth prospects.

These were the circumstances under which Mr Scott took up the microphone early one cool, mild Thursday morning in Sydney, after an early light rain, to deliver his first Strategy Day briefing.

A new direction for Wesfarmers

The narrative Mr Scott provided at the Strategy Day for the coming evolution of Wesfarmers sketched out a return to some of the values the company had prior to the acquisition of the Coles Group, with a strong mixture of new technology-based opportunities and processes added.

There is little doubt that the acquisition of Coles Group under Mr Goyder's stewardship was a brilliant move. It would also be difficult to find another MD who could have steered its operational success so well.

Coles pre-acquisition was a retail company struggling to compete in the mid-2000s with the skills and business practices of the late-1980s. Wesfarmers applied some of the supplychain knowledge it had gained from running Bunnings to rapidly gain ground on Woolworths. Added to this was the crafty guidance of its MD, UK retailer Ian McLeod. Mr McLeod stepped down as Coles MD in July 2014, to be replaced by his then-deputy, John Durkan.

The result was that in its year of operations prior to acquisition, its food business slipped from an EBIT of $766.3 million to $693.3 million, a decline of 9.5%. Ten years later, for its FY2016/17 Coles returned EBIT of over $1600 million - albeit representing a decline over the prior FY of 13%.

Those numbers do a good job of summarising the arc of Coles over the past 12 years or so. The initial Coles opportunity is of the sort that arrives only once every 40 or 50 years. However, once it was established as a near-equal number 2 to Woolworths, growth slowed.

Internally, it seems Coles had dragged Wesfarmers management thinking as far as it could in one direction, and further development stalled. That was clearly indicated by the company's inability to take advantage of Woolworths' weakest moment, after the collapse of its foray into hardware retail, Masters Home Improvement. Wesfarmers interpreted this as a triumph for Bunnings, when the real victory could only have been realised through the expansion of Coles. It is this which potentially unbalanced Wesfarmers' thinking on a directorial and management level, opening the door for its under-researched, under-managed and under-financed entry into the UK with BUKI.

A new direction

Mr Scott's new vision for Wesfarmers is stripped of the kind of thinking that would otherwise have made Coles seem a worthwhile ongoing investment. It acknowledges first that Wesfarmers does not have the skills needed to advance Coles to the next level - which would likely involve either a deeper involvement with supplychain (such as, like some US supermarkets, farming its own beef), or the "self disruption" of opening a discount grocery operation, optionally based and entirely online.

What the vision adds is an increased sense of what the company's best capabilities are, and how these can be enhanced through the use of technology, both to better understand existing channels to market, and as providing new channels to market.

As Mr Scott stated during his prepared remarks at the start of the Strategy Day:

Just to be really clear, we do not rely solely on mergers and acquisitions to deliver superior returns to shareholders. In fact,  the outcome would need to be very compelling, in order to justify investing a significant amount of capital on a significant investment. Post the divestment of Coles, and the divestment of Curragh [coal mine along with the Coronado Coal Group in December 2017] and Homebase, we will have a portfolio of businesses with strong growth prospects, with opportunities for investor capital to generate superior returns. These are not mature businesses, these are businesses that still have a lot of runway ahead.

So, spending on mergers and acquisitions is to come under new strictures, and is destined to meet a higher level of return certainty. If investment in mergers and acquisitions is to have tighter controls, where will that investment be shifted? Mr Scott outlined some of the internal areas where Wesfarmers plans to ramp up spending:

Wesfarmers has enormous potential to develop and better utilise extensive data and digital assets, and it is also clear that this is an area that supports group-wide investment and collaboration. In the year ahead across our group, we will be almost doubling our capital expenditure and operational expenditure in new technologies and digital capabilities. This will represent a greater proportion of our group capital investment.

This focus on data and digital has two main points of focus in the company: the FlyBuys customer loyalty/data collection operation, and the development of the Wesfarmers Advanced Analytics Centre.

The FlyBuys joint venture between Coles and Wesfarmers is an exciting opportunity to further invest in and expand FlyBuys, to accelerate its future growth. FlyBuys is a leading loyalty program in Australia, and as you would know from other large scale data and loyalty businesses, both here and around the world, these are valuable assets in their own right, whilst also being strategically important to key partners. Now we see significant opportunities for FlyBuys, and believe FlyBuys is better able to realise its potential through the ongoing support, investment, and collaboration of both Coles and Wesfarmers.
There is no question that FlyBuys will be stronger and more valuable to Coles by leveraging the broader networks of the Wesfarmers group. This creates the basis of the much larger ecosystem that can add value to FlyBuys members and, ultimately, our retail businesses. Maintaining a strategic stake in Coles further provides an opportunity for connection to reinforce the opportunities to collaborate in the data, digital and loyalty area.

The Advanced Analytics Centre is an effort to improve some of the research and decision-making efforts at Wesfarmers:

An ongoing stake in FlyBuys will also support the development of Coles' and Wesfarmers' broader digital and other capabilities, as will the investment that we are making at a group level in a centre for advanced analytics, which I foreshadowed at our half-year results. The Advanced Analytics Centre, as we call it, will assist in utilising data science and best practice analytics to enhance our decision making, develop new business opportunities and help solve problems across the group in a range of areas, including customer insights, pricing, ranging, sales force effectiveness, and supply chain management.

That is the broad outline for investment by Wesfarmers going into FY2018/19. What is missing, of course, is a note on the company culture, which was something the Bank of America Merrill Lynch analyst David Errington picked up on in his questions posed at the end of Mr Scott's prepared remarks:

I am trying to understand what you're saying today in regards to what the new Wesfarmers is going to look like in terms of culture, in terms of growth initiatives, in terms of your attitude towards where you want to take the company. Now you have mentioned the words "entrepreneurial initiatives" quite a few times, but you have also cooled the heels on expectations towards mergers and acquisitions. So the question I have is: what can we expect from the new Wesfarmers post the Coles demerger, post the BUKI exit? What can we expect from your management and your team that is different from what we have expected from the management teams from Wesfarmers, say, in the past 10 years?

Mr Scott responded:

I see it as being really simple. Post the Coles demerger, we will have a portfolio of high return businesses that are generating better than market growth. They are businesses that are very well positioned strategically, they are businesses that we can continue to invest our capital in to deliver superior returns.
So, it might sound a bit boring, but actually, [it is all about] running what I believe is a portfolio of exceptional businesses really well. I think we have demonstrated in our group that we can do that. Then [through] being really disciplined and opportunistic around our capital, and offering a smaller capital base, shareholders will do well out of that.

This, in the end, is the essence of what Wesfarmers once was, especially as it developed under the stewardship of Michael Chaney, who preceded Mr Goyder as MD, from July 1992 to July 2005. Mr Chaney became chairman of the Wesfarmers board in November 2015, and is known to have close links to Mr Scott.

What has changed, however, since that earlier development of Wesfarmers, is the awareness of a need to better integrate the individual businesses. Mr Scott went further into this in response to a question from JP Morgan analyst Shaun Cousins:

In working through the opportunities with our divisional leadership, over the last year or so, when I started to talk about this opportunity, our divisional teams are actually finding that there are significant opportunities to leverage this capability. It also helps when the Corporate Centre is paying for it, I should note!
Just recently we had an offsite with our leadership team and we went through the use cases that we're focused on here. What was really pleasing for me to see was I really didn't have to say much. The team was engaged, sharing ideas, sharing learnings, and are already actively engaged in a number of use cases across the divisions where we are seeing improvements flow through.

However, there was one final point that Mr Scott did want to make, and he made it with a certain level of acerbity, which indicates it may be personally important to him:

If I go back 20 or 30 years ago to when Wesfarmers set up the corporate business development team to provide some additional commercial support for divisions - that was somewhat novel at the time, right? It is not very novel anymore.

In today's world, given the range of opportunities available through data science and advanced analytics, we have the luxury to invest in some very deep, specific specialist capabilities that we can then utilise across the group.

To borrow from the American writer Mark Twain, the present seldom repeats the past, but they sometimes rhyme. The Coles acquisition was in some ways necessary to an earlier Wesfarmers due to limits on the return in self-investment. As the role and value of data has increased, data generation and utilisation is eclipsing pure market investment, as it acts as an accelerator on market presence.

At the moment, the gains to be made in data and analytics are "cheaper" and more effective than direct market investment. (To some extent this is also perhaps the underlying story as to why US big-box home improvement retailer Home Depot pulled back from physical store investment to pursue digital and online instead.)

Bunnings

Mr Scott did start off his prepared remarks with what amounts to something like a final management farewell to BUKI.

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HI News Vol. 4 No.5: Wesfarmers Strategy Briefing 2018
bigbox

Big box update

Tradies turning to Bunnings?

Queensland targeted for store expansion and hipages helps Bunnings toilet purchases

A Macquarie Wealth Management report indicates tradies will spend more money at Bunnings; fifteen more stores in Queensland; a partnership with hipages connects Bunnings customers with toilet pros; store opening in Katoomba while staff are being recruited for the new Caringbah outlet in NSW; and back payments for Bunnings staff in New Zealand.

More tradies to buy from Bunnings?

Tradies are projected to spend more money at Bunnings, according to a report from Macquarie Wealth Management sent to its clients earlier this year.

The report, seen by The Australian, included a recent Macquarie survey of the mood of tradies pointing to more orders being placed with Bunnings. The Macquarie client note said:

We completed a survey of 27 trade firms to obtain a better sense of market conditions and perceptions towards Bunnings. Participation included the following trades: builders, carpenters, electricians, landscapers, painters, plumbers and others.

The key takeaways from its survey was that conditions are generally stable or getting better, and that Bunnings remained a "preferred retailer" from 48% of respondents. Macquarie said:

...68% of respondents view Bunnings positively (compared to 8% who view it negatively) and 28% expect to spend more at Bunnings over the next 12 months. Primary drivers for the success of Bunnings were attributed to convenience/location (36%), customer service (24%) and product range (24%).

The survey found that tradies believe conditions are generally stable or getting better, with 40% of respondents indicating their backlog is steady on last year and 40% indicating it is more positive.

Bunnings continues to lead the hardware retail sector, based on responses in the Macquarie report. It said:

Bunnings was clearly the preferred retailer for tradespeople with 48% of responses, while Home Timber & Hardware and Mitre 10 both received only a 4% preference...
Bunnings' like-for-like stats are impressive. Supplementing this, the group has generally rolled out 10-14 stores per annum with a footprint now of 363 stores. While highly variable due to store ramp-up/stabilisation phases, we estimate rollout has accounted for around 30% of Bunnings EBIT growth over time.
Even if there is a sharp retreat in the housing market, caused by financial shocks, rising debt levels or a slowdown in new housing, Bunnings could take on defensive characteristics that would serve it well in such a downturn.
Should there be an external shock, we contend Bunnings should be reasonably defensive as consumers are likely to cut back on more disposable spending and continue to spend money on their primary asset (their home) as evidenced by Bunnings' strong performance during the GFC.

Bunnings store developments continue apace

Queensland will have a bigger Bunnings presence; the Port Macquarie (NSW) store is on track to open in early 2019; South Nowra (NSW) is set to get a $27.8 million Bunnings complex; and a revamped Bunnings Fyshwick in the ACT will focus on trades and have a smaller retail offering.

Queensland

Bunnings is investing more than $636 million in existing stores and creating 15 new ones across Queensland over the next five years. Managing director Michael Schneider told the Courier Mail:

We look forward to continuing to grow our presence in both metro and regional parts of Queensland ... Construction is underway at new sites in Newstead, Underwood and Warwick, with 12 more stores around the state in the planning stages.

The Australian Bureau of Statistics data showed 22,500 new residents made Queensland home last year - up by 7500 on 2015-16.

Port Macquarie

Work on the $43 million, 18,000sqm Bunnings Warehouse on John Oxley Drive is on schedule. Bunnings' state operations manager NSW north, Cheryl Williams, said the construction work is progressing as planned. She told Port Macquarie News:

Once complete, the existing team will transfer to the new store and will be joined by more than 60 new team members. Stock from the existing site will be distributed to other Bunnings stores and racking will be recycled within the store network. Bunnings has been a part of the Port Macquarie community since 2003...

South Nowra

Bunnings' development approvals manager, Philip Drew has lodged a development application with Shoalhaven City Council for a new store, which will be built on the current site at South Nowra and take in an adjoining block of land to the north.

In plans and reports prepared by JR Brogan & Associates and Sutherland & Associates Planning, it wants to demolish the existing warehouse complex on the Princes Highway, consolidate the two lots of land and construct a new hardware, building supplies and garden centre including car parking and signage.

The proposal will see the complex's footprint grow by almost two and a half times its current size. It is set to grow from the current gross floor area of 6,248sqm to 14,130sqm. Parking to go from 225 spaces to 428 spaces under the building.

This $27.8 million development will see a new Bunnings Warehouse above an undercroft car parking level. The design will see the current complex layout on the site flipped, with the timber trade area moving to the south of the property, and an outdoor nursery and bagged goods canopy moving to the northern end.

The construction including a cafe, offices and other staff amenities areas will be located at the northern end of the main warehouse floor and in a mezzanine level above.

The main pedestrian entrance into the store is located on the eastern side of the ground floor, with the main entry centrally located and containing lifts, stairs as well as the travelator providing access to the parking level. A separate secondary entrance to the nursery is provided at the northern end of the eastern side of the building.

The big box retailer is also reviewing its options for a temporary store location while the complex is being constructed.

Fyshwick

The Fyshwick store is not closing in the wake of Bunnings opening its new airport site. It is to be repurposed as a trades centre, with a significantly less general retail offering. The airport store is expected to capture the majority of retail activity, according to a development application (DA). It said:

The proposed alterations and additions to the Fyshwick Bunnings warehouse store coincides with the 2016 purchase and current fit-out of the former Masters site located at Canberra International Airport.
Since acquiring the airport site, Bunnings has reviewed the current retail and trade offering within the ACT and surrounding regions and have decided to re-purpose the Fyshwick operation to provide for more goods and services aimed at trade related retailing.

The bulky goods retail area will lose about 1000sqm of space, according to the plans. The outdoor nursery area at the rear of building will be relocated to the front so that space can be converted into a bulk trade delivery loading and unloading area for the retail operation and truck queuing area.

The slightly smaller nursery will be an open structure partially covered by a shade sail canopy suspended between steel columns and 3.6m high chain mesh fence. A new opening, roller shutter door and canopy is to be installed at the front (western side) of the building to incorporate five internal loading/parking bays.

The DA also proposes changes to the existing floorplan to allow part of the retail area to be transformed into a trade centre. The proposed alterations will not increase the total floor space or building height.

Bunnnings, hipages team up for toilet installations

Bunnings is offering its customers a fixed-price installation service through a strategic partnership with online trades and services site hipages.

The deal will give Bunnings customers the option of adding a $275 fixed-price installation service - which includes all fittings and fixtures, removal and disposal of old toilets, and a five-year warranty - from hipages when they purchase a toilet suite. This offer is available across the complete range of back to wall and close coupled toilets in the Bunnings range.

Customers will receive a unique voucher code at the time of purchase, which is used to book a local tradesperson on the hipages website.

The installation service will be rolled out nationwide, following a four-week trial in 15 Bunnings stores across Newcastle and the Central Coast, earlier in the year. In a statement, Bunnings managing director Michael Schneider, said:

This is an exciting offer...making it easier and more affordable for customers to update their bathroom and connect with local tradies to assist with those jobs that require a licensed tradesperson.

The big box retailer joins other retailers as they move toward the market of Do-It-For-Me (DIFM) customers. IKEA, Bing Lee and Coles have recently teamed up with the outsourcing marketplace Airtasker to offer similar installation or personal shopping services.

Hipages said it vets the trades licenses and Australian Business Numbers of all tradespeople registered on its site. The company has approximately 4,000 plumbers registered with its service nationwide. Hipages co-founder and chief executive David Vitek said:

We're thrilled to partner with Bunnings, to help more Australians experience the benefit and ease of being able to instantly book a qualified, local tradie online.

Katoomba opening, Caringbah staffing

Blue Mountains residents were invited to the launch of the new Bunnings Katoomba store and Bunnings said it will recruit 120 staff for its Caringbah warehouse.

Katoomba

Bunnings Katoomba recently had its official opening. The new $9 million store covers more than 2900sqm and features a kitchen and bathroom display, kids playground and parking for over 50 cars.

Bunnings chief operating officer Debbie Poole joined store manager April Spillett and the local Bunnings team to celebrate the opening. Ms Spillett said they are excited to lend a hand in the local community and welcome people to the store.

Our new team members have already supported a number of community groups and assisted in projects such as revamping the Morven Gardens Baptist Care's Dementia Ward outdoor area with a sensory garden and refreshed garden beds. The team has also given the Blue Mountain's community garden a makeover and repainting the interior walls of the Blackheath Scout Hall.

Bunnings Katoomba is located at corner of Wilson and Megalong Street, Katoomba (NSW).

Caringbah

Bunnings said it will employ an extra 120 staff to work in its new Caringbah warehouse, which is expected to open in late October.

The building, which was estimated to cost $37.7 million to construct, will be double the size of the previous structure, with two retail levels and underground parking connected by lifts and travelators.

Bunnings state operations manager, NSW South, Robyn Hudson, said construction was on schedule and progressing as planned. She told The Leader newspaper:

With two car park levels completed, construction has progressed to the exterior of the building including the erection of concrete wall panels and the roof. When complete, the new store will span over 15,000sqm with the retail area spread across two levels.
The existing Caringbah team members will transfer from the temporary store to the new warehouse and will be joined by over 120 new team members.

Bunnings NZ corrects holiday payments

Bunnings will pay more than NZD11 million to 12,235 New Zealand past and current employees after identifying mistakes in implementing the Holidays Act 2003. The company has recalculated all leave payments from April 1, 2004, to May 31, 2018, and said all money owed will be inflated to today's dollars in line with the Reserve Bank of New Zealand Consumer Price Index. The median payment is NZD317.

Bunnings NZ general manager Toby Lawrance said the company will ensure employees are paid correctly until a permanent solution can be implemented. He said in a statement:

Like many other private and government organisations, we have found interpreting and applying the Holiday Act to be a challenge. As a large employer in New Zealand we understand the importance of the trust that exists between our team and the business, particularly in ensuring they are paid correctly. Clearly this is disappointing for us and for our team and we will continue to work to ensure that we have the right systems and processes to support our team.

The issues with the act centre around the fact that there are two ways to calculate holiday pay - either on the basis of ordinary weekly pay or an employee's average weekly earnings over the past 12 months. Employers must pay whatever gives the employee the most money. But employers who calculate holiday pay based on an employee's contracted hours can get caught out if that person does variable hours or earns a commission or other variable pay.

The New Zealand government formed a taskforce involving government, business and workers, to recommend changes to the Holidays Act 2003 in a bid to unravel the legislation's complexity to cope with a fast-changing labour market. The taskforce aims to recommend changes to the act by mid-2019.

bigbox

Europe update

B&Q moves away from installation services

Kingfisher opens first net zero energy store and Barcelona hosts 6th Global DIY Summit

B&Q will simplify kitchen and bathroom sales and no longer offer installations; a Screfix store is Kingfisher's first net zero energy store powered by solar and storage; and delegates to the this year's Global DIY Summit are not confident about the shift from bricks & mortar to online retail.

B&Q overhauls kitchen and bathroom sales

UK DIY retailer, B&Q has revealed plans to change the way it sells kitchens and bathrooms, opting to simplify the procedure so customers only have to deal with one staff member.

The changes are also designed to speed up the buying process, reducing the time between the design and delivery of the product. As part of the plans, it will scrap its Homefit installation service at the end of the year.

When introduced in spring 2013 under Kingfisher chief executive Ian Cheshire, the company said the installation service was showing "encouraging signs". However, the retailer has data that shows around 90% of its customers now choose to use third-party fitters.

Online installation

Amazon has just rolled out an installation service through its Home Services offering in the UK. This means that customers shopping for products on Amazon.co.uk

can now opt for installation or assembly support from trusted tradespeople by adding pre-packaged services to their online shopping baskets.

Customers can also browse, purchase and schedule a selection of services even if they didn't buy their products on Amazon.co.uk.

Each service comes with a predefined scope of work and upfront pricing. It features a curated list of handpicked tradespeople including general handymen, electricians, plumbers and home cinema specialists. All professionals are background checked, required to carry an applicable license or insurance and expected to maintain an excellent performance standard.

Amazon's "Happiness Guaranteed" allows customers to rate the quality of the service or get their money back in case if they aren't happy with the outcome.

Prior to the launch, Amazon commissioned a study which revealed that 61% of the 1,500 adults in the UK surveyed would prefer to enlist the help of a professional to carry out household tasks. In addition, one in four confessed to having suffered a DIY disaster in the past.

Almost a half (47%) admit that they need "a little help," as they simply have no idea when faced with a challenge around the house.

The study concludes by revealing that two years is the longest time on average that jobs around the house are ignored.

Amazon has officially jumped on the bandwagon of UK retailers offering services that accompany their purchase. Department store John Lewis recently announced the acquisition of Opun, which manages home improvement projects on customers' behalf.

Net zero energy store for DIY group

Kingfisher-owned retail chain, Screwfix officially launched its first net zero energy store. The company said energy generated by the onsite solar array will power the store and charge up batteries which will then power it during the evenings. Meanwhile, a new air source heat pump, coupled with a range of efficiency measures, has allowed Kingfisher to replace gas and electric heating units. It said:

Surplus power goes back to the grid, off-setting the days in winter when the solar PV will be generating less power and grid energy is needed to power the store.

Jeremy Parsons, head of energy and renewables at Kingfisher, hailed the project as a "huge milestone" for the company. He said in a statement:

This store has a range of solutions that we have deployed individually across distribution centres and large format stores in the UK and France. Pulling them into one project at Screwfix demonstrates how far we can go towards creating very low carbon stores, and this approach is informing our next phase of investment in energy projects for the near future.

The company added that it is now planning to install energy storage batteries at the B&Q distribution centre in Swindon and is exploring the potential for similar investments at other sites.

The company also hailed the importance of energy monitoring systems to the project. For example, energy meters revealed a spike in energy use at the start of the day when employees were making their morning coffee. By fitting a hot water tap that uses battery-stored solar power, the firm now hopes to eliminate this spike in energy use.

The Screwfix opening comes on the same day as Kingfisher published its annual sustainability report, confirming it has cut its absolute carbon footprint 16% since 2010/11 and is still aiming to deliver a 25% cut by 2020. It now purchases 100% of its UK energy from renewable sources, covering both the Screwfix and B&Q businesses, and will have invested over GBP10 million in on-site renewables by the end of this year.

The report also revealed the company now generates just under a third of its sales from products that make customers' homes more sustainable.

Kingfisher also announced a new wave of sustainability targets designed to support its overall goal of becoming a "net positive" business. The new strategy includes both internal emissions, water and waste targets and goals to enable a 50% reduction in customer energy use and a 50% improvement in customer water efficiency through products, services and advice by 2025. Graham Bell, CEO at Screwfix, said:

We are investing now to cut energy across our own operations, and our long-term aspiration is to match this by helping customers have zero carbon or energy positive homes and businesses too. Our net zero store in Peterborough represents a significant milestone in our ambition to embed sustainability across the business, and help customers to create good, sustainable homes and businesses.

6th Global DIY Summit 2018

Organisers of the sixth Global DIY Summit that closed recently in Barcelona, Spain said a record of 1,100 delegates from 55 countries attended this year's congress, including more than 300 of the top retailers from around the world.

The event is jointly hosted by the European DIY Retail Association (EDRA), the European Federation of DIY Manufacturers (Fediyma), and the Global Home Improvement Network (GHIN). Delegates gave their feedback using a voting tool, with 60% rating it as "very good" to "excellent" and a further 28% rating the event as "good".

John W. Herbert (EDRA/GHIN) and Ralf Rahmede (fediyma) serve as co-chairmen of the event.

Over 30% of the audience attending presentations at the summit were retailers, a big increase compared to the congress held in Berlin last year, according to organisers. However suppliers still accounted for the majority of delegates, with approximately 59% listed as manufacturers.

Organisers also used the voting tool to gauge sentiment about the industry from its international attendees. When asked what expectations delegates have for their business development for this year compared to last year, 19% were optimistic, estimating growth of more than 10%, whilst 37% of the audience was more cautious, forecasting growth of between 0% and 4%.

Approximately 22% of the suppliers think their business will increase more than 10% compared to last year, while 15% of the retailers forecast the same growth as the previous year.

The industry still seems to be sceptical regarding the switch from bricks and mortar into online retailing. Twenty-one per cent of the total delegates believe online sales in DIY in five years will be less than 10%. Almost 26% of the audience predicted a range between 10% and 15%. Sixteen per cent of delegates forecast more than 25%.

This year's theme, "DIY NEXT - Reinventing our industry", featured speakers presenting on topics such as digital transformations and new platforms as business models.

A panel with leading figures from the home improvement industry including Kingfisher's Veronique Laury, 3M's Jeff Lavers, Sylvain Prud'homme from Lowe's Canada, and Henning von Boxberg from Robert Bosch exchanged views on a new kind of co-operation between retailers and suppliers.

Speakers were Alejandro Gonzalez, leader of the Debt, Capital & Treasury Advisory group at Deloitte; Matt Schweickert, chief strategy officer at The Home Depot; Jorn Kupper, senior partner ay McKinsey & Co. in Germany; Martin Wild, chief digital officer, MediaMarktSaturn Retail Group; Steven van Belleghem, an expert in customer focus in a digital world; Peter Hinssen, partner, nexxworks; and ManoMano co-founder Christian Raisson.

The next Global DIY Summit will be held in Dublin from June 6-7, 2019.

bigbox

Bunnings misses

Bunnings UK & Ireland sold to Hilco

The opportunity might have been there, but poor oversight led to poor management, and a lost chance

In what for many was a surprise, on 25 May 2018 the Australian conglomerate Wesfarmers announced the divestment of its Bunnings UK and Ireland (BUKI) division.

This does not affect the ongoing operations of its Bunnings Australia and New Zealand (BANZ) division, which will continue as is. In answer to an analyst's question about whether there would be changes to the senior executives managing BANZ, as Wesfarmers brings some personnel back to Australia, Wesfarmers' recently appointed managing director, Rob Scott replied that:

No we don't see any disruptions there... A number of the most senior team members will remain on with [Homebase], which I think is good for the business and good for the team. There may be a few team members that do relocate back to Australia, and we will work through that in the coming months, but no material impact to either business.

The divestment is expected to be completed by 30 June 2018. BUKI's operations will be taken over by Hilco Capital, a private equity firm with a record of UK retail turnarounds.

It has been reported that the transaction was based on the nominal payment of GBP1.00, but Wesfarmers has retained rights to receive 20% of any equity distribution subsequent to the further sale of Homebase. The agreement is not time-limited. Importantly, however, the agreement means that Hilco will be responsible for all lease entitlements, which relieves Wesfarmers of a substantial potential burden.

The announcement was accompanied by a presentation to analysts, which was attended by Mr Scott, and the company's chief financial officer, Anthony Gianotti. In his prepared remarks, Mr Scott stated that:

Homebase was acquired by Wesfarmers in 2016. The investment has been disappointing, with the problems arising from poor execution post-acquisition being compounded by a deterioration in the macro environment and retail sector in the UK. While it is important that we learn from this experience, this should not discourage our team from being bold and diligent in pursuing opportunities to create shareholder value.

In other remarks, Mr Scott repeatedly highlighted BUKI's dismissal of all of its executive staff, a move instigated by the division's managing director at the time, Peter Davis, as being one of the major mistakes Wesfarmers made.

The company announced that it expects the divestment to affect its FY2017/18 by between GBP200 million and GBP230 million, depending on elements such as pension contributions. Financial analysts estimate the overall loss from the BUKI venture may be in excess of $1.25 billion.

Analyst questions

Many of the questions that analysts asked were about how accountability for the loss of such a substantial sum would flow through to management and board members. Though not mentioned by name, much of that accountability would likely rest on the shoulders of the former managing director of Bunnings, John Gillam, and the former managing director of Wesfarmers, Richard Goyder.

They were the primary architects of the deal to acquire Homebase. Equally, though, Mr Gillam did not take a prominent role in Bunnings management during the period when Homebase was being transformed in the UK.

Mr Scott pointed out that decisions about how accountability would be enforced were up to board and management processes in Wesfarmers, and that it would not be appropriate for him to comment. However, he gave what assurances he could, including his personal view that the losses incurred should result in some form of consequence.

Perhaps the most interesting exchange took place between respected JP Morgan analyst Shaun Cousins and Mr Scott. Mr Cousins followed up a previous question by asking:

OK, but I mean, wouldn't due diligence actually highlight that you need to have local management in there. So was it a decision where the management effectively ignored some of the recommendations of the due diligence, or were these things not identified during the due diligence part?

Mr Scott responded:

Yeah, look I think, Shaun, part of it goes to implementation, and execution, management is critical both at an implementation level and also at a due diligence level.
I think there was an underestimation - this is just my personal view having reflected on the work - there was an underestimation of the competitive environment, and there was also an overly optimistic outlook in terms of the growth opportunity, and the capital investment that was required. They were some of the issues.
But as you would know, in every acquisition you make a lot of different assumptions. I feel like I've said a lot about the problems that went into this acquisition, and frankly what I am most focused on, is what can we learn from this, and what can we do better?
We've acknowledged that we needed to strengthen our capabilities. We have made material changes to strengthen our corporate capability. We have taken a very strong approach from the corporate centre around capital allocation, and we also recognise that when you move to offshore markets, you need to prioritise local management expertise.
Those are all the things that we are learning. To be frank, we need to learn from this experience, and look forward to what we can improve. I'm not sure what more I can say on what's happened in the past.

Unusually for Mr Cousins, he added a comment of his own to this, before moving on to the next question:

It is just concerning that you are looking to grow in an acquisitive manner, where the company's track record is not great, in that [when] you think about BUKI, the WorkWear business you bought from Pacific Brands doesn't appear to have been fantastic, you look at Australian Vinyls, Coles has been executed very well, but caused a lot of damage to group return on equity. It doesn't appear as though Wesfarmers has executed M&A really well over the last decade.

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HI News Vol.4 No.4: Bunnings misses
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Big box update

Bunnings' store network additions

Bricks and mortar being laid for more Bunnings stores and an appeal for New Zealand site

Bunnings in Baldivis (WA) and in Canberra Airport opened on a former Masters while Katoomba (NSW) is due to open at the end of June; structures for the Bunnings store in Warwick (QLD) are being erected and construction imminent for stores in Kingaroy (QLD) and Port Macquarie (NSW); Bunnings New Zealand is appealing a decision for its proposed store in Queenstown.

Store openings, now and in the near future

Bunnings stores have opened or are about to be open in Baldivis (WA), Canberra Airport (ACT) and Katoomba (NSW).

Baldivis

Bunnings in Baldivis (WA) opened to big celebrations recently, with Australian Paralympian Brant Garvey joining team members to launch the store.

The 13,000sqm outlet had a soft launch before hosting an official opening ceremony. Located on the corner of Safety Bay Road and Baldivis Road, it opened to local fanfare after Masters Home Improvement shut its doors in the same location more than a year ago.

Complex manager Darren Feenstra praised his team for working to fit out the store extensively in less than a month.

Katoomba

Bunnings is due to open in Katoomba (NSW) soon, just a block away from the old Home Timber & Hardware store. And in preparation, the Home store is transforming into Mitre 10 with a major refurbishment.

Store manager, Rhonda Steed, said it was bought by Metcash about 18 months ago and is being rebranded as a Mitre 10. She told the Blue Mountains Gazette:

...It will be a Sapphire store - a bit more like a shop experience than a warehouse experience. It's like a total revamp. It will give us the best we can have to tackle our friends down the road so we're very happy with that.

Ms Steed also said Metcash had "armed us with a much ammunition as we can have" to counter the opposition.

Down the road, where shelves are being stocked and landscaping works being completed, Bunnings said it is employing more than 50 locals in its new store. Manager, April Spillett, said she was excited to welcome residents to the store, as well as helping out in the community.

Team members have worked together to assist in revamping the outside spaces and sensory garden with new garden beds and refreshing the sitting area at Baptist Care Morven Gardens Aged Care Centre.

A Bunnings spokeswoman added:

Bunnings competes with a number of different types of businesses in the home improvement and outdoor living market and find there is ample room in the market for all to operate successfully.

Related:

HI News Vol. 3 No. 7: Blue Mountains store close to Home, page 11

Canberra Airport

Rugby league legend and head coach of the Australian national rugby team Mal Meninga officially opened the new Bunnings Warehouse at Canberra Airport.

The $42 million store covers more than 13,000sqm and is Canberra's second largest Bunnings outlet, the fifth in the state. There are already Bunnings stores in nearby Fyshwick, as well as Gungahlin, Belconnen and Tuggeranong. Complex manager Robert Manning said:

Our new team members have assisted in local community projects such as revamping the outside spaces at Bungendore Public School to celebrate its 100-year anniversary. The team has also given the back garden at local YWCA Refuge House a makeover and supported Hackett Preschool by upgrading its playground.

Bunnings stores in the pipeline

Port Macquarie (NSW), Warwick (QLD) and Kingaroy (QLD) are set to have new Bunnings stores.

Warwick

Building on the Bunnings store in Warwick (QLD) has begun with concrete walls being placed on the site. Bunnings general manager - property Andrew Marks said:

Construction has progressed to the erection of the external concrete wall panels with structural steel to be added shortly. The new Bunnings Warehouse Warwick represents a $16 million investment in the local economy and will span approximately 7000 square metres once complete.

The new store is expected to open in late 2018.

The Toowoomba arm of Hutchinson Builders is in charge of the project and is fabricating all concrete wall panels on site. Southern Downs Mayor Tracy Dobie said it was great to see the development forging ahead.

They are tripling the size of their business, which will be positive for employment and the economy of the region.

Related

HI News Vol.4 No.3: Plans for more Bunnings stores underway, page 18

Kingaroy

The proposed Bunnings Warehouse store in Kingaroy (QLD) is a step closer to starting construction following the tender process for builders recently.

A Bunnings Warehouse spokeswoman said the time line for construction depended on which builder secured the contract. She told the South Burnett Times:

Until we review the tenders received and allocate a builder, we won't know any timings.

The South Burnett Regional Council approved the new development in November last year. Bunnings is expected to spend about $15 million building the new store, which is estimated will provide 60 new jobs.

Port Macquarie

The planned Bunnings Port Macquarie store is expected to be operating by early 2019. Mr Marks confirmed that work at the site is likely to commence soon. He told Port Macquarie News:

We have received development approval to build a new Bunnings Warehouse in Port Macquarie which will replace the existing store. The new Bunnings Warehouse Port Macquarie represents an investment of over $43 million...

Mr Marks said Bunnings looks forward to continuing to work with Port Macquarie-Hastings Council and the local community throughout the construction of the new warehouse.

Related:

Big box update: Plans for more Bunnings stores underway - HNN

Bunnings battle in Queenstown NZ continues

Bunnings has appealed a decision to decline consent for a store it proposed to build on the Frankton Flats, beside State Highway 6, in New Zealand.

In appealing the entire decision, Bunnings said the subject site was located within an area "in a dynamic state of development and urbanisation" where there was a variety of commercial, retail, and light industrial developments, either constructed, under construction, or recently consented.

Bunnings had identified the site on the Frankton Flats as the "ideal location" to enter the "booming Queenstown construction and trade supply market".

The new store would "increase competition between trade suppliers in the Queenstown market and lower the costs of construction, and therefore housing, along with other projects".

The company had worked extensively with the council before lodging a consent application and, as a result, made significant adjustments to the layout and design, the appeal notice said. Bunnings said the commissioners erred in their decision.

It also said there were two key questions at issue during the two-day hearing - whether a Bunnings store would be an appropriate and compatible activity for the site and, if so, whether the effects on the environment were appropriately avoided, remedied or mitigated.

While a council officer had recommended consent be declined, citing, in part, adverse effects would be more than minor in relation to the loss of industrial-zoned land, urban design, visual and signage effects, commissioners held the effects on the district's industrial zoned land would be "minor only". That view should be upheld, the appeal notice said.

A finding by commissioners that the effects were more than minor and the development contrary to the objectives and policies in the district plan, however, "should be rejected".

Bunnings sought for the appeal to be allowed and the application granted, subject to conditions offered at the hearing, or such conditions the court considered appropriate and for "costs of and incidental to" the appeal.

Related

Hi News, Vol.4 No.2: Bunnings NZ rejected for Queenstown store, page 18
bigbox

Big box update

Wesfarmers could be seeking buyers for BUKI

Plans for more Bunnings outlets and store openings around Australia are ongoing

Submissions have been requested from potential bidders for Bunnings' UK-based Homebase chain of stores as it reports on sales for the third quarter; and Bunnings store proposals and openings continue around Australia.

Bids for Homebase as Q3 sales slide

Wesfarmers has asked prospective buyers for Homebase, as part of the Bunnings UK and Ireland (BUKI) business, to submit initial offers, according to a report by Sky News.

Sources told Sky News the conglomerate is putting together a large financial package for any new owner to help contend with BUKI's large losses. The value of the package has not been confirmed but there is speculation it could exceed GBP100 million (AUD184.2 million).

Same store sales at BUKI's fell 15.4% in the third quarter - an acceleration from declines in previous quarters of 15.1%, 11.9%, and 4.3%. Total sales - which includes the impact of opening or closing stores - fell 13.5%. Wesfarmers said sales were impacted by storms in the UK in the quarter which cut foot traffic at Homebase stores. Wesfarmers said:

For BUKI, better execution and improved trading results in the early part of the quarter were offset by unusually poor weather in March 2018, resulting in a decline in total sales of 6.5% (13.5% in local currency terms) for the quarter.

This is in contrast to sales at Bunnings Australia and New Zealand which grew strongly with comparable sales up 7.7% in the quarter, compared to 6% in the same quarter last year, while total sales rose 9.1% compared to 7.4% a year ago.

External consultants

Sky News also revealed that Alvarez & Marsal, a restructuring specialist, has been called in to advise Wesfarmers on alternatives to a sale, including a Company Voluntary Arrangement, a mechanism that would see it closing many Homebase outlets. This would help Wesfarmers cut its financial liabilities.

Investment bankers at Lazard are handling the sale discussions, and its involvement in the review of options for Homebase is notable because of its role in Wesfarmers' purchase of the chain in 2016.

Archie Norman, chairman at British multinational retailer Marks & Spencer, also chairs Lazard's London operation. He has held separate roles with various Wesfarmers operations for years.

Boston Consulting Group have also been tasked to advise the management team at BUKI led by managing director Damian McGloughlin.

Private equity firms, including Hilco, Endless and Lion Capital, as well as bargain retailer B&M, are also considering a bid for the business. It is unclear at this stage whether any bid would be for the entirety of the business, part of it, or in B&M's case, a chunk of Homebase's store estate.

Switching things up

Recently, BUKI completed a change of its tagline from "Lowest prices are just the beginning" to "Your home improvement and garden centre". It has updated all exterior signs to educate UK shoppers about Bunnings' offering.

The retail group said the change is based on customer feedback and that it will still offer low prices, but it wants to show customers what it actually sells through its marketing.

The new management team has also set about rejigging its product range to appeal to British shoppers. Mr McGloughlin told Horticulture Week:

Customer feedback is really important to us and as we continue to establish the Bunnings brand in the UK and Ireland, we are updating our tagline and building signage to showcase our great range of home improvement and garden products. We remain committed to delivering the widest range, best service and our policy of lowest prices, backed by our Price Promise Guarantee.

Plans for more Bunnings stores underway

Bunnings's latest stores are being planned for South Australia, New South Wales, Queensland and Western Australia. The recent fire that destroyed the Bunnings store in Inglewood (WA) has amplified concerns about fire risk for proposed additions to the hardware chain's Balcatta store.

Edwardstown

A former Bridgestone factory in Edwardstown (SA) will be converted into a $45 million Bunnings Warehouse. Building has started and the new Bunnings is expected to open in the first half of next year.

Bunnings general manager - property, Andrew Marks told Adelaide Now the company was still deciding what to do with the former TAFE site just 2km from Edwardstown on Goodwood Road, Panorama, where it had previously planned to build a store.

Mitcham Council's planning panel rejected that project, following backlash from some residents. The Marion store located within the Westfield complex would remain open, Mr Marks said.

Southern Business Connections chairman Greg Garrihy said the Bunnings development will help strengthen Edwardstown's position as an employment hub and help offset manufacturing job losses.

Related:

Big box update: Bunnings rejected in Panorama - HNN

Port Macquarie

Bunnings hopes to commence construction on its proposed store in Port Macquarie (NSW) soon and anticipates it will be completed in 2019.

The Northern Joint Regional Planning Panel approved an application to modify a bulky goods premises and hardware and building supplies development at 18 John Oxley Drive.

Bunnings is awaiting official documentation from the planning panel which confirms its decision for a Bunnings Warehouse in Port Macquarie. Mr Marks told Port Macquarie News that once confirmed, the Bunnings Warehouse Port Macquarie development would represent an investment of more than $43 million for the land, construction, fit-out and stock.

The new Bunnings store will replace the outlet on nearby Lake Road. The modified application includes re-positioning of each building, floor area changes and minor modifications to the car park.

Kembla Grange

A Bunnings store is proposed for Northcliffe Drive in Kembla Grange (NSW), which will be considered by the regional planning panel. It is set take up almost a third of a 40,000sqm site, with parking for 415 cars included in the plans.

The proposal includes a large roundabout at the intersection of Northcliffe Drive and the Princes Highway, which will eventually form a major access point into residential areas of West Dapto.

Warwick (QLD)

Signs of construction on the Bunnings Warehouse in Warwick (QLD) can be seen the first bricks being laid. The Warwick Daily News reports that a brick wall about four metres high has been built on the Canning Street site, which spans about 7000sqm.

Real estate agent Helen Harm said she did everything she could with the funds available to stop the development. Concern about the potential damage caused by flooding is still on Mrs Harm's mind. She said:

You can't put a two-acre island in the middle of the flood stream and expect nothing to happen, it's unrealistic.

Mr Marks said a design was developed based on a flood report.

As part of the development application for the new Bunnings Warehouse Warwick, a flood report by a qualified engineer confirmed the design requirements for the project. These will be adhered to.

The store is expected to open in late 2018.

Related:

Big box update: Flood concerns continue over Warwick Bunnings - HNN

Inglewood

Bunnings is likely to return to Inglewood (WA) following a fire that burnt the Beaufort Street store burnt to the ground in late February. Arson Squad has determined the blaze was not deliberately lit.

Bunnings chief operating officer Debbie Poole confirmed the company was "continuing to work with the landowner to rebuild the Bunnings Inglewood store", according to Community News.

The fire to its Inglewood store has also raised questions about additions to the Bunnings Balcatta outlet. The big box retailer has sought approval from the Metro North-West Development Assessment Panel for various changes including extending its timber trade sales area and enclosing the building materials and landscape yard.

A report by the City of Stirling recommended approving plans for changes to the garden centre, hardware showroom, parking, landscaping and signage but refusing the timber trade and building materials yard additions because of bushfire risk.

The report said the site was in a bushfire prone area and the bushfire management plan and bushfire emergency evacuation plan submitted by the applicant "failed to adequately convey an alternative solution to demonstrate compliance" and had many inconsistencies.

It said there was not sufficient justification for the location of the structures so approving the extension would represent a "high to extreme risk".

Burgess Design Group associate director Mark Szabo presented on behalf of Bunnings and said the changes would increase safety because the open timber sales area would become enclosed and described the fire risk area as "small bush" in a road reserve.

Bushfire behaviour analyst Mike Scott, of Bushfire Prone Planning, also spoke on behalf of Bunnings and told the panel there were "minimal" fatalities from building fires in the past 100 years and the non-combustible materials used in the proposed structure would reduce the risk of a building fire.

Newstead

Construction is about to begin on Bunnings' four level store on Breakfast Creek Road in Newstead (QLD), The Courier-Mail reports.

With a total floor area of more than 17,000sqm over the four levels, the Newstead store will be more than double the size of a typical Bunnings, which generally come in at about 8000sqm.

The mixed-use site, located about 4km from the CBD, will consist of a basement carpark, the main warehouse, outdoor nursery, bagged goods area, cafe and timber trade sales area, and will also feature six street-level tenancies for retail or office space, totalling just under 1600sqm.

Bunnings purchased the original site in 2011 and the initial development application (DA) was rejected in the same year. A revised DA for the new-look store was submitted in 2014 and approved last year.

Related:

Big box update: Bunnings builds multi-level site in Queensland - HNN

Bunnings store network continues to grow

Western Australia had three new Bunnings store openings while customers were welcomed to individual stores that opened for business in NSW and QLD. The Canberra Airport store is expected to open in late May. The big box retailer is also negotiating with Brisbane City Council about a housing estate in Keperra (QLD) which it believes will have "adverse impacts" on its newly opened warehouse store.

Gregory Hills

Legendary racing driver Dick Johnson helped to officially Bunnings' new store in Gregory Hills (NSW) at the site of the former Masters outlet. The $41 million warehouse store spans over 13,000sqm. Complex manager Ben MacDonald said the Bunnings team had been active in the community prior to the opening.

Keperra

Bunnings' new $40 million store in Keppera (QLD) has opened recently. The 17,000sqm warehouse is one of the retailer's larger outlets, and is almost 30% bigger than its 13,000sqm store in Stafford.

Bunnings has also agreed to meet with Brisbane City Council ahead of a court hearing to resolve the big box retailer's appeal against the Brookfield Residential Properties (BRP) housing estate development which has been approved by the council.

According to the Sunshine Coast Daily, Bunnings lodged an appeal in December, claiming BRP's 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.

The Keperra store backs onto the BRP site. Bunnings general manager - property Andrew Marks told the North-West News:

We do not believe that Brookfield Residential Properties has properly identified how the proposed residential development will interact with the operation of our newly opened Keperra Warehouse in a compatible way.
There are a number of issues such as lighting and noise impacts that do not appear to have been considered in their submission to Council.

BRP's $313 million plan for the Keperra quarry site includes 700 homes and a 3000sqm shopping centre.

Canberra Airport

Bunnings $42 million store at Canberra Airport is expected to open its doors at the end of May. Mr Marks said the Fyshwick store would remain open and continue to trade as normal.

There are currently four Bunnings stores in the ACT: Fyshwick, Gungahlin, Belconnen and Tuggeranong. The Canberra Airport will be the fifth store.

Wangara

West Coast Eagles footballer Josh Kennedy visited Landsdale (WA) to help open the Bunnings Wangara store. He joined the company's marketing and merchandising director Clive Duncan, operations general manager Debbie Poole, complex manager Marty Hornbuckle and staff at the store's official opening recently.

The warehouse covers over 13,000sqm and includes an indoor timber trade sales area with a four-lane drive-through, flooring display, DIY workshop space, five kitchen displays, four bathroom displays, playground and cafe.

Bayswater

Another West Coast Eagles player Nic Naitanui was guest of honour at the official opening of the new 14,000sqm Bunnings Warehouse in Bayswater (WA) recently. Complex manager Patrick Kelly said his team looked forward to continuing to help community groups in the future.

Mandurah

The new $38 million Bunnings Warehouse Mandurah is located at 21 Kirkpatrick Drive, Greenfields (WA). Complex manager Von Soriano told Community News:

Team members have provided assistance in local community projects such as donating equipment to help reduce safety hazards at the Mandurah Surf Life Saving Club, renovating the outdoor living area for volunteers at the Mandurah Volunteer Fire and Rescue and creating a play area for students from the Peel Development School.
bigbox

Europe update

Online sales grow for Kingfisher

BUKI store conversion program halted and Kingfisher is being proactive about its pay gap

Kingfisher experiences strong digital growth in the last financial year; there will be no more store Homebase store conversions in the UK until Wesfarmers' review has been completed; and the gender pay gap is acknowledged at Kingfisher.

Digital delivers for Kingfisher despite profit fall

Home improvement group, Kingfisher has reported that total sales increased 3.8% to GBP11.6 billion, up from GBP11.2 billion, for the year ended 31 January 2018. However it posted a 10.1% fall in annual pre-tax profits to GBP682 million, but saw underlying profits edge 1.3% higher to GBP797 million.

Like-for-like sales were down 0.7% year-on-year at constant currencies, to GBP11.7 million.

Its annual results has been impacted by softer sales from its UK chains, Screwfix and B&Q, in the fourth quarter. The slowdown was due to less demand for big ticket items - such as kitchens - as the housing market cooled and as consumers hit by higher inflation and stagnant wage growth cut back on spending.

Screwfix digital

Over the year, total sales at Screwfix grew by 16.7% to GBP1.5 billion and by 10.1% on a like-for-like basis, as mobile sales soared by 86% and click and collect by 38%. Sales from specialist trade desks exclusive to plumbers and electricians also grew. But in the fourth quarter, sales slowed to 7.1% on a like-for-like basis. By the end of the financial year, 60 new outlets were opened, reaching a total of 577. Kingfisher said it aims to have 700 Screwfix outlets in the UK.

Screwfix continued to offset sales woes at B&Q, with price inflation also providing a boost.

B&Q

Sister company B&Q saw sales fall by 5.3% to GBP3.5 billion during the year, following a store closure program which has seen it shut 65 shops and cut around 3,000 jobs in the UK and Ireland over the last two years. Sales were down by 2.8% on a like-for-like basis associated with the store closures.

However, digital sales grew by 11% to represent 4% of total sales. More than 33,000 B&Q products can now be collected via click and click, including 29,00 for one hour pick up.

A new B&Q mobile app launched in September 2017 which "is delivering improved average transaction values", according to the company. The first of its digital home improvement services has also launched, including a bathroom planner tool.

Castorama and Brico Depot

Kingfisher trades as Brico Depot and Castorama in France. Castorama total sales fell 1.9% (like-for-like sales declined 2.4%) to GBP2.4 billion. Brico Depot total sales fell 4.2% (like-for-like sales declined 4.8%) to GBP1.9 billion. Across the two businesses, two new stores opened and one was revamped. Kingfisher said it is encouraged by the market in France, "although it is volatile".

Other international sales

Sales in Poland grew 6.3% (like-for-likes increased 5.3%) to GBP1.3 billion. Russia sales fell 3.7% to GBP391 million and Spain sales dropped 4.8% to GBP316 million.

Romania, Portugal and Germany saw sales of GBP174 million. A further roll out of Screwfix Germany is on hold this year pending completion of the unified IT platform roll out.

ONE Kingfisher progress

Kingfisher is coming into the third year of a five-year transformation plan. More than 50% of its group sales now operate on one unified IT platform. Six per cent of sales took place online in its latest financial year, up from 4% a year earlier.

There has been an 80% reduction of SKUs and suppliers as part of the "ONE Kingfisher" strategy. Kingfisher said "business disruption" knocked around 1.5% off its group-wide like-for-like sales as it was left with stock availability problems amid efforts to clear out old stock. But it had "acted on the root causes of business disruption".

Chief executive officer, Veronique Laury insists her turnaround was beginning to bear fruit and said it was set to deliver a GBP500 million boost to annual profits by the end of 2020-21.

BUKI store conversion halted

The program that saw a number of stores (23) changing from Homebase to the Bunnings' format has stopped as Wesfarmers reviews what to do about staying in the UK. The most recent store openings have been in Somerset, Walton-on-Thames and Sprowston.

Somerset

Bunnings officially opened its doors in Frome, Somerset, replacing the Homebase store at Wessex Fields. Former skeleton racer and Olympic gold medallist, Amy Williams, helped to open the 47,000 square feet store.

Complex manager, Mandy Wilkinson said Bunnings team members have helped with projects in the Frome area ahead of the official opening. These include painting a classroom for students at St John's First School and giving the doors of the local YMCA a fresh coat of paint.

Walton-on-Thames

A new Bunnings store measuring 34,000 square feet has opened on the site of the former Homebase store in Walton-on-Thames, a large affluent market town located on the River Thames in the Elmbridge borough of Surrey. Kelly Smith, former England footballer, helped to launch the store.

Bunnings in-store staff have assisted with projects in the local area including fixing the scout hut guttering for the Walton Sea Scouts and painting planters and repairing shed roofing for students at Walton Oak School.

Sprowston

Bunnings' newly opened store in Norwich, Sprowston is among the first Homebase branches to be re-branded to Bunnings as part of the pilot scheme. To celebrate the opening, former Premier League footballer Grant Holt joined a welcome breakfast for team members.

Kingfisher addresses gender pay gap

Kingfisher has reported a 9.6% mean gender pay gap for fixed hourly pay across its 34,000 UK employees as at 5 April 2017. This is based on data across the retail group's four legal entities in line with the British government's gender pay gap reporting regulations. The entities Kingfisher has reported on include B&Q, Screwfix Direct, Kingfisher Information Technology Services and Kingfisher Corporate.

Kingfisher has attributed its gender pay gap to the fact that it has a lower level of female representation in senior roles across the business. Typically, senior positions attract higher pay and bonuses and the majority of these job roles are currently held by male employees.

To tackle its gender pay gap, Kingfisher is reviewing its employee benefits for parents, making more senior job roles open to flexible working and reduced hours opportunities, changing the way in which job adverts are written and introducing new programs to help support women returning to work.

In addition, as part of the organisation's leadership development programs, Kingfisher will help leaders to understand the importance and benefits of building inclusive teams, as well as understand the implications around unconscious bias. The organisation has also signed up to the 30% Club, which aims to achieve having a minimum of 30% of women on its board.

Guidelines

The gender pay gap reporting regulations require organisations in Britain with 250 or more employees to publish the difference between both the mean and median hourly rate of pay for male and female full-time employees; the difference between both the mean bonus pay and median bonus pay for male and female employees; the proportions of male and female employees who were awarded bonus pay; and the proportions of male and female full-time employees in the lower, lower middle, upper middle and upper quartile pay bands.

Kingfisher's median gender pay gap for fixed hourly pay as at 5 April 2017 is 2.5%.

Its mean gender pay gap for bonuses paid in the year to 5 April 2017 is 33.2%, and the median gender pay gap for bonus payments is 0.1% in favour of female employees. Over this period, 62.3% of female employees received a bonus payment compared to 60.7% of male employees.

More than a third (37.3%) of employees in the highest pay quartile at Kingfisher are female, compared to 43.5% in the second quartile, 46.4% in the third quartile and 46.9% in the lowest pay quartile.

Kingfisher is also considering ways to analyse its gender pay gap across the organisation internationally, as well as exploring how it can investigate pay gaps across different ethnicities and other characteristics. This is to ensure that the organisation pro-actively manages its pay fairly and equitably.

bigbox

Wesfarmers-Bunnings 2017-18 H1 results

Bunnnings Australia powers ahead

Wesfarmers could refocus further investment into Bunnings, but not in its traditional business areas

On 20 February 2018 Australian conglomerate Wesfarmers announced its results for the first half of FY 2017/18. This followed on from an announcement two weeks prior that it would make a writedown of over $1000 million for losses and revaluations associated with its Bunnings United Kingdom and Ireland (BUKI) operations, and its Target department store operations based in Australia.

Following on from this, on 16 March 2018, Wesfarmers announced its intention to "demerge" the operations of Coles, a supermarket, convenience store and liquor business based in Australia. While Bunnings was not directly involved in the demerger, Wesfarmers managing director Rob Scott did comment on how this move would affect the home improvement retailer, both as an individual division, and through some company-wide initiatives that will be implemented.

Company results

Revenue for Wesfarmers improved mildly, reaching $35.903 billion, up by 2.8% on the previous corresponding period (pcp), which was the first half of FY2016/17.

One-off, significant items had an impact of $1237 million on earnings before interest and taxation (EBIT), and an impact of $1323 million on net profit after tax (NPAT). This meant that EBIT fell by over 54% as compared to the pcp, and NPAT declined by 86.6%.

Excluding the significant items, EBIT was $2350 million, down by 3.3% on the pcp, NPAT was $1535 million, down by 2.7%, and basic earnings per share fell 3.2% to $1.356.

Divisional results

EBIT for Coles fell by 14.1% on the pcp, to reach $790 million. Department stores (Kmart and Target) lifted EBIT to $415 million, up 7.2%. Officeworks returned $68 million in EBIT, up 9.7%. The consolidated industrials division of Wesfarmers returned EBIT of $449 million, up by 19.1% on the pcp.

Bunnings Australia & New Zealand

Sales revenue for Bunnings Australia & New Zealand (BANZ) was $6566 million, up by 10.22% on the pcp. EBIT came in at $864 million, up by 12.21%. Total stores sales growth was 8.8%, up from 8.4% in the pcp. Store-on-store (comp) sales growth was 7.5%, a full percentage point above the pcp's 6.5%.

The managing director of Bunnings, Michael Schneider, introduced the figures for BANZ by saying that the consistent and strong results from BANZ were pleasing.

The business has demonstrated strong momentum, delivering growth across consumer and commercial, in all trading regions and categories. It is worth noting that sales in the corresponding prior period were affected by a late start to spring, and the stock liquidation activities of the Masters business. EBIT increased as the business remain focused on cost control, and we continued to drive value for customers. Ongoing favourable property market conditions led to positive outcomes on property divestment. Higher earnings, and a continued focus on disciplined capital management resulted in a 7.9% improvement in return on capital, which reached 46.94%.
Our ongoing focus on even better customer experiences was supported by the completion of even more store upgrades, and category refresh work, in addition to further investments in customer value. During the period 11 new trading locations were opened, including eight new Bunnings warehouses, two smaller formats stores, and a trade centre.

According to supplemental information, BANZ now has 253 warehouse stores, 77 smaller format stores, and 33 trade centres. NSW has 74 warehouse stores, VIC 57 and QLD 42. New Zealand has 21 on the North Island, and six on the South Island. Four warehouses were closed during the half.

Mr Schneider continued to outline some of the strategic priorities for BANZ:

The business remains committed to three key areas in our strategic agenda. Creating better experiences for customers through deeper engagement in store and within our local communities, as well as accelerating our digital capabilities, as reflected in the recent launch of the extended range online that I will speak to shortly.

Focus also continues on strengthening the core of the business, including driving safety across all areas.

Digital

As of late February, Bunnings in Victoria now offers the opportunity to purchase items from its "special orders" range directly online. This a graduated step, as essentially all that has happened is that the mechanism of ordering has shifted from a verbal process to a digital one, with other aspects, such as picking and shipping, likely remaining unchanged. Products that can be ordered via this process include much of Makita's 12-volt power tool line, as an example.

BANZ has also introduced a means of checking for in-store stock online. The details appear when items have been looked-up on the Bunnings website. This indicates if a product is available, is available only in limited numbers, or is not available. Early testing of this feature by HNN indicates that there are a few flaws in stock-tracking by Bunnings: items that appear on the database as being in-stock - especially older items - can sometimes not be found in the warehouses themselves. That's only to be expected on the introduction of such a system.

Performance

Respected retail analyst Michael Simotas of Deutsche Bank asked Mr Schneider how much of the improved performance was due to internal changes, and how much was due to external influences on the pcp which might have depressed those comparative results, such as poor weather and the effects of high levels of discounts at Masters Home Improvement as it exited the market.

Mr Schneider responded that it was likely a combination of different factors that had led to the good result for the half.

I think we talk consistently about the way we model pricing in the business, seeing gross margins go down, which we have been very successful at doing over quite a long period now. [That] upstream work has downstream benefits in productivity gains and efficiencies in-store. [That includes] the use of technology, and more reliability around the stock flow process, particularly going into Christmas.
Obviously, as we cycle out of deep clearance activity from other players in the market, that will shift reactions to things, but it is not about putting prices up. I think we were very clear during the Masters clearance time, that that was clearance activity, so we didn't really move on pricing then, in response to that, and obviously that has meant that we have been able to continue to invest in pricing now.
For the weather point of view, it is obviously an impact when you get sustained, challenging weather conditions, and that shifts the mix of products which will obviously shift the mix of prices and margins. But really it is all about continuing to invest in the value proposition for the customer through productivity improvements, and also product innovation, as well as improved buying practice. So I think when you build some of those together, it delivers some solid outcomes for you, as you can see in the result.

In a similar vein, an analyst from Goldman Sachs asked about whether changes in the property price cycle in Australia can be expected to have more of an effect on BANZ. He suggested that, while in the past Bunnings had been underexposed to these changes, its shift to a larger, more diverse store network encompassing a wider market, might make it more vulnerable.

Mr Schneider replied by pointing out that the products BANZ sells are quite diverse.

Some of those are necessity, as I said before, and some are discretionary [purchases], and that takes place across both consumer and commercial (effectively the trade market). So that does give us a degree of flexibility.
There is no doubt that when housing churn is high there is a benefit to be gained, because obviously everyone is doing something to their home before they sell it, and the new owners then want to do something to it to make it their own. But the reality is, as housing prices have grown, and it becomes very expensive to swap out of one property to another - and from our research I think overall lending values on a lot of established mortgages are actually quite low - there is a desire and appetite for Aussies and Kiwis to invest in their own homes to make them a better place to live.
So we sort of see a degree of resilience that comes through from from that. We don't, or normally I wouldn't talk about regional performance. The sort of challenge that I have with the team is that we want to perform better than the market. So if the market is negative, and we are less negative, then we see that as a positive outcome. And if the market is going well, then we want to be performing on the high side of that.

Bunnings UK & Ireland

As highlighted at a special presentation at the start of February, performance at BUKI has been very poor for the half. EBIT was almost 2.5 times worse than in the pcp, and revenue fell by 15.7%. As has been described in the previous edition of HI News, this has led to a large writedown in the BUKI business, and to Wesfarmers undertaking a review as to whether the business is worth continued investment. The result of that review will be released at the Wesfarmers' Strategy Day in early-June 2018.

Challenged by respected Morgan Stanley Bank of America analyst David Errington on whether the delay of four months was justified, and might result in further harm to the Wesfarmers business, Mr Scott replied that he did not think reports of the demise of BUKI in the British press should be taken too much to heart.

The first point I would say is that I would be careful [not] to draw too many inferences or conclusions from what you read in the British press. The facts that we are more influenced by are what our team members are saying, what our suppliers are saying, and we do engage very closely with our suppliers.
Clearly the news we came out with the other day is disappointing for us, and disappointing for shareholders - as well as disappointing for the BUKI team. I think what you will find, and this feedback has certainly been reiterated to us through Damian McLoughlin, and the team on the ground in the UK, we've been very open and honest about this, we've been upfront as a group, we've said we've made a number of mistakes. What we're doing to remedy that is to strengthen local talent, and really starting to listen to our local team members. [We are] making sure we have people over there running the business that really understand the UK market.
That honesty, and that openness, has been very well received by the team. And we are actually finding some good support and action there off the back of that openness.

Mr Scott went on, in response to Mr Errington's original question, to offer some insight into his thought processes over waiting for a review and, in effect, giving the Homebase operations of BUKI a chance to trade out of the situation they are currently in.

It's really easy, David, as a new CEO to come in and just wipe the slate clean. I do not think that that is necessarily in the best interest of our shareholders. Where we sit today, the best thing we can do right here right today, is to improve the trading losses, and that is what we are focused on.
So the team in BUKI are absolutely focused on reducing the cash losses, setting the offer up, we've got a lot of stock there, and were coming into a really important trading period, through spring and summer, and let's make the most of this opportunity.
Obviously we have some broader strategic questions, and I've been very clear that we will update the market on that in June. I don't want to preempt that. So the focus short-term: reduced losses, improve trading performance, and irrespective of what we choose to do, post June, we will be in a much better position in June if we can reduce those trading losses.

On further prompting from Mr Errington as to whether the announcement itself was unhelpful to BUKI's future prospects, Mr Scott finished the topic by saying:

We set the bar pretty high at Wesfarmers, particularly around capital allocation, and frankly we just have to take it on the chin, right? We have to take it on the chin, that we made a few mistakes, we are disappointed by that, and we are happy to cop a bit of flack. But what is most important is that the decisions we take from here on in are in the shareholders' best interests.

Bunnings UK pilot stores

In that spirit, Mr Schneider was thorough and accurate in recounting the problems that BUKI is facing. However, he did point to what he regards as positive signs when it comes to the Bunnings UK format stores that are being slowly rolled out by BUKI.

We had 15 Bunning's pilot stores trading at the end of the half. We continue to receive positive feedback from our customers, and really good engagement from local communities. We have worked hard to ensure that we are offering the widest range of trusted brands, and we have been pleased with the strong supplier support we have received. The performance of the pilot stores is encouraging, although as Rob said earlier this month, the growth did moderate over the winter months, and we are now looking to see how the pilots perform during the peak spring summer period.

He went on to outline more of the process that is in place to thoroughly test the different formats and approaches of all the pilot stores.

We currently have 19 of these open, with a further five to be opened by the end of the financial year. We have an assortment of pilots with a range of formats, size, capital spending and market environment. We will carefully analyse and monitor the performance of each pilot to help inform our future plans. There is clearly a lot of hard work ahead of us, and I will give you an update on our progress at the strategy day in June.

Revitalising Homebase

Both Mr Scott and Mr Schneider pointed to Wesfarmers' efforts in securing more local knowledge and experience in the Homebase team as being crucial to at least radically reducing the losses in that store network. Mr Schneider in particular highlighted the addition of Mr McLoughlin and ex-Officeworks executive David Haydon to the management team as being important.

Over the last six months, a lot of work has gone into identifying, attracting and recruiting talent in areas such as merchandise, supply chain, and store development. We now have a greater depth of talent, more attuned to the local market, and a structure that allows for improved clarity of responsibility, and accountability.
The combination of Damian McLoughlin, and David Haydon, with strong merchandising and operational backgrounds, and knowledge of the UK market are a real positive, and a good complement to the rest of the team. We've also sharpened up merchandising, promotion and operational plans to drive better performance, and place significant emphasis on much improved execution in all aspects of the business.

Mr Schneider also went into more detail about the planned reduction in the size of the Homebase store network.

In terms of the Homebase network, we have closed five loss-making stores in the first half, and are currently undergoing a more comprehensive review of the store portfolio.

Elsewhere Mr Schneider affirmed the planned reduction in the size of the network:

There is also significant amount of work going into looking at the store portfolio of Homebase. As Rob called out two weeks ago, a detailed review is underway and likely to result in the closure of 20 to 40 stores.

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HI News Vol.4 No.2: The hardware activist
bigbox

Big box update

Physical stores remain a focus for Bunnings

Local area councillors have rejected a proposed Bunnings store in New Zealand

Bunnings continues its roll out of traditional store fronts around Australia and its New Zealand subsidiary has faced a significant obstacle in establishing an outlet in Queenstown.

Bunnings store starts and openings

Western Australia, New South Wales and Queensland will have more bricks-and-mortar Bunnings stores. Outlets are being launched or planned over the next several months.

Wangara

The WA-based Bunnings Wangara store on Hartman Drive is set to open in April at the former Masters site after the big box retailer received development approval last year.

Bunnings general manager - property Andrew Marks said once completed, the Wangara warehouse would span more that 13,000sqm. He said:

We can confirm we are completing necessary conversion and reformatting works at the new Bunnings Warehouse Wangara.

Bunnings Wangara is also being marketed as a "big drawcard" for potential tenants of a development in nearby Landsdale. Property group Raine and Horne Commercial has used the retailer as a selling point for two warehouse developments on Mullingar Way.

Raine and Horne Commercial agency associate Daniel Romeo said the entire site had been transformed over the past few years and that commitment from Bunnings taking over the previous 3.18ha Masters store added to the "desirability" of the area. He told Community News:

It will increase passing traffic and exposure for businesses. It will be good for business in the area in general, attracting more tradies, potential customers for other businesses and attract new buyers/tenants to the area.

Raine and Horne Commercial director Anthony Vunlinovich said the Wangara/Landsdale area was "hit pretty hard" in the last two years with the general retail and real estate slump.

Rockhampton

The $38 million Bunnings Warehouse located at 540 Yaamba Road, Norman Gardens (QLD) is officially opening across two weekends in March, according to The Morning Bulletin. The new store moved to a former Masters site, just down the street from its original premises.

The current Bunnings Warehouse is 8,000sqm and the new space is 12,000sqm, an increase of 4,000sqm. It includes a nursery three times the size of the previous store.

Complex manager, Glen Reid, who has been part of the Bunnings team for nearly seven years, said it is always looking for opportunities to contribute to local causes. He said:

We have been part of the Rockhampton community since 2001...Team members have supported a number of community groups including working with the Cancer Council to refinish the centre's veranda, helping Glenmore State Primary School with a gardening project to create a quiet and tranquil space and supporting Riding for the Disabled to refurbish their veranda and outdoor area.

Baldivis

A Bunnings store will be opening in Baldivis (WA) in April. It will be located at Lot 9050 Safety Bay Road.

Newly recruited team members have been active in the local community sharing their skills. Staff have created an outdoor space at Baldivis Volunteer Fire Station and will visit Baldivis Primary School to help build garden beds, outdoor furniture and a barbecue area for pupils to use as part of their kitchen classes

They will also conduct projects at Tanby College, pulling out the existing garden, and then placing a new water tank system for the school to use on their vegetable gardens.

Gregory Hills

Bunnings Gregory Hills in NSW will open in April after the big box retailer took over the ex-Masters store along Camden Valley Way. Mr Marks told the Camden Advertiser that conversion and reformatting works were currently under way at the site. He said:

The new site ... will span over 13,000 square metres.

Bunnings lodged an application with Camden Council in January to "amend the layout and description of an approved development to facilitate [a] new operator of the premises".

Shellharbour

The new $15 million Bunnings Shellharbour store in NSW is opening soon. The retail warehouse is almost complete and located at the former Masters site at 15 Shandon Circuit, Albion Park.

Bunnings Shellharbour complex manager Greg Sutton has worked at Bunnings for over 15 years and said the team will continue to actively go out into the community and engage with projects. Staff recently went to Albion Park Public School to help work on a sensory garden. He told the Illawarra Mercury:

The team has also provided materials to Albion Park Men's Shed to help construct seating for their garden and supported Northcott Disability Service with a garden bed and sustainability workshop.

Bunnings NZ rejected for Queenstown store

Plans for a Bunnings store on the outskirts of Queenstown, New Zealand are being reviewed after three council commissioners refused to grant consent to the company.

The proposal was declined amid concerns over the appearance of the large 8119sqm store on State Highway 6, at Frankton Flats in Queenstown. The site would have included a main retail area, timber trade sales, outdoor nursery and landscape yard, with buildings up to 12m high.

Bunnings New Zealand general manager Toby Lawrence said the company was disappointed with the decision, but would take the feedback on board.

Despite the fact the big box retailer proposed to reduce its use of corporate colours on its signage, the commissioners said in their decision that the visual effects of a proposed 9m high sign - reduced to 6m during the hearing - and signage on the building, were more than minor. In addition, landscaping and visual effects were a problem.

The commissioners were also concerned with the building's height, bulk and mass and its impact on the street scene. Some urban design effects were more than minor, they said.

However, it is our view that these issues could be addressed with a reduced building form and potentially a different vehicle access and car parking agreement.

The commissioners agreed with the company that the loss of 1.62 hectares of industrial-zoned land, or about 1.4% of industrial-zoned land in the district, to a retail store was no more than a minor issue.

The Bunnings activity is complementary to and compatible with other activities within proximity to the site and would support construction activities.

Overall the commissioners concluded that the proposal would have more than minor adverse effects and was contrary to the objectives and policies of the District Plan and Proposed District Plan.

Under the district plan, the land where Bunnings had proposed, the store could not be used for retail unless it was "ancillary to the primary land use", the commissioners said.

Bunnings New Zealand national property development manager Brett Moody told us that Remarkables Park was not as attractive, as it is hard to access, and that Bunnings sought to be in a visible location.
We concur with the applicant that there are limited options within Queenstown where a Bunnings could establish and operate. However, our premise should not be that just because it may not be able to easily locate elsewhere, that it should be able to locate on this site or in the activity area E1 sub zone.
bigbox

USA update

Fourth quarter earnings growth for HD

Online marketplace boosts Ace Hardware's results and big data delivers for Home Depot

Hurricane recovery and rising home values drive Home Depot's performance in its fourth quarter; the big box retailer will also be selling Tesla batteries; artisanal website makes a difference to Ace Hardware's Q4 results; and the role of big data at Home Depot.

Home Depot beats Q4 expectations

More shoppers visited Home Depot stores and spent more per trip, as reflected in the big box retailer's fourth-quarter earnings and sales which topped Wall Street's expectations.

Its sales rose on the back of the US housing boom, with an extra boost from hurricane-recovery efforts in Puerto Rico and the southern states. A push by Americans to fix up their properties - using money generated by rising home values - also helped lift Home Depot's same-store sales by 7.5%.

Home Depot has also benefited from investments in its technology and customer service - part of a strategy that has focused on generating more sales from current stores, rather than opening new ones.

Revenue rose 7.5% from a year ago to USD23.9 billion in the fourth quarter, exceeding the average estimate of USD23.7 billion. The company said its customer transactions rose 2%, while the average ticket increased 5.5% (to USD64 per person).

The push to provide an "interconnected retail experience" has also helped fuel productivity and earnings, chief executive officer Craig Menear said. Chief financial officer Carol Tome told TheStreet.com:

We have really invested in this interconnected experience, which has paid huge dividends. We had 21.5% sales growth online last year and the business now makes up 6.9% of our overall business. More importantly, 46% of those sales were picked up inside of a store. When a customer comes into the store, they are buying something else.
We are not an item retailer. We are a project retailer. That is very different than selling consumable items. It's just very different. We also help you when you have a problem. If your bathroom is leaking water, that's a very different need than if you are trying to match a sweater to your eye colour. And then housing is a good asset class.
So do we have an Amazon protected moat around our business? Of course not. But do we have barrier islands around our business? Yes, we do. Our job is to continue to invest in those barrier islands.

Selling solar

Home Depot is also bringing new merchandise to its stores, having recently signed a deal with Tesla to sell the carmaker's residential solar panels and Powerwall (batteries) at 800 Home Depot locations.

According to a report by Bloomberg, the physical products won't be available in Home Depot stores, but Tesla will have massive presence to showcase them. Tesla will be setting up a designated retail space inside Home Depot stores across the US to promote and sell its solar panels and Powerwall batteries. The spaces will include 12-by-7-foot displays, and some shops will offer demonstrations of the products.

Mobile job app

To meet demand in a tight labour market during its busy spring selling season - when revenue reaches its highest point in the year - the company has automated much of the job-application process to make it faster and easier.

It has been using a new tool, "Candidate Self-Service" that is available at all times on any device and allows job applicants to schedule in-person interviews themselves. The home improvement retailer is expanding the use of this tool because it needs to fill more than 80,000 seasonal positions for spring. Candidates who have completed an application for an open job can choose the most convenient interview appointment available.

The Grommet boosts sales at Ace Hardware

US retail hardware co-operative, Ace Hardware said new store growth and its acquisition of online platform, The Grommet were the main drivers for its fourth quarter revenue increase.

It reported a 6.8% year-over-year increase in fourth quarter revenue, to USD1.3 billion. Same-store sales rose 3.1% in Q4.

Sales for the fiscal year were solid as well, with revenue at USD5.4 billion, up 5.1% compared to the previous year. Same-store sales were up 3.6% for 2017. John Venhuizen, president and CEO, said:

I'm also encouraged to report that 2017 marked the fifth-straight year of increased customer transactions at retail, the sixth-straight year of net new store count growth, the eighth-straight year of increased same-store-sales, and the eleventh-straight year receiving the J.D. Power award for highest customer satisfaction.

Net income was USD14.2 million for the fourth quarter of 2017, a decrease of USD7.3 million from the fourth quarter of 2016. This decrease included a charge of USD4.1 million due to new tax legislation enacted in 2017 as well as additional warehouse costs incurred as part of the warehouse "network reconfiguration".

Ace Hardware acquired a majority stake in e-tailer The Grommet last year in order to access the retailer's e-commerce knowhow and fulfillment capabilities. It has been leveraging The Grommet's artisanal focus to give Ace's brick-and-mortar stores something unique.

The e-tailer was folded into a subsidiary, Ace Ecommerce Holdings, which brought in USD21.6 million in Q4, according to Ace.

Ace added 152 new US-based stores in fiscal 2017. This brought the company's total domestic store count to 4,418, an increase of 55 stores from the end of fiscal 2016. On a worldwide basis, Ace added 236 stores in fiscal 2017, bringing the worldwide store count to 5,121.

Related:

USA update: Ace Hardware invests in e-commerce startup - HNN

Big data at Home Depot

Home Depot is known for its big stores, and its ability to generate big sales to its "Pro" customers who purchase large ticket items. These factors contribute to the successful integration of its website and bricks-and-mortar stores but the retailer's biggest advantage might come from its use of big data.

At its Investor & Analyst Day Conference in early 2018, chief marketing officer Kevin Hoffman walked through Home Depot's digital marketing efforts based on its accumulation of customer data.

Mr Hoffman said nearly 50 million households had been active at Home Depot in the trailing twelve months and that, through those interactions, the company was generating 1.7 trillion data points per week. While the data sets grow larger, the intent is for Home Depot to effectively get smaller so it can interact with its customers on a more personal level.

Mr Hoffman said this immense amount of collected data will allow Home Depot to "tailor" its marketing messages to the individual consumer, rather than appealing to the lowest common denominator among a diverse group of customers. In his presentation, transcribed by S&P Global Market Intelligence, Mr Hoffman said:

Our data allows us to know our customer at a more individual level. Our targeting capability will help us get to them at the right place at the right time, and we aspire to have all of our messages be tailored to the audience ... Customers will expect retailers to speak to them at an individual level. The world of traditional one-size-fits-all messaging is quickly falling behind us. We've got diverse customer groups.
Here, you see an affluent baby boomer, a Pro and a millennial who happens to be a new homeowner. The reality is ... we regress to a lowest common denominator approach. We try to find the one message that somewhat appeals to all of them. But each of these customers has different needs and a different level of expertise.
So, for instance, when these three different types of customers -- an affluent baby boomer, a Pro, and the new millennial homeowner -- go to purchase a new water heater each will be marketed with different material and given a different "Home Depot experience.

The baby boomer's experience will be geared toward having a new water heater delivered and installed that day. The Pro will be given information on inventory, pricing, and delivery options. The millennial's experience will be heavy on content, so they can decide on what size and type of water heater might be best for them.

Home Depot's marketing is so targeted that even when these individuals live on the same street in the same neighbourhood and are watching the same game on television, they will see different ads. When customers from different areas of the USA visit Home Depot's home page, they will also see different products highlighted.

But Home Depot has found ways to tailor marketing beyond just making it more personal for each consumer. The home improvement retailer is also experimenting with its weather-triggered ads. Mr Hoffman said:

These ads are only deployed and invested in when the weather is right.
bigbox

Big box update

Bunnings changes DA for Balmain

Moving on from Panorama site and more stores are getting built around Australia

Bunnings lodge new plan for Balmain; Bunnings abandons Panorama site in favour of Edwardstown in South Australia; more development applications and approvals for Bunnings; store openings in Sunshine (VIC) and Devonport (TAS); Victorian stores sold; and Bunnings' New Zealand store network expands.

Change of plan for Balmain outlet

Bunnings has lodged a new development application for a three-storey outlet at 2-8 Parsons Street, Rozelle (NSW), opposite the heritage-listed White Bay Power Station. If approved, the $11.8 million development would involve demolition of a disused warehouse to make way for two levels of retail on top of 74 ground level car parks.

This is a revised proposal after earlier versions met with obstacles with Inner West Council. Bunnings said the revised proposal included "significant improvements" to streetscape and heritage including "heritage interpretation" and landscaping.

Bunnings general manager - property Andrew Marks previously told the Inner West Courier the small format store would offer a "convenient alternative to visiting the larger Bunnings". He said:

The site (has) a history of commercial uses and is surrounded by retail and wholesale and light industrial businesses. We remain committed to bringing jobs and investment to the local community.

Bunnings withdrew similar plans for the same site in February after the council raised 11 objections including traffic impacts on the Victoria Road and Robert Street intersection, which had not been measured in the application.

An updated traffic assessment predicted 40% of vehicles would access the site from Victoria Road, which currently carried 80,000 cars per day, while 30% would funnel through Mansfield and Mullens Streets.

The report, however, predicted the increase to be "quite minor" due to the "small format" store - roughly one-fifth the size of an average Bunnings warehouse

In addition to increased traffic, there was also community concern about impacts on the existing nearby independent hardware retailers.

However in a recent development, the landlord of The Hardware Store has lodged plans with Inner West Council to subdivide the site into three two-storey buildings. Proprietor Grant Crowle said he was in the process of looking for alternative sites should the business have to relocate.

In submissions to the new plans, traffic impacts remain the primary sticking point with residents, with some saying any increase in vehicles would "exacerbate peak hour bottlenecks".

The council previously found the development plans did not assess noise impacts on nearby homes, failed to use correct flood analysis modelling, and lacked waste management plans.

To view the plans, go to Inner West Council's development application site for the former Leichhardt council area and search: D/2017/631.

Related:

Bunnings' micro-warehouse in Balmain - HNN

Bunnings switches up site in SA

Bunnings plans to open a new two-storey store on South Rd, Edwardstown (SA) after pulling out of building a store in Panorama following objections over its design. The proposed store is located 2km from the Panorama site.

Mitcham Mayor Glenn Spear told Adelaide Now that Bunnings pulling out of the area was a "great opportunity missed". He said:

First of all, it's $50 million in capital that hasn't happened in Mitcham. The site is a pigsty ... We missed out on the economic impact of jobs while the centre was being created, we miss out on 170 ongoing jobs for our people and we miss out on significant rate income.

Panorama Clapham Community Group spokesman Neil Baron said there was strong community support for a Bunnings store in the area on the former TAFE site. He said:

People thought it was going to go through and they didn't have to vocally support the issue...The community was supportive. There were a few individuals who didn't want it, like any situation, but I think overall if we look at Bunnings ... it's not an evil, illegal entity we should be shunning, it's something we should embrace.

A group of residents complained the large hardware store would be inappropriate for the area and that medium-density housing would be a better fit.

In a brief statement, Bunnings general manager of property Andrew Marks thanked members of the community who supported the proposal.

We will now be exploring other development opportunities for the site.

Related:

Big box update: Bunnings submits plans for Edwardstown - HNN

More Bunnings stores get green-lit

Bunnings has submitted development applications for stores in Ballarat (VIC) and Woolloongabba (QLD). It has received approvals for stores in Clyde North (VIC) and Majura Park Shopping Centre (ACT).

Ballarat store extended

Bunnings has lodged a planning application for a 17,000sqm premises on the corner of the Glenelg Highway and Cherry Flat Road in Ballarat (VIC). Should the application be given the green light, construction is set to begin in the first quarter of 2018. 

In a statement, Bunnings general manager - property Andrew Marks said the new store would be in addition to the existing Creswick Road premises.  

The announcement comes after the opening of the huge Delacombe Town Centre, driven by lead tenants Woolworths, Kmart and Ballarat's second movie theatre, Showbiz Cinemas. 

The proposed Bunnings site which sits across from the Delacombe Town Centre has been touted as a future bulky goods retail premises since the development of the Ballarat West Precinct Structure Plan, which was approved in 2012.

Delacombe Town Centre landlord Steven Troon said he was excited to see a retailer like Bunnings building across the road. He said the shopping centre was already experiencing increasinggrowth, with Kmart's auto service store to open in the new year as well as a Groove Train chain restaurant. 

Getting to Gabba

Bunnings is expected to open a store at Woolloongabba, late next year or in 2019, after lodging a development application.

The news has split the local community, according to the Courier Mail, with many in support but others upset about an estimated 1058 extra car trips on Saturdays and the impact on smaller retailers.

The development application outlined plans for a 17,000sqm, two-storey building covering 88% of the site, which borders Ipswich Road and Henry Street. Bunnings believes high public transport use would mean the 399 planned car parks would be sufficient.

Gabba Business Association president Suzanne Bosanquet said while it might have an impact on medium-sized traders, the new store would be a great thing. She said:

This will bring people to the area. That part of the Gabba really needs activation. At the moment people are having to drive out to Cannon Hill or Tarragindi to go to a Bunnings, but now they will come here.
Particularly after Mitre 10 closed at West End, something like this is really needed.

Finlayson's Timber and Hardware director Michael Finlayson said while they took nothing for granted, their business was much more trade based and they were confident of fending off any competition. He said:

We will just focus on improving our trade offer. We have knowledge of the industry nobody else has,.

Element Park business park

Bunnings is set to open a large-format store in Clyde North in Melbourne's south-east in 2019 after taking up a 3.77-hectare site within the $150 million Element Park business and retail park.

The 16,600-square-metre DIY warehouse will anchor stage one of developer MAB Corporation's 38-hectare project, which is set to include showrooms, a petrol station, a childcare centre, food and beverage outlets and leisure facilities in addition to 65 industrial lots ranging in size from 1000 to 3000sqm each.

Ian Parry, development manager at MAB Corp, said the previous owners had held preliminary discussions with Bunnings - the deal got over the line when Bunnings secured a permit for the new warehouse.

The nearest existing Bunnings is four kilometres away, a store about half the size of the proposed new warehouse.

Mr Parry told The Australian Financial Review it would be the first Bunnings to open in a MAB Corp business park and would act as a catalyst for the next phase of the development of the rapidly growing Clyde North area.

Infrastructure works at Element Park are set to commence in early 2018 and cease in early 2019, prior to the completion of the Bunnings Warehouse. 

Majura Park confirmation

Canberra Airport has confirmed that Bunnings will be opening a new store at the Majura Park Shopping Precinct next year. It will occupy the 13,500sqm previously occupied by Masters to the north of the precinct, with parking for 350 cars. The store is expected to open in mid-2018.

Bunnings said a site of this size allowed it to increase the range of products on offer to the local community.

Canberra Airport managing director Stephen Byron said the Airport looked forward to welcoming Bunnings Warehouse to Majura Park. He said:

The arrival of Bunnings, coupled with the recent opening of AutoBarn and Dan Murphy at the shopping centre, are fantastic additions to our customer experience and breadth of offer.

No decision had been made about the future of the nearby Fyshwick store but Bunnings said it would keep team members and the community informed.

First Bunning store re-opens

Sunshine Bunnings Warehouse, the first Bunnings store to be built in Australia, has reopened after a $13 million refurbishment.

The newly renovated warehouse has 50 additional staff members and a new undercover timber yard, large landscape and green life nursery, trade sales drive thru, state-of-the-art kitchen division and air conditioning.

Store manager Matt Caruana said he was delighted with the results of the 16-week project. While pleased with the end result, Mr Caruana said the project was difficult from a logistical standpoint. He told Star Weekly:

We have 110 team members here who had to be placed in other stores while the works were being undertaken. On top of that, there's also the risk that shoppers will become comfortable at alternative stores. We're surrounded by Bunnings stores around here.

But with the project now complete, Mr Caruana said the store is now a source of great pride.

We had a staff opening for the store before we had the public one and 700 people attended, which just shows how much this place means to the organisation. It was definitely all worth it. As Australia's first Bunnings store, it's important that it's kept in line with modern standards so it stays around for many more years to come.

"Motivational" Devonport opening

The recent opening of Bunnings Devonport resembled more of a motivational seminar with AFL legend Kevin Sheedy at the helm. According to The Advocate, he held the crowd in the palm of his hand as he spoke about what drives people and life in general.

Mr Sheedy regaled people with typical "Sheedy wisdoms" but at almost 70, it was his passion for life and genuine connection with all ages which struck a real chord.

Devonport complex manager Felicity Powell said the store is the seventh Bunnings warehouse in Tasmania and represented a $19 million investment in the city. She said Bunnings opened two North-West warehouses because the public wanted one in Devonport.

Bunnings Mernda and Bairnsdale sold

Private developer RCL Group has sold a yet-to-be-built Bunnings in Melbourne's northern suburbs for around $25 million.

The 15,000sqm hardware store on Plenty Road in the outer growth-area suburb of Mernda has been pre-leased to Bunnings, and is expected to open midway through 2018.

A Bunnings in Bairnsdale, in Victoria's East Gippsland district, has also sold in an off-market transaction for $12.42 million. The smaller 8,558sqm store was purchased by a Melbourne-based syndicate on a yield of 5.66%.

The vendor, based on the Mornington Peninsula, made a profit of $4.213 million, a gain of 51.33% from the $8.207 million purchase price in 2013, said Burgess Rawson's Graeme Watson.

The Bunnings Mernda site is part of larger 8.5 hectare comprehensive development zone, in one of Melbourne's fastest-growing new communities.

The site has capacity for big box retail outlets, fast food and medium to high-density housing, according to RCL chief executive David Wightman.

Trade centre opens in Hawke's Bay, NZ

Bunnings' new trade centre in Hastings, Hawke's Bay, New Zealand is seen as evidence of the region's booming economy.

After investing more than NZD4 million into the trade centre on Heretaunga Street, Bunnings commercial manager (NZ) Des Bickerton said Hastings' thriving building industry and the "booming" wider Hawke's Bay economy were major reasons behind the move. He told the New Zealand Herald:

We used to be Benchmark Building Supplies and we had a really strong presence here, then obviously when Bunnings came along and took over our Benchmark stores and rebranded them, we really realised we've always wanted to have a strong presence here, so this is exciting for us ... It's a great opportunity, especially on our trade side we deal with everything from orchardists, farmer to builders.

This trade centre is the big box retailer's eighth in New Zealand and the second premises in Hastings, alongside a Bunnings Warehouse on Market Street. It is 3000sqm and includes an undercover drive-through area and 25 parking spaces.

The trade centre was officially opened by former All Blacks Taine Randell and Jeff Wilson. Mr Randell said:

For Hawke's Bay, certainly the last few years have been fantastic and to have an international company like Bunnings to have the confidence to invest in Hastings is fantastic.

Over the last two years 200 commercial and industrial building approvals have been granted in Hastings, worth about NZD100 million. Another positive for the local economy has been the release of industrial land in Omahu and Irongate.

Rangiora development

A Bunnings Warehouse is also set to open in central Rangiora, New Zealand next year. The big box retailer has applied for approval to open a store in the old Countdown supermarket on the corner of Queen and Victoria Streets.

Bunnings New Zealand general manager Jacqui Coombes said the new smaller format store was expected to open in early 2018. She said:

We can confirm we have received draft resource consent for a new Bunnings store in Rangiora and are currently reviewing the conditions.

The Rangiora store will become the seventh store in the South Island. Bunnings currently has about 53 stores across New Zealand.

Hamilton South store for sale

The Bunnings Hamilton South store for sale is being marketed as a long-term investment property.

Completed in 2016, the property has a net lettable area of 11,645sqm on a 3.1ha site. It incorporates a 1796sqm garden centre, a 5187sqm main warehouse, a 2224sqm timber trade sales area, and a 1939sqm timber trade yard. It is also fully leased for 12 years to Bunnings.

Jason Seymour of Colliers International said Hamilton is experiencing strong growth as a result of New Zealand's economic success.

Construction of the Waikato Expressway, due to be completed in late 2020, is expected to cut travel times to Auckland significantly, making Hamilton much more accessible.
bigbox

Bunnings FY2017-18 Q1 results

BANZ powers ahead, BUKI remains troubled

While BANZ lifted revenue by 11.5%, BUKI saw sales fall by 17.5%

Wesfarmers has released its sales results for the first quarter of FY2017/18. Coles food and liquor saw sales of $7968 million, an increase of 1.5% over the previous corresponding period (pcp), which was first quarter FY2016/17. Sales at Coles branded convenience stores fell by 9.5% to $1402 million, giving the overall Coles group a revenue decline of -0.3%.

Kmart continued to grow revenue, producing $1361 million, up 9.0% on the pcp. Target continued its sales decline, down -6.4% to $602 million.

Bunnings continues to be a tale of two divisions, with Bunnings Australia and New Zealand (BANZ) powering ahead with growth of 11.5% on the pcp, producing revenue of $2964 million. Like-for-like store growth was 10.8%.

However, Bunnings United Kingdom and Ireland (BUKI) saw revenue decline by 17.5% to reach $457 million. Part of this decline was due to currency exchange rate fluctuations, with the decline in local currency amounting to a lower 13.8%.

BANZ

In commenting on the BANZ results, the CEO of Bunnings and managing director of BANZ, Michael Schneider, pointed out that the result was high in part because the pcp had suffered both from an abnormally wet spring, as well as competition from the closeout discounts offered by the failed Woolworths venture into home improvement big-box retail, Masters Home Improvement, in September 2016. Regardless of that, in a quarter that experienced a decline in growth for overall home improvement sales in Australia, and increased competition from the Metcash-owned Independent Hardware Group, this result represents a strong effort by BANZ.

BUKI

In response to an analyst's question, Mr Schneider mentioned that the number of like-for-like transactions for BUKI had fallen by 5% over the pcp. Commenting on this, he said in part:

It is not surprising when you think we are cycling the exit of the non-core ranges, and the clearance that Richard [Goyder] mentioned at the start, as well as cycling in the price deflation in the area of kitchens. 

UK hardware retailer Travis-Perkins reported the following results for its consumer division during the reported quarter:

Like-for-like growth in the Consumer division slowed in the third quarter to 2.4%, primarily due to more subdued growth in Wickes reflecting very strong comparatives form Q3 2016 and an increasingly difficult market environment.

Similarly, European and UK based home improvement retailer Kingfisher stated on its results for its Q3 2017 in the UK and Ireland:

Total sales +2.5%. LFL +1.5% reflecting continued strong Screwfix performance and modest price inflation.
B&Q UK & Ireland sales -2.9% (LFL -1.9%) reflecting annualisation of completed store closure programme. LFL of seasonal -7.1% reflecting a strong comparative (Q3 16/17: +5.3%). LFL of non-seasonal, including showroom -0.6%.
Screwfix sales +16.6%. LFL +10.2% driven by its leading digital capability, new and extended specialist ranges and new outlets.

It seems clear that BUKI is likely cycling not only its own discount/clearance activity, but has also been affected by a broader downwards shift in the UK and Irish consumer home improvement market.

Analysts' questions

Surprisingly for a first quarter sales release, analysts asked quite a wide range of questions, and several of these engaged with Bunnings, specifically BUKI.

The questions around BUKI really deal with three issues: will earnings from the Homebase store fleet recover in the near future; how is the transition of Homebase stores to Bunnings UK stores progressing; and has Bunnings worked out how to sell its DIY kitchens in the UK yet?

Homebase

As might be expected, it was David Errington from Merrill Lynch who led the questioning about Homebase. He directed his questions at the outgoing managing director for Wesfarmers, Richard Goyder.

Mr Errington introduced his line of questioning by laying out the situation as regards Homebase as he sees it:

The reality is that, BUKI, there is no way known, no matter what spin you put on it, that you would have been expecting to be in this current position that you are in, in a very troubled market in the UK, sitting with 250 Homebase stores that are going backwards, on my estimates, because you got out of concessions sales, I reckon your sales are running down about 20%, at least 20%, on when you first bought it.

Mr Errington went on to ask if the company is contemplating a "Plan B" exit from the UK market as costs continue to blow out.

When do you have to start considering Plan B here? The capital that is employed is in the billions [of dollars] when you are looking at the leases etc., and the only strategy is to try to get out of that rump of poor-performing Homebase stores, and to try to convert them into Bunnings stores.
...
It really is a high risk move now that is just offsetting... I mean the drop in sales in Homebase is a third of the growth in sales in Bunnings Australia

Mr Goyder agreed with some of what Mr Errington had to say.

You actually put it well, there is risk in this, and I think we have always been clear [about that]. Going to your first comment, we are not happy with the performance of the Homebase stores. We need to be really clear on that. Mike [Schneider] talked about some of the factors impacting on it, but we would certainly like them to be performing better.
...
But we are not putting any of the blame for the current performance of Homebase on the UK economy. In fact the UK economy is probably performing slightly better than we might have thought it would, a year or so ago. So, we've put good people into the business, at the same time, as you have seen today, no fall-off in the Australian business, which was always a risk.
...
We think there is an opportunity, we would like Homebase to be going better than it is. We can explain it, but that ... you know, I'm not going to spend my time saying to you and others stuff that actually doesn't matter. Kitchens, bathrooms, exiting -- all those things that you referred to, and other things. We can explain to ourselves where we are at, but we are not happy with where we are at. 

Conversion to Bunnings UK

Interleaved with Mr Goyder's comments on how Homebase is going were comments about the possibilities in the newly converted Bunnings UK stores. Commenting on the opportunity, he said:

We are actually happy with the sales performance of the converted stores, and the new store that we have opened at Folkstone, which was a former B&Q store. The thing about it, though, David, is that we have got to find opportunities to grow. We think this is an opportunity to grow. This will probably take -- well, it's not probably -- this will certainly take longer than we would have liked. But we continue to think that there is a significant opportunity for us to grow a profitable business in the UK.
The UK, actually Rob and I were there a couple of weeks ago, the UK is continuing to perform pretty well economically at the moment, though it obviously has some issues about how it deals with Brexit.
...
You know we would love to be able to prove this concept of the new Bunnings Store quickly, we want to trade them through the dark months, so that we get a full 12-months view on each of the stores, as Mike [Schneider] alluded to, we've learned a lot, he referred to lighting, there are other things that we are doing that are improving each of the stores we are opening. So we are looking at a lot of things that will potentially accelerate that without taking too much risk on the capital side of things.

Mr Schneider had answered a question before Mr Goyder's response to Mr Errington which explained more about the transition from Homebase to Bunnings UK.

The pilot stores have seen strong sales growth on the previous period. Even the longest running of the pilot stores -- in St Albans -- has only been running since February, so they are not comping yet, but the genuine growth is there.
The thing that is pleasing for me is that as we open -- we have actually opened our ninth pilot just on the edge of Wales -- as we open more the learnings and the discipline that we have taken from the first three or four pilots, in and around our support centre at Milton Keynes, has actually given another level of execution, or discipline that is giving us better results.
It is not night and day in terms of how those stores are performing. However, what we are seeing is greater consistency, and some improved performance, particularly across certain categories as we move them around the store. Lighting is a good example of that. That is giving us some good insights and good learnings, and is helping to set us up for what we want to do in the next little batch of five or six pilots that sort of roll [out] through between now and Christmas time. 

Kitchens

Mr Schneider provided some more detail on how the new flatpack kitchens were being introduced to the UK market.

On kitchens, the new flatpack offer is in all the pilot stores, and has been, as we've opened them. It was a little bit "bespoke" in order to get it in early. What we've done is a low-capital refresh of the Homebase network, we've taken existing displays and converted those to demonstrate new cabinetry and door furniture, and products like that.
The early signs are really pleasing, what we are seeing is a positive response from customers. As our team learn a little bit more about the product, and engage with the customers to sell it, they really are appreciating the value proposition.
From a launch point of view, we just wanted to make sure it was right in all the stores, and we are about at that point now. So, what consumers in the UK will see over the next little while is the sort of advertising/creative that comes to life around that, which I think will be a really good way to illustrate and highlight what the pricing architecture is, and the value proposition, and the simplicity of the product.

Analysis

HNN thinks it is important to be clear about the role that Mr Errington is currently playing in regards to Wesfarmers and its expansion into the UK and Irish markets.

The core problem that has arisen is that Bunnings did with the Homebase stores precisely what it worked hard not to do with the Bunnings conversions: it made assumptions about a market, and rushed into expensive reconfiguration without first testing the market. The only seeming alternative, running the Homebase stores pretty much as they were, just isn't Bunnings' or Wesfarmers' idea of how to run a business. It might also have done some damage to the Bunnings UK brand just when it needed to have as much support as possible.

What Mr Errington is doing, however, is really vital for corporations in this kind of situation: he is helping to define what failure looks like. The real "crunch" number, we would suggest, is one that was not overtly supplied by Bunnings: GBP619 million. That is the revenue generated by BUKI during 2016/17 fourth quarter and 2017/18 first quarter. That covers the "high season" for the UK and Ireland. Next year, if there is a first quarter revenue announcement (Wesfarmers has hinted it may end the practice) the comparative number will tell a lot about how the company is going in the UK.

In terms of kitchens, it's very difficult to judge what Bunnings is doing with these in Homebase and Bunnings UK. We would note that Kaboodle in Australia has begun to offer custom-sized kitchen cabinets cut down to order, and it seems possible such a service may be destined for the UK.

bigbox

Europe update

Like-for-like sales drop for Kingfisher

BUKI officially opened its doors in Rotherham and launching a smaller format store in Bicester

Kingfisher's Screwfix chain offsets weak B&Q sales and Bunnings United Kingdom & Ireland (BUKI) will start a small store format trial in Bicester.

Kingfisher Q3 results

European and UK big-box home improvement retail company Kingfisher has released results for its FY2017/18 third quarter. Viewed on a year-to-date (YTD) basis, the company reports overall revenues of GBP9051 million, a decline of 0.8% based on constant currency calculations, and a lift of 4.0% when exchange rates are considered, as compared to the same YTD figures from one year ago. In a like-for-like (LFL) comparison, constant currency sales revenue fell by 1.0%.

Kingfisher's third quarter itself, as compared to the previous corresponding period (pcp), which was third quarter FY2016/17, hit GBP3043 million, which was a lift of 0.3% in constant currency, and 3.0% up when exchange rates are considered (bolstered by the continuing decline of the GBP in relation to the EUR). On a LFL comparison over the pcp, constant currency sales revenue fell by 0.5%.

Overall sales for B&Q in the UK and Ireland were GBP875 million, a fall of 2.8%, while on a LFL basis in constant currency, the fall was 1.9%. Screwfix continues to surge ahead hitting GBP399 million in revue, up by 16.6%, and up 10.2% on a LFL basis in constant currency. The result for the two combined was up 2.5%, or 1.5% on a LFL basis in constant currency.

Sales in France, second in size to the UK and Ireland, came in at GBP1153 million, an increase of 0.4%. Castorama showed some improvement, while Brico Depot continued to fall.

Poland turned in a good performance, hitting GBP379 million in revenue, an increase of 11.9% on the pcp. In constant currency terms, the increase was around 6.0%.

In the press release accompanying the results announcement, the CEO of Kingfisher, Veronique Laury, was quoted as saying:

Q3 has followed a similar course to the first half. We have seen strong growth at Screwfix and Poland offset by continued weak sales in France, alongside some business disruption from our ONE Kingfisher plan, principally reflecting product availability and clearance. We continue to act on the causes of this disruption, which we are confident will ease.
We remain on track to deliver our full year strategic milestones, for the second year in a row. With plans in place to support our overall performance, we remain comfortable with full year profit expectations.

BUKI expands UK store network by two more

On 14 December 2017, Bunnings UK and Ireland (BUKI)opened a new warehouse store in the South Yorkshire town of Rotherham, which has a population of around 260,000. Located about a 20 minute drive from Sheffield, the town is much more culturally diverse than the surrounding district.

BUKI helped introduce the store to the community through charitable works, which included redecorating two bedrooms at Rotherham Hospice for families and installing shelving at Shiloh Rotherham, a drop-in centre which offers hot food, clothing and facilities for the homeless.

Bicester

Bunnings is also about to open a smaller format store in Bicester, which is located in north-eastern Oxfordshire, and equal distance between Birmingham and London. Plans have been afoot since 2014 to make the area into a "garden city", housing commuters that work in London. An estimated 13,000 new homes may be built.

This new format store will be around a third of the size of BUKI's largest warehouse in the UK so far.

bigbox

Big box update

Bunnings' ongoing store construction

Bunnings rates highest on customer satisfaction and Woollies closes the chapter on Masters

Bunnings stores continue to be built around Australia with more in the pipe line; proposed stores in Kingaroy (QLD) and Cootamundra (NSW) gain momentum; customers vote for Bunnings over Home Timber & Hardware; Bunnings Kawana has welcomed its first customers, providing competition to the nearby Kawana Hardware and Garden Centre; the site of the Bunnings Fyshwick (ACT) may have a different future; four newly-built Bunnings stores have been sold to property investors; and Woolworths has completed the sale of its shares in Masters' holding company.

Bricks and mortar builds for Bunnings

In the next few months and going into 2018, new Bunnings Warehouses will open in Devonport (TAS), Heatherbrae (NSW) and Rockhampton (QLD).

Devonport store

Bunnings general manager - property, Andrew Marks, told The Advocate the new Devonport store is expected to be open sometime in December. Construction work is almost complete at the site. He said:

Recruitment has been completed with more than 80 residents...Bunnings Devonport will cover more than 8,000sqm...The development represents an investment of over $19 million.

The Bunnings Devonport store is where the K&D Warehouse was located.

Bunnings in Port Stephens

The large, blue former Masters Home Improvement store at Heatherbrae (NSW) has begun turning green. The new Bunnings store will span more than 12,000sqm. Mr Marks said the new store was expected to open in time for Christmas.

According to real estate firm, Cushman & Wakefield, who sold the three NSW-based stores for Home Consortium - the purchaser of all 61 of the Masters sites across Australia as well as 21 development sites - the Heatherbrae Masters site sold for $12.3 million. The Heatherbrae sale included a total land holding of 45,730sqm, including two facilities: a 13,153sqm purpose built hardware retail warehouse and a 4,029sqm large format retail development with four retail tenancies.

Rockhampton opening date

Bunnings' new location at the former Masters Rockhampton site will be open to the public mid-2018. It received approval at the start of the year to move from its current location on Yaamba Road to the vacant Masters site.

This location, where Bunnings signage has recently been installed, will see the store nearby other stores such as Freddy's Fishing and Outdoors, Petstock and Autobarn. Mr Marks said:

We can confirm we have reached an agreement with the landlord to convert the former Masters Rockhampton site into a new Bunnings Warehouse. Conversion and reformatting works will occur in the coming months and the new store will span over 13,000sqm.

The Bunnings trade centre will remain in its current location.

Kingaroy, Cootamundra developments

Bunnings is a step closer to setting up shop in Kingaroy (QLD) after South Burnett Regional Council approved its development application at a recent meeting. The company will now move to square things with the state government before it breaks ground, according to the South Burnett Times.

Not surprisingly, Bunnings general manager - property, Andrew Marks welcomed the decision. He said:

We can confirm we have received development approval for a new Bunnings Warehouse in Kingaroy and will continue to work with the council throughout the planning process. The new warehouse will represent an investment of over $15 million...

In the lead-up to the vote, the council was petitioned by a group of concerned business owners who thought the development would spell doom for smaller traders. But in approving the application, planning portfolio councillor Terry Fleischfresser said a Bunnings store would complement the retail offerings in Kingaroy.

While the council is prohibited by Queensland law to consider commercial competition when approving development, Cr Fleischfresser said Bunnings would be good for the town. He said:

I've heard people say they are disappointed with us accepting a Bunnings application, however I can say every tradesperson in the South Burnett that I speak to keep asking me the same questions: are they coming and when are they going to be here?
The advantage of this business coming to town far outweighs the negatives.

https://www.southburnetttimes.com.au/news/bunnings-clears-hurdle/3266980/

Support for Cootamundra store

An extraordinary meeting of Cootamundra-Gundagai Regional Council was held to discuss a proposed Bunnings store. The location of this store is the corner of Wallendoon and Hovell Streets, opposite Thompson's Rural Supplies.

Council staff had recommended the proposed store be refused development consent, citing a number of shortcomings in the application put forward by Colin Blake. However councillors disagreed.

Absent from the meeting was Craig Stewart, who is employed by Cootamundra Mitre 10 and thus declared a non-pecuniary interest, and Leigh Bowden, who was in Sydney.

In a letter to the council, Cr Stewart declared he was in favour of new development and business in the Local Government Area.

Deputy mayor Dennis Palmer acknowledged that staff had prepared the instrument for refusal in accordance with adopted council policy and guidelines, however felt this could be varied in particular circumstances. He said:

We have been elected to look after the future of our towns and we must be proactive...

Cr Palmer said a newly developed side would be better than the current building. He also argued the car parking code could be altered subject to Traffic Committee approval. He added:

This council needs to be a 'can-do' facilitator, rather than a 'can't do' authority.

Doug Phillips held concerns the incomplete application may lead to legal ramifications for council and was the only councillor not to vote for Cr Palmer's motion. "I have no issue with the hardware store, I think it would be good competition for Mitre 10," he said, but stated the incomplete application should not have even been discussed by councillors.

Mayor Abb McAlister said that council must always be on the front foot when it comes to development before declaring his support for the hardware store.

Bunnings beats HTH on customer satisfaction

Bunnings has replaced Home Timber & Hardware (HTH) to be Australia's leading hardware store in September 2017, according to the latest rankings from Roy Morgan Research. It scored a customer satisfaction rating of 89.0%, up 0.1% from a year ago.

HTH came in second with a customer satisfaction rating of 88.6%, declining 0.4% points over the course of the year, but enough to beat out Mitre 10 in third with a customer satisfaction rating of 86.9%, down 3%.

Rounding out the hardware store "Big 4" is True Value Hardware with a customer satisfaction rating of 76.3%, down slightly on a year ago.

According to the Roy Morgan, approximately 13.1 million Australians visited a hardware store during the last three months. Michele Levine, CEO, Roy Morgan Research, said:

Bunnings is undoubtedly Australia's best known hardware store...Today's customer satisfaction results show Bunnings' impressive reputation is built on a high rate of customer satisfaction - now at a market leading 89% in September...
HTH has performed consistently well over the past few years winning the annual Roy Morgan Hardware Store Customer Satisfaction Award in four out of the last five years (2012, 2013, 2015 and 2016) although the 2017 Annual Award looks set to go down to the wire with Bunnings aiming for its first victory in the category since 2011.

Bunnings Kawana open to customers

Store manager Emily Sweet of the new Bunnings store on Kawana Way in Warana (QLD) said the team has been excited to welcome the local community to the store and celebrate with them at the grand opening event.

However Kawana Hardware and Garden Centre owner Ian Witten expects his business will take a hit with the launch of the Bunnings outlet.

Mr Witten moved to the Sunshine Coast from western New South Wales in 1998 to take over the store. One of his sons had bad asthma so he gave up farming for an entirely different career where harsh winter weather was not a problem.

In the two decades since then, he has seen a number of independent hardware stores close down in the Kawana Waters, Buderim, Caloundra and Maroochydore areas. His enterprise has survived but he expected sales would be affected by a new competitor. He told the Sunshine Coast Daily:

When Caloundra (Bunnings) opened, we really felt it and that lasted six to eight months, then it went back to normal. I think we will see a fall in sales through the Christmas period.

He said Bunnings had excellent marketing.

I don't know how we compete with it.

He said a focus on customer service and providing products outside of the Bunnings range were among his tactics.

We try and stock what they don't.

Mr Witten said he was getting some benefit from the commercial and residential expansion at Birtinya and Bokarina.

We supply the bricklayers and landscapers but a lot of it is corporate purchases. When people need maintenance on their houses later on, that is where we come along.

Bunnings Fyshwick may become train station

News that Bunnings could take up the former Masters site at Majura Park (ACT) may be the first move that could see the relocation of Canberra Railway Station to Fyshwick.

Bunnings staff at the Fyshwick store on Newcastle Street have been aware all year that they would be transferring to Majura Park in 2018. One staff member told the Riot Act the ACT Government and Bunnings had been in negotiations for some time with the aim of the Government acquiring the site to develop a new railway station.

Bunnings said in a statement that a final decision had not been made on the future of the Fyshwick site, but it was likely that it would continue to trade "in one form or another". Acting state operations manager, Robyn Hudson, said in a statement:

Team members will either relocate to the new Canberra Airport site or remain at the current Fyshwick store. We will continue to ensure our team members and the community are kept up to date with any progress on our plans.

But Bunnings did not respond to questions about whether it had been involved in any negotiations with the ACT Government.

Land between the rail line and Bunnings is vacant and being used as a makeshift car park. Combined with the Bunnings site, it could allow for a rail and bus interchange, car park and integrated mixed use development, as recommended in 2009 by the Railway Master Plan for the ACT.

Bunnings' latest stores remain outside metro areas

In recent months, Bunnings has officially opened stores in Windsor Gardens (SA), Toowoomba North (QLD), Bellambi (NSW), Bonnyrigg (NSW) and Dalby (QLD).

Windsor Gardens

The new Bunnings $47 million outlet at Windsor Gardens will be one of the largest in South Australia. Complex manager Simon Ahladas heads the team at the new store at 432 North East Road and spread over 13,000sqm. He said:

We have been a part of the local community for over 15 years.

It's the second Bunnings store in the northeast, with another established at Modbury.

Toowoomba North

Australian rugby league great Shane Webcke helped to launch the Toowoomba North Bunnings store on the site of the old foundry. The opening marks the 42nd Bunnings store to open in Queensland and the 260th warehouse to open around Australia, New Zealand and the UK.

Toowoomba's second Bunnings Warehouse is one-and-a-half times the size of the first at 18,000sqm. The big box retailer said the project represents more than $50 million worth of investment, and is expected to inject $4.7 million worth of wages from 170 jobs into the local economy in the first year of operation.

Bellambi

Former Australian international cricketer, Brett Lee officially opened the new Bunnings Bellambi Warehouse. The store presented an opportunity for a career change for team member Bianka Hoswell who grew up in Bellambi and worked as a nurse in aged care for eight years.

But she is now working in a supervisory role in the leisure and landscape section of the store. She told the Illawarra Mercury:

Their approach is beautiful. They have this whole family feel about the business. There is plenty of innovation and team development so Bunnings was very appealing to me.

And she hopes her story about changing careers will encourage others. She said:

I'm really happy to have a second family here with the team that I am working with. I am incredibly grateful.

Bonnyrigg

The new Bonnyrigg store replaces the previous warehouse located next door and was opened by Parramatta Eels rugby league legend Peter Sterling. He was joined by Bunnings Group CEO Michael Schneider, complex manager Andrew Shalala and staff.

The new Bunnings has an approximate total store size of 15,000sqm.

Dalby

Bunnings Dalby store manager, Jodie Ianna, is joined by over 25 Dalby locals who are now official team members of the new $12 million, smaller-format store. Ms Ianna has worked at Bunnings for 12 years. She told The Chronicle:

Team members have supported a number of community groups already, working with Goodstart Early Learning Centre to extend the centre's outdoor environment with a sensory garden, as well as helping to revamp the Dalby Diehards Football Club's 100-year-old grandstand.

Bunnings Dalby is located at the corner of the Warrego Highway and Eton Street in Dalby (QLD).

Four more warehouse stores sold

A portfolio of four newly-built Bunnings hardware stores have been sold to CBRE Global Investors in a transaction worth $180 million with yields in the five per cent range.

The hardware chain has offloaded stores in Windsor Gardens (SA), the Auckland suburb of New Lynn in New Zealand and the Sydney suburbs of Caringbah and Bonnyrigg. All four sold with 12-year leases in place to Bunnings.

CBRE Global Investors said that all four freehold assets are located in metropolitan areas on arterial roads. Factors expected to drive growth in these markets include household disposable income, renovation activity, housing churn, value and formation, weather, lifestyle and demographic trends, government activity and technology.

Bunnings' general manager - property, Andrew Marks said the sale was consistent with the group's long-term strategy of diversifying its investor base and recycling capital on lease terms that provide it operational flexibility. He told Fairfax Media:

We are pleased to have completed another successful sale at a yield that is reflective of the market and on lease terms that take into account our operational objectives.

CBRE Global Investors director Chris Johnston said the group intended to work with Bunnings on future transactions for similar assets. He said:

This portfolio provides exposure to a strong credit tenant who is a leading retailer in the home improvement market with quality assets and attractive lease terms.

Woolworths makes final exit from Masters

Woolworths has finally extricated itself from its failed Masters hardware venture by completing the sale of its store sites.

The supermarket giant said it has completed the sale of Hydrox - the joint venture company it set up with US firm Lowe's to run Masters - to the privately owned Home Investment Consortium for a headline sale price of $525 million.

Home Consortium plans to convert the Masters stores into large format retail centres featuring outlets including Spotlight, Anaconda, Chemist Warehouse, JB Hi-Fi and The Good Guys.

Lowe's handed over its 33.3% stake in Hydrox to Woolworths in August, in line with federal court proceedings, allowing the local retail giant to make the final step in selling the former Masters stores.

Woolworths previously said the capital losses associated with the sale of Hydrox were about $1.8 billion.

The sale to Home Consortium includes 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites.

bigbox

Big box update

Calls to turn down Bunnings Kingaroy

Former Masters site in Heatherbrae is just one of several to turn into Bunnings stores

A number of local business are petitioning the South Burnett Regional Council to reject Bunnings' application to build a store in Kingaroy; the ex-Masters Heatherbrae store in NSW will become a Bunnings Warehouse; the Burnie-based Bunnings store in Tasmania has been purchased by Charter Hall; and Bunnings Bonnyrigg is re-opening on the site next door.

Objections to Bunnings in Kingaroy

Mitre 10 owner, Metcash claims Bunnings has not adequately addressed negative impacts on local employment for its proposed Kingaroy (QLD) store. A spokesman said the impact of the proposal on employment and the economy in an area was a relevant matter to be taken into account by the South Burnett Regional Council. He told the South Burnett Times:

We believe council should require Bunnings to undertake a proper retail impact assessment, with a focus on job impacts, or alternatively the size of the proposal should be significantly reduced.
Industry experience at Mitre 10 is that a Bunnings store of the size proposed in a town the size of Kingaroy will lead to a reduction in competition, not add to it.

Bunnings submitted a development application to the South Burnett Regional Council in June. The total retail space of the proposed store, to be situated on the corner of Walter Road and the D'Aguilar Highway, would be about 7597sqm.

Bunnings said the Kingaroy store would provide a "number of key benefits" to the community. General manager - property, Andrew Marks said the store would bring millions of dollars of investment and new jobs.

If approved, the new warehouse will represent an investment of over $15 million and would create over 60 new jobs and an additional 130 jobs during construction...

Locals organising to reject Bunnings

Besides Mitre 10's concerns, several South Burnett businesses have joined forces to lodge objections to the planned Bunnings Kingaroy store.

Business owners told southburnett.com.au the planned store is too large and reject claims by Bunnings that it will create 60 jobs. Instead, they believe the store will create fewer than 25 jobs and say this will be offset by the loss of a much larger number of jobs in Kingaroy and other South Burnett towns.

A letter to Council also questions Bunnings' job creation claims. The letter has been written by a hardware chain employee who formerly worked for Bunnings in operational roles from 2010 to 2014. It states:

When a Bunnings store first opens, more staff are employed than required for the long-term operation of the store. In the first four weeks of a Bunnings store opening, the store will be over-staffed. The staff numbers will then be thinned out to operate the store within a tight wage budget.
Generally speaking, staff numbers will be reduced by between 30-40% during this time. The staff jobs that are removed are mainly the staff serving on the floor, working on the registers, or filling stock.
Although Bunnings have claimed this new store in Kingaroy will be providing 60 jobs, I know in reality the long term number for a 7600sqm Bunnings store is closer to 35-40 people, which is really between 20-25 full-time equivalents (FTEs).
Anything more than 25 FTEs would make the store unviable in my experience, having been part of the operational budget setting for Bunnings stores.
The management team for all new Bunnings' stores will be current employees brought in from other stores. This includes the complex manager, the operations manager and three department managers.
A 7600sqm Bunnings store also requires a significant level of sales to be viable. In my experience, a store of this size needs to have an annual turnover of at least $15 million, and total hardware turnover across the South Burnett is less than $15 million now.
I am concerned about the effect this very large hardware store will have on other local businesses in Kingaroy and the surrounding areas. When $15 million of trade is taken from local businesses, they will reduce their staff numbers dramatically. Some of those local businesses will close altogether. The net result will be fewer jobs in Kingaroy and the surrounding areas.
The Council can confirm all the above statistics by requiring Bunnings to provide it. Bunnings will have already prepared modelling for the operation of this new store, which will include staffing and sales projections.
If Bunnings is not prepared to provide this data publicly, the Council should not be prepared to approve this application. I am certain this application will reduce jobs and be the nail in the coffin for many small businesses in the Kingaroy region.

Size matters

A number of South Burnett store owners are also circulating a petition calling for South Burnett Regional Council to reject the large-format store claiming the proposed size would push smaller retailers out of business and lead to underemployment.

Other business people have pointed out the impact of a Bunnings store would be felt more widely than just general hardware sales. Retailers selling anything from floor covering to paint and garden tools would also be affected, and so would non-competing retailers when they were hit by the loss of local jobs.

Earl's Paints manager Mark Petrakis said he backed the petition and it was likely he could lose at least one staff member if a Bunnings of the proposed size was built. He told the South Burnett Times:

By all means Bunnings should come to Kingaroy, we're not saying no, but does it need to be a store the size of the Toowoomba?

South Burnett Mayor Keith Campbell said the council did not take commercial competition into account when assessing development applications.

The potential impact of the Bunnings store on retail competitors is not a relevant planning matter to consider by Council and existing case law confirms that Council may not consider trade objections in its decision making.
There will be positive wider economic benefits of the proposal in that it will attract more people to Kingaroy that are currently travelling to Dalby and Toowoomba to visit a Bunnings store.

The Murgon Business and Development Association and the Nanango Tourism and Development Association circulated a form Letter Of Objection and copies of a petition opposing the Bunnings project to their members. Some members of the Kingaroy Chamber Of Commerce and Industry also circulated the documents.

Objections to the development application closed on September 13.

Ex-Masters Heatherbrae turns into Bunnings

Heatherbrae's former Masters store will become a Bunnings Warehouse. The big box retailer confirmed to The Newcastle Herald it had reached an agreement with the land owner to convert the site into a Bunnings Warehouse.

Bunnings general manager - property Andrew Marks said the new store was expected to open later this year.

Conversion and reformatting works will commence in the coming weeks and the new store will span over 12,000 square metres...

This change over has come about as property fund Charter Hall Group took control of six former Masters stores worth about $180 million recently. According to a report in the Sydney Morning Herald, these properties are located in Western Australia, NSW and Queensland.

The former Masters stores bought by Charter Hall were sold with long-term leases in place to Bunnings. Large-format retail leases typically stretch to 20 years with several options to renew.

Bunnings has initiated development plans that will allow it to reformat the Masters sites to suit its retail offering.

Bunnings Burnie store

Charter Hall purchased another Bunnings-leased property in Burnie, Tasmania for $21 million.

The 3.04-hectare site has a 12,254sqm Bunnings store, providing a net income of approximately $1,285,085 per annum. The current 12-year net lease will expire in 2026 with options through to 2056. The Bunnings site also has annual fixed rent increases of 3%.

Charter Hall's chief investment officer Sean McMahon told the Sydney Morning Herald:

The Burnie property is strategically located in a land constrained, core location with no direct competition providing an ideal long-term facility for Bunnings.

The Burnie site is located at 1-5 Reeves Street, in a major regional centre and has the state's busiest port. This warehouse was constructed in 2014.

The site will be the first property to underpin Charter Hall's Direct Diversified Consumer Staples Fund (DCSF). The company is understood to have earmarked several more assets for the fund, which is targeted at giving investors exposure to retailers on long-term leases.

Related:

Big box update: Bunnings expansion through Masters sites - HNN

Bunnings Bonnyrigg moves to site next door

The Bunnings store in Bonnyrigg (NSW) will make way for a new $40 million facility, next door. The new store will replace the existing one.

The brand new Bunnings Warehouse will have an approximate total size of 15,000sqm as well as the main warehouse that will stock a larger range. All current staff members will transfer to the latest store and will be joined by 40 additional team members to take the total team to more than 150. Bunnings Bonnyrigg complex manager, Andrew Shalala told the Fairfield Champion:

Team members have supported a number of community groups already, working together to assist in local community projects including renovating the kitchen at Bonnyrigg Police Citizens Youth Club and planting garden beds at the Cerebral Palsy Alliance.

The new Bunnings Warehouse Bonnyrigg is located at 1-9 Bonnyrigg Avenue, Bonnyrigg (NSW).

Related:

Big box update: Bunnings building at Bonnyrigg - HNN
bigbox

USA update

Home Depot teams up with Google

Lowe's creates Instagram "microvideos" and increasing the shifts of its customer-facing staff

Home improvement big box retailer, Home Depot is joining Google Express, a move that will give its customers the ability to shop just by speaking their orders; Lowe's latest social media campaign uses Instagram Stories; and Lowe's plans to hire more customer-facing store workers after its latest earnings disappoint.

Home Depot gets into voice shopping

Home Depot said it would start selling its products online by means of voice commands customers give to Google Home devices and via the Google Express website and mobile app.

By adding Google Assistant to the mix, customers will be able to shop via voice on Google Home devices, or the Google Express website or app.

The new option expands Home Depot's omnichannel strategy, which currently encompasses 2,282 store locations and a digital endless aisle available online and through mobile devices. The retailer's online president and chief marketing officer Kevin Hofmann said:

We're focused on delivering convenience and value as we continue to invest in best-in-class interconnected experiences for our customers. Google has been a key strategic partner for us over many years, and we're excited to take our relationship to the next level with the Google Assistant and Google Express.

The move also takes direct aim at Amazon and its Alexa voice-controlled device - especially as the online giant continues to steal more wallet share from the tools and home improvement category.

Despite its success, the big box home improvement retailer cannot fall behind in a growing tool people are using to shop. According to an eMarketer report earlier this year, some 35.6 million Americans will use internet-connected devices to carry out a voice-direct task at least once a month this year, more than double the number in 2016.

An Insta-friendly campaign for DIY projects

Lowe's has launched an Instagram Stories campaign showing DIYers how to redecorate a vertical room through a mobile-friendly, full-screen video. The retailer recently unveiled the first "story" of the campaign, which includes 64 microvideos that total a combined 35 seconds.

Lowe's partnered with the ad agency BBDO New York to create the Instagram campaign. The campaign was born out of the annual Facebook Creative Hackathon, and is designed to take an engaging, light-hearted approach to project videos, while showing how consumers can quickly change a small space into a more functional area. Derrick Wood, vice president of brand, content and advertising at Lowe's told Retail TouchPoints:

There is great opportunity to get creative when reaching DIYers about projects. This campaign taps the narrow spaces of Instagram Stories as a platform to show transformations in micro spaces - using the exact ratios of Instagram Stories to flip an alcove to a kid's nook, a pantry to a coffee bar, and a closet to a bike storage.

When filming the microvideos, Lowe's considered that many Instagram users are prone to skipping through stories. The teams decided to upload multiple still frames as microvideo clips to do the skipping for them. Mr Wood explains:

These clips are short, and each will immediately skip to the next, creating a flip book effect of the room being transformed. The simplicity of each project is matched by a quick swipe to more detailed instructions and to easily purchase the supplies needed to complete it.

On the final frame of the stories, there are prompts for users to swipe up, which directs them to a mobile-optimised experience with how-to instructions and all the items from the project the user has just seen.

"This campaign highlights the creative potential that Instagram Stories can hold for brands," said Kay Hsu, Global Instagram Lead at Facebook Creative Shop.

Lowe's cleverly leverages the full screen vertical format to demonstrate how narrow spaces can be easily transformed with a smart hack. The brand shows a deep understanding of Instagram Stories and how audiences interact with the format - automatically skipping ahead before the viewer even had a chance to do it themselves. The result? Lowe's transforms boring, tight spaces into beautiful rooms that are Instagram-worthy.

Lowe's longer shifts for workers

Lowe's is increasing hours for store workers to improve customer service. This follows the US home improvement retailer's second quarter sales and profits results that were below what Wall Street was expecting. CEO Robert Niblock said in a statement:

While our results were below our expectations in the first half of this year, the team remains focused on making the necessary investments to improve the customer experience. This includes amplifying our consumer messaging and incremental customer-facing hours in our stores.

That probably means sacrificing some profit.

For a chain like Lowe's, store workers are a key tool for making the case a shopper should buy there rather than on Amazon.com. Advice for a big project is not what Amazon can offer, but it is a major selling point for the likes of Home Depot and Lowe's.

Spending on home improvements in the US is also set to continue for a while, meaning Lowe's needs to take fuller advantage of this tailwind.

Lowe's hopes to ride the wave of stronger shopper traffic with the investment in store-level workers - with a primary focus on weekends and peak traffic times during weekdays, the company said. Mr Niblock said in a call with analysts:

We've said all along that productivity is not just about cutting costs. It's about investing in areas that matter most to the customer.

Lowe's has also restructured other parts of the company, including layoffs of over 120 corporate tech workers recently.

bigbox

Bunnings-Wesfarmers results FY2016-17

Bunnings Australia grows

Bunnings Australia and New Zealand has surged ahead, but has been held back by a poor performance at Bunnings UK and Ireland

The headline element in the full-year results for Australian big-box home improvement retailer Bunnings is its return on capital (RoC) ratio. For its Australian operations, this hit 41.8%, the highest it has been in eight years.

Masters Home improvement, the failed effort by Woolworths to compete with Bunnings, finally exited the market in December 2016. In 2017 Bunnings' heavy investment in expanding its network is tailing off, and some operational expenses, such as staff hours, have moderated.

For Bunnings as a whole, however, including its UK-based operations, RoC came in at just 30.3%, the lowest it has been since 2014. Those overseas operations lost $89 million, despite considerable investment in refurbishing Homebase, the retail operations Wesfarmers acquired from the UK's Home Retail Group.

The concern among investment analysts is that, in the wake of Masters' exit, Wesfarmers has conjured up an equivalent problem through an uncharacteristically poorly disciplined and hastily executed entry into the UK market. With conglomerate parent Wesfarmers facing the handover to a new CEO in November 2017 - one with banking experience, but no retail experience - there is a question if the loss-making BUKI operations can be restored over the year to come.

Wesfarmers

Meanwhile, Wesfarmers has produced what it describes as a "record level of earnings" for its FY2016/17. In results released on 17 August 2017, the company reported sales were $68,444 million, up by 3.7% on the previous corresponding period (pcp), which was FY2015/16.

Earnings before interest and taxation (EBIT) were $4402 million, up by 27.2% on the pcp. Net profit after taxes for the year was $2,873 million. This represents as increase of 27.6% on the pcp, if write-offs of $1844 million are excluded from the pcp results. (The FY2015/16 write-offs related to a revaluation of the company's Target retail operations and other assets.)

In comments reported in the Wesfarmers results news release, Mr Goyder stated:

The results achieved during the year demonstrated the strength of the Group's conglomerate structure, as well as our focus on cash generation and capital efficiency. A strong recovery in the performance of the Industrials division reflected higher earnings across all three business units, and was driven in particular by higher coal prices and increased coal production in the Resources business. Retail earnings were also above the prior year, supported by continued strong momentum in Bunnings Australia and New Zealand (BANZ), Kmart and Officeworks.

Coles overall saw revenue fall by 0.1%, with EBIT declining by 13.5% on the pcp. Its food and liquor business had returned a lift in revenue of 1.6%, but the convenience area recorded a loss in revenue of 8.2% compared to the pcp.

Kmart saw revenue lift by 7.5% on the pcp, with EBIT gaining by 17.7%. Target's sales fell by 14.6% on the pcp, while EBIT remained negative overall, but was positive by $3 million, with the omission of significant items. Meanwhile, Officeworks saw revenue lift by 6.1% on the pcp, with EBIT climbing by 7.5%.

In Resources, revenue increased from $1008 million in the pcp to $1746 million in the reported year, a lift of 73.2%. EBIT was $405 million, up from a loss of $310 million in the pcp.

Bunnings

Bunnings now operates in two divisions, Bunnings Australia and New Zealand (BANZ), and Bunnings United Kingdom and Ireland (BUKI). Michael Schneider is the overall CEO of the combined Bunnings, and also managing director of BANZ. Peter (PJ) Davis is the managing director of BUKI.

BANZ revenue came in at $11,514 million, up by 8.9% on the pcp, while EBIT was $1334 million, up 10% over the pcp. Total store sales growth was 8.9%, while store-on-store (comp) sales were 7.3%. BANZ delivered a return on capital (RoC) of 41.8%, up from 36.6% in the pcp.

The company noted that results for the fourth quarter of 2016/17 were particularly strong, with total sales up by 11.4%, total store sales up 11.7% and store-on-store sales up by 10.4%, as compared to the fourth quarter of 2015/16. During the reporting year, Bunnings opened 18 new trading locations in total, consisting of nine warehouses, eight small stores, and one trade centre.

BUKI reported revenue of $2072 million (GBP1229 million). This generated a loss of $89 million (GBP54 million). The company reports that for the fourth quarter of 2016/17 total sales decreased by 6.8%, with store-on-store (comp) sales down by 4.3%, as compared to fourth quarter 2015/16. However, transaction numbers for the quarter were up by 3.2%.

BUKI opened four Bunnings Warehouse stores during the reporting period, three in East England and one in South England. The company also closed nine Homebase stores, reducing the network size to 251.

Total revenue for Bunnings was $13,586 million, up by 17.4% on the pcp. EBIT was $1245 million, up by 2.6% on the pcp. The overall home improvement operations delivered a RoC of 30.3%, down from 33.7% in the pcp.

Comments

In his overall remarks on the company's performance, Mr Goyder stated:

Bunnings in Australia and New Zealand recorded strong earnings growth of 10% after expensing a number of matters relating to the store network. Homebase's trading performance in the UK and Ireland was affected by the pace of repositioning the business. Pleasingly, the four Bunnings pilot stores opened during the year have been trading well as has the fifth, just recently opened.
We continue to be excited about the opportunity in the UK and Ireland, albeit trading in the Homebase stores is weaker than we would like. We are strengthening the team and working hard to make this a good investment over time.

BANZ

In his comments on BANZ, Mr Schneider began by highlighting the retailer's progress in light trade sales:

Sales growth was strong in both our consumer and commercial segments, with very strong performance among our light commercial segments, reflecting the good work that's gone into product innovation and offerings relevant to the various trade segments we serve as well as improved pricing in digital engagement.

The subject of trade sales came up later in his remarks as well:

Our engagement of light trades as well as deeper relationships with larger builders ensures we're well-positioned to meet the needs of this sector of the market.

Mr Schneider also highlighted some of the extensive work that has been undertaken to significantly upgrade the existing store network:

The images on the bottom of this slide show the demolition work underway at Caringbah and an illustration of our new warehouse, which gives a sense of the scale of these sort of projects. As we continue to develop our network, it's likely that similar scale developments will become a feature of our network planning.

In the formal accounting documents accompanying Wesfarmers 4e report, it was mentioned that one negative offset to the good earnings growth was:

...higher store closure provisions within BANZ's trading results, arising from the agreement with Home Consortium for new sites, together with additional writedowns in the second half related to future network changes and in-store display assets.
Further investment in store upgrades and category refresh works was supported by a disciplined capital expenditure program.

In his remarks, Mr Schneider also said:

Of note is our expectation that we'll be able to finalise our lease arrangements with the Home Consortium later this year, which will enable us to develop the remaining Masters sites that we've indicated we'll move into during the second half. This will also see an increase in capital expenditure this year.

The formal documents stated:

Access to the majority of the former Masters sites remains dependent on the outcome of the valuation process between the two joint venture partners. In the meantime, agreements have been reached with landlords of two stores and conversions are well progressed.

Taken together, these remarks may indicate two things. The first is that Bunnings' expansion plans for the near future may be more concentrated on improving its existing store network, rather than in further geographic expansion. It is possible that, having had the opportunity to examine the higher amenity warehouse stores that Masters built, it may incorporate many of those features into its own future builds. That benefits consumer, of course, but it also benefits Bunnings staff. (Some of the older warehouses are not pleasant places to work in at the dead of winter or the height of summer.)

Secondly, there may also be a hint here that Bunnings is increasing its efforts in the trade area to some extent. With some of the turmoil generated by the acquisition of the Home Timber and Hardware Group by Metcash, and some significant independent hardware store closures over the past six months, Bunnings may see room for expansion.

Of course, it is also necessary to issue the usual Bunnings warnings: objects that appear in the mirror of the results announcement may be obscuring other strategies directly behind them. For example, Mr Schneider made no mention of a pending deal with GWA Group.

This was mentioned in that company's results announcement by its CEO, Tim Salt:

Finally, an area where we haven't been as focused and we're starting to wake up to the opportunity, is in assisted living, which some people call age care, but that's an area that Bunnings are certainly themselves looking to drive harder and we're partnering with them very strongly now to create growth opportunities both for us and for them in that space.

BUKI

It is hardly surprising that BUKI attracted a good deal of attention from analysts. Mr Schneider laid out a staunch defence of its operations and future prospects. He began by outlining those areas where BUKI had suffered setbacks:

Trading during the year was impacted by price deflation following the introduction of Every Day Low Pricing across the Homebase business as well as lower volumes of high-value kitchen and bathroom sales as those categories were significantly repositioned away from an installation and in-home services model.

He went on to outline what BUKI was doing to mitigate these problems:

Our new range of kitchens is now in all pilot stores. A refresh and relaunch of this offer across the Homebase network is now underway. Whilst we are pleased with the new offer, we are conscious it will take some time to get traction with customers as they have become very used to a promotion-driven installation model across the market.

Expansion plans, according to Mr Schneider, include up to 20 Bunnings stores in the UK by the end of calendar 2017.

Our aim is to end this calendar year with between 15 and 20 Bunnings stores open or near completion. These will give us some important benchmarks to trading patterns and customer participation across the northern winter. As we've always said, further investment is predicated on successful pilots. Proof of concept is a very big area of focus for the business in the year ahead.

He concluded by admitting to the difficulties BUKI faces, but reiterated that this is a long-term project.

I expect trading to remain challenging for Homebase at least in the short-term as customers continue to adjust to the new offer. In addition, until we reach sufficient scale with the roll out of the Bunnings format, business performance will continue to be negatively affected by disproportionate non-operating costs and disruptions associated with the new store openings. As I said before, this is a significant long-term transformation project and PJ [Davis], the team and I are committed to driving the agenda hard in the year ahead.

Respected analyst David Errington of Merrill Lynch picked up on some of these points in his questions:

On BUKI, one of the most concerning things I've heard on this call was Mike saying that you're trying to convert UK customers to a non-promotional offer.
Now you've lost a lot of money in this business this year. You lost - the biggest trading period, you've lost nearly $30 million, and that's your best trading period. And you're going to try to convert a market. Now most of us who have covered whether it be wine companies or the UK retail is the whole UK market is a promotional market, that's what the UK customers are based - that's what they deal on, whether it's BOGOFs [buy one get one free] or whatever it might be.
You're going to try to convert the market to being non-promotional. That, to me, is a real worry, and I'd like to hear why you think that strategy is going to be successful going forward.

Mr Schneider responded to this criticism by saying in part:

We're seeing from the first five pilot stores that have been opened that when you're really clear on what EDLP is and you really strive to create breathtaking value for customers, they trust it and they shop with the store. So we're seeing that in the transaction sales [going] up ... in the pilot stores.

He went on to agree that EDLP was "no silver bullet", but said this was only part of the developments at BUKI:

The other thing that we've got is a whole lot of work happening now around different types of marketing collateral, both traditional and digital, to engage customers in the Homebase business. It's going to be a long slog, but certainly from what we're seeing in the way we've established the Bunnings pilots that they're performing well on an EDLP basis.

Mr Errington responded with an acute point:

But what's the worry, Mike, [is] that the Homebase stores, which is the bulk of the priority - the 260 Homebase stores that you're converting to being non-promotional. What's the risk that they turn into a real disaster?

Mr Schneider agreed that there was a risk, but sees it as being offset:

Well, I guess there is a risk. I think the challenge that the team have got in front of them and the work that we're doing is all about positioning the stores as a core home improvement and garden offer, and that's one of the big things that's sort of underestimated, I guess, in seeing the transition... It will take time for customers, irrespective of the pricing framework, to actually understand what those stores are there for, because that market's grown up with that business being something different.

Analysis

For what was a relatively tough year through at least three of its quarters, the results from BANZ are quite good. Not only did weather play a role in decreasing sales, but there was also, nearly a year ago, a high level of discount sales activity coming from the closing Masters stores.

If there remains an open question around Bunnings' future, it involves the company's commitment to digital, online engagement. While there has been something of a dismissal in the past of the potential effect the entry of Amazon could have on the home improvement industry in Australia, it is worth noting that analysts this year have been sounding a note of caution about home improvement retailers The Home Depot and Lowe's Companies as regards competition coming from the biggest online retailer in the world.

This has been partly fuelled by Amazon's move into selling larger home appliances sourced from Sears, but the greater point is that much of what Amazon currently stocks can suck sales away from home improvement: flashlights, lighting, batteries, light globes and so forth. Certainly, Amazon is better established in the US, but The Home Depot is headed for 2017 sales of USD100 billion and EBIT close to USD15.5 billion, yet is regarded as vulnerable.

However, what has really drawn most analysts' attention is the activity at BUKI, whose success or failure could have consequences for what BANZ does here in Australia. To understand why analysts are so concerned, and why the investment in BUKI - only 8% of total Wesfarmers capital, according to incoming CEO Rob Scott - is seen as so critical, it's a good idea to look at how the different Wesfarmers interact, and how this plays into Wesfarmers' competition with its main rival, Woolworths.

Segment overview

Understanding the interplay between the different activities at Wesfarmers is of particular importance at the moment, as Mr Goyder is set to be replaced by the person who has managed Wesfarmers' industrials segment, Mr Scott, at the company's annual general meeting in November 2017.

Speaking to a gathering at the Melbourne Business School in May 2017, Mr Goyder said:

I don't worry too much about legacy. I'll walk to the next challenge. Rob [Scott] will change things, and he should change things.

Mr Goyder went into particular detail about the importance of the Wesfarmers board:

I was lucky. I always had a board that was patient. When I started at Wesfarmers, the board were all farmers, and now I think I'm the only farmer. There's a culture of being patient.

This comment is notable, as some analysts have suggested Mr Scott could be overly influenced by the current chairman of the Wesfarmers' board, Michael Chaney. Mr Chaney was managing director of Wesfarmers immediately prior to Mr Goyder, and he was the primary instigator of setting up Bunnings, modelled on the US home improvement big box operator Home Depot.

There are two areas at Wesfarmers Mr Scott will need to consider seriously. The first is exactly how a conglomerate such as Wesfarmers can function most profitably in the modern era. To what extent does each business division remain in its own operational silo, and to what extent are resources shared?

The second is how the company manages its ongoing competition with Woolworths. At the moment the two companies are locked together in a duopolistic struggle over several retail markets - groceries, liquor and discount fashion - while, external to this struggle, the overall retail market continues to fragment, due to the entry of overseas competitors, and increased online competition.

These two areas interact in interesting ways. In fact, if you wanted a tagline for this year's annual results from Wesfarmers it might well be "Grant O'Brien got one thing right". That one thing that Mr O'Brien - former Woolworths CEO and author of its disastrous rollout of Masters Home Improvement - got right was that Bunnings posed a direct threat to Woolworths' grocery business.

This year, sales for Woolworths supermarkets in Australia rose by 4.5%, while EBIT fell by 2.4%. Coles, as mentioned above, saw EBIT decline by 13.5%. However, this represents less of a "winning" or "losing" situation, and is more an indication of how aggressive each retailer has become. As the managing director of Coles, John Durkam, put it in his remarks to analysts:

We saw significant investment from our competitors, combined with a subdued consumer market. In response to these conditions, we took the deliberate decision to use FY 2017 to invest in the long-term sustainable growth of the Coles business.

Wesfarmers can accept that kind of decline in Coles earnings as an investment in lower prices and gains in market share, because it has higher overall earnings, and more diversified depth, than Woolworths. Bunnings is an important contributor to that.

It is also worth remembering just exactly how badly Masters and the mismanagement of its grocery business has affected Woolworths. Woolworths' market cap in 2007 was about $33.3 billion, while Wesfarmers at that time was at $17.7 billion. Allowing for inflation, that would translate into over $40 billion for Woolworths in today's dollars, and $22 billion for Wesfarmers. Today, Woolworths is still at around $33 billion, and Wesfarmers is around $48 billion.

It's not really possible to make a straight comparison on a market cap basis over time (due to acquisitions and divestments, in part), but this does give something of a picture of what Woolworths has lost.

This does not mean, however, that Wesfarmers has "won", or even that it is currently winning. Woolworths remains a strong competitor. The current CEO of Woolworths, Brad Banducci, appointed 18 months ago to the role, has managed to move its grocery business in a positive direction. In discount fashion, Woolworths' Big W retailer remains a disaster, and last year, through a major writedown, Wesfarmers acknowledged its failure with Target. Both operations could not be sold in the current market, and neither company can shut down its fashion retailer, as this would instantly hand an advantage to their competitor.

The key strategy for Wesfarmers is to continue to fight what has become a war of attrition, between two competitors which are good at customer retention, but less good at increasing market share. Woolworths, in contrast, simply must innovate, potentially through increasing vertical integration in fresh food. That comes at the cost, though, of a higher risk profile.

In this context, for some analysts Wesfarmers' investment in BUKI is similar to seeing a long-distance runner sign up for a 400 metre sprint right before the main race. It's a distraction, requires capital, and has an uncertain outcome.

BUKI

Wesfarmers' own point of view is quite different. Far from being a possibly destabilising development, the BUKI expansion is seen as potentially providing a form of longer-term stability.

The expansion of the Bunnings store network in Australia in response to the launch of Masters was definitely an excellent strategic move, but it did open the company up to further risk in the event of a downturn.

That is because, once a store network has expanded, there is no simple way to diminish that exposure. While the housing market currently continues to perform well, there is little doubt that at sometime in the next decade the market will contract, ceasing to grow at its current accelerated rate. By expanding overseas to the UK and Ireland, Bunnings is gaining entry to an economy that is associated with the Australian economy in only a minor way. In the event of a downturn, it could provide a much-needed continuation of growth.

It is also a matter of timing: if Wesfarmers is to expand overseas, then late 2016 was a once-in-a-decade (at best) event. With Bunnings coming directly off a five-year campaign to reduce the impact of Masters, it was over-staffed with highly competent executives at the peak of their game, and teams existed which were used to working on aggressive expansionary tactics.

That said, there is little doubt that Bunnings did underestimate the depth of the task BUKI represented. One part of that was that Homebase turned out to be, operationally for Bunnings, in worse shape than thought. The more important aspect, though, was that Bunnings did not understand how difficult making the necessary adjustments to a different culture, and a different market position, would be.

Kitchens

The place where the need for this kind of adjustment has become clear was revealed by Mr Davis during a site visit by investment analysts to Bunnings UK in mid-March 2017. In a tense question and answer sessions with Mr Errington, Mr Davis admitted that sales in the kitchens and bathrooms had not performed as expected. In part Mr Davis said:

To be fair we didn't expect to lose the volumes in kitchen and bathrooms that we did. All right. So some of the strategic moves and the repositioning of the business have had impacts that we didn't project into the future. But we are reestablishing that right now.
...
Well kitchen and bath [originally] consisted of] five brands. Some of it is produced in Germany, some of it is produced by one of our key competitors in this market. Three of the brands have not come across from HRG [Home Retail Group, former UK owner of Homebase].
So we are going through a major transition in relation to kitchen and bath. Key principles are that we do not want to support one of our major competitors, in manufacturing, key principles are that we want a simple execution. We have closed installation down because we don't believe that it is key. We believe that, people will tell you can't sell kitchen and bathrooms unless you install them. We'll go talk to some other big players in the world that don't install kitchen and bath, including ourselves in Australia.

Mr Errington then asked:

But what about in the UK. Do they expect you to install in the UK?

Mr Davis replied:

But we had already had a large proportion of our business in this market that is not installed. What we want to do is to grow the non-installed part so that... Some of the issues we had were in remedials. So after a kitchen or bathroom is installed in someone's house, prior to us owning the business, we would've had to go back and repair it, and there are a lot of costs associated and a large team that were going back and fixing kitchens and bathrooms.

It would seem that BUKI's solution to the kitchen problem has been to get its Australian supplier, Kaboodle, to design kitchens it thinks are suitable for the DIY UK and Irish markets, with a slight rebranding to "Kit+Kaboodle". Marketing for these kitchens has been launched in a brochure and on the Homebase website.

As far as HNN can tell by looking at the illustrations, these seem as serviceable as any Kaboodle kitchen. The brochure goes to great lengths to assert the quality of the products, including a 10-year warranty, and a "lifetime advantage" extension of the warranty for customers who install kitchens in their principal place of residence.

The parts of the brochure that deal with the mechanics of kitchen selection and installation are well done as well, following the pattern of Kaboodle's Australian marketing.

However, much of the actual front-of-book display marketing is much less successful. This begins with a rather odd naming system. Two styles of kitchen are offered, classic and contemporary. The names for the classic styles are: steamer, roaster, griddle, poacher and baker. The names for the contemporary styles are glaze, simmer and miller.

The copy used to describe these kitchens seems less than entirely professional. This begins with the airy paragraph:

So, we found a way that families can save and still enjoy designer styling with high-end kitchen features. Imagine a kitchen designed by you, that comes in a box and is easily put together. The results? Take a look through our brochure and see for yourself!

Not great, but not awful. The actual descriptions of the kitchens are less successful.

For the "steamer" kitchen:

Steam up a new kitchen in your space with my solid timber doors! Our Shaker style doors come in natural oak and two painted finishes - just in case you want to tone me down. My classic style is adaptable to suit both traditional and modern style kitchens.

For the "griddle" kitchen:

Try using my light blue country styled doors in your kitchen for a modern take on traditional. My retro farmhouse look is sure to steal glances and will bring your space to life. You'll be able to cook up a storm in no time!

For the "poacher" kitchen:

I am country, classy and everything in between! My poached cream doors with stylish grooves are an everlasting look that won't date your space. I work wonders with a timber worktop and plenty of natural light.

("Poached cream", as far as HNN can tell, is a form of Polish moulded custard.)

Leaving aside the pronoun confusion in the first example, this copy seems to be emulating the text of a first-year reading primer. The marketing merit of conversationally inclined kitchen cabinets is somewhat questionable. It is not an approach that shows an effective track record elsewhere.

The contrast with kitchens offered by B&Q is quite strong. Cooke & Lewis Carisbrooke, Santini, Stonefield, Sandford, Chilton, and Cooke & Lewis Appleby are names of kitchens offered by B&Q. The description of the Chilton White Country Style kitchen reads:

Our Chilton White Country Style kitchen is tastefully traditional with modern updates for that easy, laid-back atmosphere. White units on white walls are a trend-led feature, anchored by a darker statement worktop, completing the look.

That is professional copy. Equally, the kitchen images from Kaboodle are adequate, but the images used by B&Q to promote its kitchens, to an existing, well-established market, are more professional, showing people in the kitchens, and adding key background elements.

As HNN has mentioned above, Kaboodle is generally a competent company when it comes to marketing, making a little go a long way. What seems to be happening in this case is that the company is being called on to manage a very difficult task - essentially the introduction of a new category of kitchen to a part of the market unfamiliar with the product - with only a very limited budget, limited means, and an imperfect understanding of the market it is approaching.

Structural problems

The point of this is not at all to criticise Kaboodle. It's that this minor misstep in marketing points to larger possible problems at BUKI. To really get to the roots of what that problem may be, it is helpful to go down a theoretical path.

A helpful source is one of the more popular market development books of recent times. Jobs to be Done: Theory to practice by Anthony Ulwick has been a very influential work, especially on Clayton Christensen, author of The Innovator's Dilemma, which gave us the modern business theory of "disruptive innovation".

To read the rest of this article, please download edition 3-10 of Hi News:

HI News Vol.3 No.10: Bunnings-Wesfarmers results 2016-17
bigbox

USA update

Home Depot outpaces Lowe's again

Ace Hardware record revenue and True Value said it progressed with its multi-year strategic growth plan

Professional renovators have provide growth for Home Depot and leaves Lowe's behind; Ace Hardware has its biggest revenue result of USD1.5 billion; and True Value CEO said he is encouraged by the company's "strong achievements" in the second quarter.

Pro customers deliver for Home Depot, less for Lowe's

Home Depot and Lowe's have both been beneficiaries of the improving housing market in the US. But there has been a stark divergence in their results, with Home Depot consistently beating out Lowe's, including the latest quarter.

The difference largely comes down to how they serve the "Pro" customer.

Q2 results comparison

Home Depot's net income for the second quarter grew to USD2.7 billion compared to USD2.4 billion, one year ago. Revenue came in at USD28.11 billion for the period, a 6.2% increase from the same time last year.

Sales at stores open for more than one year rose 6.3%, while comparable sales at US stores increased 6.6%, Home Depot said.

Lowe's said that its net profits rose to USD1.4 billion in the second quarter from USD1.2 billion in the same period last year. Its second quarter sales increased 6.8% to USD19.5 billion compared to the prior-year period.

Comparable sales were up 4.5% and hit a peak of nearly 8% in July, executives said in a statement.

Pro customers

Home Depot has catered more aggressively to the professional customer, which includes renovators, general contractors (tradies) and small business owners. In fact, 40% of Home Depot's sales come from this customer category, which tends to spend more, take more trips to the store and conduct bigger projects.

In contrast, Lowe's only gets about 30% of sales from this category.

This is a notable gap, especially as Home Depot's professional comparable sales growth was 9.6% in its most recent quarter compared to 4.6% comps in its DIY category, according to Wedbush Securities analysts. Meanwhile, Lowe's pro comps were estimated to be roughly 4%.

Importantly, the professional customer spends more on big-ticket items, which has dominated sales growth. This category includes appliances, roofing and special-order kitchens.

At Home Depot, comparable store sales for purchases of USD900 and above were up 12.4% last quarter. This has helped to lift overall results, as big-ticket items make up 22% of sales at Home Depot.

Serving pros with big-ticket items has been in focus as these areas are seen as more immune to encroachment by online retailers. Home Depot has continued to drive share in these categories with more exclusive products, more financing options, and delivery alternatives. The big box retailer recently beefed up this business with its acquisition of Interline Brands in 2015.

All of this is aided by a superior online strategy, analysts say, which is critical given increased concerns about Amazon getting into the home improvement category.

Last quarter, Home Depot e-commerce sales grew 23% year-over-year and now account for 6.4% of total revenue. The company has emphasised its order-online, pickup in store option, with 43% of online orders still being picked up inside stores.

Lowe's online business, while also growing rapidly, represented just 3.5% of sales as of the end of 2016.

Ace Hardware reports Q2 sales increase

Ace Hardware Corp. posted net income of USD51.1 million for the second quarter of 2017, down USD12.3 million from the 2016 period. In the second quarter, it recorded a USD7.8 million of one-time pre-tax charges primarily related to the future closure of certain warehouse and distribution facilities. The charge and higher expenses hit net income.

The retailer also reported a 3.2% increase in comparable store sales from the 3,000 of its affiliated retailers who share daily retail sales data. This is a gain it attributed primarily to the combination of more favourable weather and strong retail execution.

Net revenues for the second quarter were USD1.5 billion, up USD66 million or 4.6% from last year's period. Increases were noted across most departments with outdoor living, housewares, impulse and tools showing the largest gains.

Retail revenues from Ace Retail Holdings -- Westlake Ace Hardware stores -- were USD90.3 million versus USD87.4 million in the second quarter of 2017. This represents a 3.3% increase from the second quarter of 2016, and was the result of new retail stores added over the period.

Operating income was USD53.6 million versus USD67.3 million in the year-prior quarter.

Ace added 27 new domestic stores in the second quarter of 2017 and cancelled 28 stores. This brought the company's total domestic store count to 4,357 at the end of the second quarter of 2017, an increase of 42 stores from the second quarter of 2016.

On a worldwide basis, Ace added 52 stores in the second quarter of 2017 and cancelled 31, bringing the worldwide store count to 5,024 at the end of the second quarter of 2017.

Amazon-proof?

In an interview with Business Insider, Ace Hardware CEO and president John Venhuizen, said of Amazon:

[It] is quite arguably the most disruptive company in the history of business and they impact everybody without question.

That Amazon can lose money to help its customers and still hold Wall Street's support is "terrifying," he said. The online retailer recently forecast its first quarterly loss in two years.

Investors have sent Amazon's stock up 31% this year, compared to a 10% gain for the S&P 500. The US iShares home construction exchange-traded fund, which includes major players like Home Depot and Lowe's, is also surging, up 26% year-to-date.

But home-improvement retailers won't enjoy endless favour from Wall Street. Home Depot shares fell after Sears announced it planned to start selling its Kenmore-branded appliances on Amazon, and was launching a line of appliances that can be voice controlled with Amazon's Alexa.

Longer-term, however, stores like Home Depot and Ace Hardware have three key attributes that can protect their market share from e-commerce giants: what they sell, service, and location.

The nature of the products they sell lends itself to human interaction. Buyers still want to ask a person how things work, or how to mix paint, or which colours to select in the first place.

And the more exceptional the service, the better. Mr Venhuizen said:

When a local business provides an irrational level of service to their local neighbours, that's hard to compete with on a big-box or a dotcom national scale. Every small business can do that.

Although free shipping is convenient, having thousands of stores near the neighbourhoods that customers live in is also a big advantage, Mr Venhuizen said.

Ace Hardware, like other hardware retailers, has billions of dollars worth of inventory sitting in its stores across the USA. One way to exploit that is by promoting online pick-ups (online orders that are picked up at a store), essentially blending online and offline strategies.

Mr Venhuizen said Ace Hardware's online sales grew 61% in the second quarter. Ninety-three per cent of those transactions were picked up in the store. The company is also starting to experiment with home delivery, he added.

Many people like to still physically see and touch and have the five senses. We had a big 5,000-store celebration...Many of them were out there smoking meat on a grill. You can't smell that on Amazon.

Progress and expansion in Q2, says True Value

True Value Company saw its comparable store sales edge up in the second quarter, as the hardware retail co-operative said it progressed with its multi-year strategic growth plan.

Total comparable store sales were up 0.9% for the quarter ending July 1, 2017, with increases in seven of twelve regions in the US and in six of the company's nine product categories.

Targeted initiatives and investments led to a 22% increase in visits to TrueValue.com and a 19% increase in online sales. Destination True Value format comparable store sales were up 1.8% in the quarter and 1.1% year-to-date.

Revenue was USD430.4 million, a decrease of 1.9% or USD8.3 million.

The company posted a net margin of USD16.7 million in the second quarter, up 28.1% from a year ago. The increase in net margin was primarily driven by good gross margin rates and tight monitoring of overhead expenses, according to the company. President and CEO John Hartmann said:

We are now in the third year of our multi-year strategic plan and I'm very encouraged by the strong advancements we are making. After a record-breaking year for ground-up and remodelled stores in 2016, we have continued to make good progress in building a stronger business.
Our retailers are benefiting from strategic initiatives in areas such as omnichannel, retail excellence and product assortments that improve the customer experience and generate sales growth. And we are doing all of this at the same time as delivering strong net margin expansion.
Looking forward, we will continue to look for ways to accelerate our strategic growth plan to ensure that True Value is helping our stores to remain relevant in their communities and supporting their long-term growth, profitability and independence.
bigbox

Europe update

Drop in big box sales

Additional Bunnings stores in Kent and UK market will get Aussie House stores

Big box retailers, B&Q and Bunnings experience losses; a Bunnings store opening in Kent; Australian retailer House is launching in the UK; and a Homebase store in Somerset will turn into a Bunnings Warehouse.

B&Q sales fall in Q2, losses at BUKI

British and European consumers appear to be turning their backs on DIY as B&Q reported a slump in sales and Bunnings UK & Ireland (BUKI) posted a loss of more than GBP50 million (AUD81.2 million).

B&Q owner Kingfisher said sales at the home improvement chain were down 8% in the second quarter, or 4.7% on a like-for-like basis.

Meanwhile BUKI reported a GBP54 million (AUD87 million) annual loss in its first full year of ownership of the DIY chain.

Kingfisher said ongoing problems in its French business had continued over the past three months, with sales declining 3.8% to GBP1.2 billion (AUD1.9 billion).

In the UK, Kingfisher said B&Q was affected by a tough comparison with last year, as total sales fell by 7.8% to GBP967 million. The decline was partially offset by the Screwfix business, where sales rose 10.8% thanks to new specialist ranges and its "digital capability".

The company is undergoing an GBP800 million overhaul of its business, which it hopes will bring in around GBP500 million more in profit each year by 2021. But Kingfisher warned that the transformation was causing "business disruption".

Chief executive Veronique Laury said there was a "significant amount of change" planned for the second half of the year. She added that she was "well aware this year would be challenging given the step up in transformation activity" and that Kingfisher remained "cautious" on the outlook for the second half of the year.

BUKI said that onerous costs related to its purchase of Homebase as well as work to overhaul stores had affected trading, with sales of kitchen and bathroom products particularly affected.

BUKI owner, Wesfarmers said the first four Bunnings pilot stores were opened in the UK and Ireland during the year with a format that was "resonating well with customers". Outgoing managing director Richard Goyder added:

While significant transition, separation and integration activity was undertaken throughout the year to progress the acquisition agenda, the volume and pace of repositioning Homebase affected store execution and consequently trading performance.

The company warned that "trading is anticipated to remain challenging, particularly in the short term, as customers continue to adjust to the new offer".

(Editor's note: HNN will take a more extensive look at Bunnings and Wesfarmers latest results in the next edition.)

Kent gets more Bunnings stores

The fifth Bunnings Warehouse in the UK opened its doors to customers in Folkestone, Kent recently.

The new store at Park Farm Retail Park is the first Bunnings Warehouse in Kent. It is over 74,000 square feet and stocks over 30,000 products including a mix of international and British brands - from Purdy's paintbrushes to Ryobi and DeWalt power tools. There is also a colour wall with more than 3,000 colour tiles and paint mixing from Johnstone's Trade, Crown and Dulux.

British skeleton Olympic champion Lizzy Yarnold MBE joined a welcome breakfast for team members.

The big box retailer also confirmed two more Bunnings stores will be opening in Kent this year. Following the opening of the Bunnings Folkestone outlet, there will soon be branches in Broadstairs and Sittingbourne.

Basildon launch this year

The town of Basildon, Essex, will also be a location of a Bunnings Warehouse later this year. However it is not known if it will be converted from the Homebase store on London Road in nearby Vange, or launched on a different site.

The big box retailer said the move was inspired by positive feedback from customers to two new Hertfordshire warehouses.

Aussie retailer House in UK launch

Australian homewares specialist House has plans to open 75 stores in the UK market in the next three years, according to Retail Week. It aims to open its first stores by April 2018 and will also launch a transactional ecommerce platform.

House has 104 stores in Australia and is owned by Global Retail Brands. It typically carries 4,000 core SKUs including cookware, glassware, small electrical appliances, knives and crockery. The House website sells an additional 8,000 lines, including products in the bathroom, bedroom, decor and pet categories.

House's entry into the UK follows a other Australian retailers already operating in this market including Bunnings, Typo, Kikki.K, Smiggle and Lovisa.

Executive chairman Steven Lew told Retail Week he was "pumped" to be bringing House to the UK after visiting almost 100 potential locations up and down the country over the past 18 months. He said:

Over the last couple of years we've looked at different markets and different markets internationally, watching the traffic flow, footfall, shopping habits, the internet - and the UK seemed like a very good fit for us.
We think 75 stores is a safe number, but it will be opportunity-led. We are not fixed on that number. If we can't get the right stores and we end up with 50, then that's still a good job.
Likewise, if we find 90 great stores then we'll have 90. So long as the market is there we will keep opening. We like to under-promise and over-deliver. But we want a sustainable product. We are not about putting a showcase on Oxford Street. We want the first store to be the same as the 75th store.

Somerset Homebase turning into Bunnings

Bunnings United Kingdom & Ireland (BUKI) has confirmed that the current Homebase store in Worle, a large village in North Somerset, would be replaced by a new store under the Bunnings brand later this year.

All existing staff will be retained, with up to 20 additional full- and part-time positions being created. A BUKI spokeswoman said:

We can confirm that the next Bunnings Warehouse pilot store will open in Worle later this year, replacing the existing Homebase on Bristol Road. The new store is approximately 76,000sqft...

This will be the first Bunnings store to open in the south west. Existing stores are confined to the south east in locations like Folkestone, Hemel Hempstead, Milton Keynes and St Albans.

bigbox

Big box update

Bunnings ABN misused by tradies

The Illawarra region gets more Bunnings stores and change of plan for Glynde

The black economy gets a boost from tradies quoting Bunnings' ABN; go-ahead for Bunnings Warwick store; two new Bunnings stores set for the Illawarra (NSW); plans to build a distribution centre instead of a store in Glynde (SA); approval for Kingaroy (QLD) store may not be granted until mid-2018; Bunnings waiting on decision for Landsdale (WA) site; Panorama (SA) store "too big"; and smaller-format Bunnings Colac sold to Melbourne-based investors.

Tradies tax scam targets Bunnings

Tradies have been fraudulently quoting Bunnings' ABN (Australian Business Number) as their own on invoices, according to report in The Australian. This allows them to allegedly operate in the black economy, as part of a scam that is undermining the tax system.

Bunnings now has one of the most quoted ABNs in the country.

Treasury's black economy taskforce chairman, Michael Andrew, admitted that the

ABN system - introduced at the same time as the GST 17 years ago to ensure people did not escape the tax system - was "not working".

Much of the ABN fraud has had two unwitting victims: Bunnings and the taxpayer. Abuse of the Bunnings ABN has been rife, particularly in some parts of the country, potentially costing the government hundreds of millions of dollars. Mr Andrew told The Australian:

We found out that more than 40% of ABNs quoted in the Northern Territory were Bunnings. Of course, every tradesman goes to Bunnings. They get an invoice - the ABN's up top.

Mr Andrew said the Bunnings ABN scam occurred when businesses or individuals employing the services of tradesmen and other service providers asked for an invoice. The document is provided containing the bogus ABN. He explains:

People ask for an invoice or valid receipt and they get the name of the company, but they then get an ABN of someone else such as Bunnings: the result of which (is) you can't trace then where the money really went.

Federal Revenue and Financial Services Minister Kelly O'Dwyer said the government commissioned the black economy taskforce to clamp down on situations such as the Bunnings ABN fraud. She told The Australian:

We know there is a big problem here, and we know it is costing the economy a huge amount.

Ms O'Dwyer has also released a set of 54 "policy ideas" from the black economy taskforce, ahead of its final report to government in October. Several of these ideas focus heavily on ABN reform. She said she wanted to fully consider the final report before taking formal action on possible reforms, such as real-time ABN recognition: "It will require a properly calibrated response."

There is no suggestion that Bunnings has done anything wrong.

Flood concerns continue over Warwick Bunnings

A legal objection to the $16 million Bunnings development in Warwick (QLD) has been dropped but neighbouring businesses say their concerns have not receded.

Construction of the 8000sqm development at the corner of Canning and Condamine Streets is expected to begin in the next few months. It should be completed by mid-2018.

The project, approved by Southern Downs Regional Council in January, was appealed by a group of concerned local business people and residents on the basis the warehouse was to be built in a known flood zone, an area understood to be "off limits" to new developments.

Bunnings general manager - property Andrew Marks said the company was satisfied with the outcome of court proceedings and was excited to start building a store in Warwick.

On the question of lessening a flooding impact on local businesses, Mr Marks said Bunnings had worked with local authorities and technical experts throughout the development application process. He told the Warwick Daily News:

The development application took into account the findings and recommendations of the Jacobs Consulting report, which was commissioned by the council, which concluded that the development would have no significant effect on flooding.

Olsen's Home Timber and Hardware owner Alan Olsen said it was not Bunnings people were objecting to.

It's never been about competition for me. It wouldn't matter who was being allowed to build there. Anyone who has had to deal with our major floods will know that anything that might worsen the impact is a bad idea.

The original flood impact statement reported there would be minor changes in water depth at around 25-50mm and some changes in the energy of the water at the north-west, north-east and south-east corners of the site.

Related:

Big box update: Warwick local fights Bunnings' plans - HNN

Bunnings boosts presence in the Illawarra

Bunnings will open a new store at 9 Watts Lane, Russell Vale (NSW) and staff at its Shellharbour location is set to move into the former Masters Albion Park site.

Andrew Marks, general manager property at Bunnings confirmed it received development approval to make the necessary conversions of the former Masters site. He told the Illawarra Mercury:

Following the reformatting works, our intention is to relocate our existing Shellharbour warehouse including all current team members. The conversion of the site is pending the Home Consortium agreement with Woolworths Limited which is subject to the consent of Lowe's Companies, Inc.

The 13,000sqm Albion Park Masters closed its doors last December, having been open for a little over a year.

The big box retailer lodged a development application with Shellharbour City Council last November, seeking to modify the Masters consent. Instead of being a classed as a "home improvement centre", Bunnings sought to create a "hardware and buildings supplies" store.

Meanwhile, Mr Marks said construction works are currently under way and progressing as planned at the Bunnings Warehouse Bellambi/Russell Vale site.

The Bunnings Bellambi store is expected to open late 2017.

Distribution centre plans for Glynde

Bunnings wants to build a distribution centre in Glynde (SA) after its plans for a $26 million store at the same site were knocked back. The big box retailer has lodged an application with Norwood Payneham & St Peters Council for a site on the corner of Penna Avenue and Glynburn Road.

Bulk materials would be brought to the distribution centre, repackaged and then transported to other shops for sale. It would not include a retail outlet. Bunnings general manager - property Andrew Marks did not say how much the development would cost.

In May, the Development Application Panel rejected Bunnings' application for a retail store, saying it would generate heavy traffic in surrounding streets. Approximately 1000 small-business owners and residents signed a petition last year opposing the original plan because of traffic concerns.

The council could not say when the new application would be assessed.

Related:

Big box update: Bunnings planning SA store - HNN

Plans for Kingaroy revealed

Bunnings' plans to build a new store in Kingaroy may not get final approval until mid-2018.

According to the development application tendered to South Burnett Regional Council, the total retail space of the Kingaroy store will be about 7597sqm. Of this about 3893sqm with be the main retail warehouse. The outdoor nursery, soil and stone sale area will be about 1523sqm. A timber trade sale area will be about 1399sqm while the landscaping yard will be 730sqm.

Bunnings has also planned 203 parking spaces, four disabled spots and four trailer bays.

While the council has received a draft of the building application, more information is needed.

It is unlikely the final plans for the project will proceed to community consultation before early 2018. This pushes the estimated date of the council approving the project to mid-2018.

The timeline could shorten if the state government approves the council's new planning scheme soon. In this case, the land currently under development would be rezoned to allow for this scale of construction.

Related:

Big box update: Bunnings lodges DA for Kingaroy - HNN

Uncertainty over Landsdale site

Bunnings is waiting on negotiations between stakeholders of the former Landsdale Masters site in Western Australia before it can announce an opening date for its takeover of the warehouse.

The outlet will give Bunnings a presence at all compass points in Perth's far north, adding to Whitfords (south), Mindarie (north) and Joondalup (west) stores.

The big box retailer secured development approval for the Hartman Drive-Gnangara Road premises more than five months ago. But Bunnings property general manager Andrew Marks explained they could not proceed in Landsdale until matters were finalised with Woolworths and Lowe's, former joint venture partners in Masters.

Bunnings will be dealing with property group Home Consortium when given the go-ahead to develop the Landsdale site.

Home Consortium agreed to take control of all Masters buildings in Australia when Woolworths shut down its home improvement chain last year.

David Di Pilla from Home Consortium told The Australian in December there would be a staggered opening of the former Masters sites. The former Joondalup Masters building has been approved for conversion to a multi-tenancy large retail format.

Proposed Panorama store considered "too big"

The fate of a $42 million Bunnings store in Panorama (SA) will remain unknown until at least October following almost three years of objectors trying to stop it from opening. A Mitcham Council report shows that a conciliation conference between Bunnings, Panorama resident Neil Baron and Mitcham Council has been adjourned.

It comes after the big box retailer lodged plans for a $45 million store in Edwardstown, 2km from the Panorama site, in May.

Bunnings general manager - property, Andrew Marks declined to comment about whether the case had been adjourned until the Development Assessment Commission looked at the Edwardstown application. The state government did not say when that would occur.

Mitcham Council's Development Assessment Panel rejected Bunnings's first application for the TAFE site on Goodwood Road in Panorama a year ago. It argued the store was too big for the area and would create traffic issues.

Bunnings submitted an amended plan in December - which was also rejected.

Panorama resident Neil Baron has appealed the decision in the Environment, Resources and Development Court because he thinks the store is well designed and will create jobs.

Related:

BIg box update: Bunnings Panorama back on the agenda - HNN

Melbourne-based investors buy Bunnings Colac

A smaller format Bunnings warehouse in Colac in regional Victoria has been sold to a Melbourne family for $7.8 million, on a yield of 6.1%.

The 6500sqm retail property on Bromfield Street in the centre of Colac was sold with an eight-year lease in place to the big box retailer,

The sale of the Bunnings in Colac was negotiated by Mark Wizel, Joseph Du Rieu, Justin Dowers and Kevin Tong of CBRE. DBR Property's David Ryan represented the buyer. Mr Wizel said:

Whilst the price point created a far higher level of accessibility for a wide range of investors, the smaller format store did present a hurdle for many investors as we have seen Bunnings continue to move toward large format sites in recent times.

Other recent sales include Bunnings in Warragul selling for $6.43 million last September with a six-year lease, on a 6.6% yield

Bunnings Warehouse in Yarrawonga sold for $11.6 million last August on a 10-year lease, and on a 4.9% yield.

A Bunnings in Osborne Park (WA) with a new 12-year lease sold for $7.05 million on a 4.65% yield in June last year to a Perth investor.

bigbox

Europe update

More BUKI pilot stores

Changes in Kingfisher executive ranks and Travis Perkins is working with startups

Bunnings United Kingdom and Ireland (BUKI) is doubling down on its expansion plans and has opened its fourth store; Kingfisher-owned Screwfix gets a new boss; and technology startups will soon influence the way Travis Perkins does business.

BUKI increases pilot store program

Bunnings United Kingdom and Ireland (BUKI) said it plans to double the number of stores launched in 2017 from 10 to 20 after a "positive response" from customers to pilot outlets in St Albans and Hemel Hempstead. BUKI managing director Peter "PJ" Davis said:

Increasing the number of pilot stores to 20 will give us the opportunity to test the concept in new geographies, with different demographics, across a range of store sizes.
We are determined to combine the best of Bunnings Warehouse with what UK consumers want. The success of the pilots still remains a precursor to additional investment.

The retailer is trialling its Bunnings Warehouse concept to "road test" demand in Britain before rebranding all its Homebase stores.

Mr Davis admitted that the expansion came during a tough time in the retail sector as shoppers face an increasing squeeze on their spending power from rising inflation.

However, he said the firm had seen "very little inflation" in its own prices after the pound regained some ground from the lows seen in the immediate aftermath of the Brexit vote.

Over 1,000 jobs are expected to be created from opening the additional stores, according to the big box retailer. International Trade Minister Mark Garnier said:

This is a significant and welcome investment by Bunnings ... The Department for International Trade works with companies around the world to promote the strengths of the UK and this investment from Bunnings is yet another endorsement of the UK's attractiveness to overseas investors.

At Wesfarmers' investor day in early June, Wesfarmers warned that the Bunnings UK business would lose money in the first half of 2018 as well as in the 2017 June half. It blamed the losses on a combination of restructuring costs, bad weather and the repositioning of Homebase's bathroom and kitchen offer.

Milton Keynes and more

The announcement to double its pilot store program was made as Bunnings opened its fourth store in Milton Keynes, Buckinghamshire, a large town located about 72 km north-west of London.

This store is the second one in the area and the largest in the UK and Ireland, at more than 90,000sq ft.

It stocks more than 35,000 different home improvement and garden products, including a mix of international and British brands from Purdy's paintbrushes, never before available to non-professionals, to Ryobi and DeWalt tools. Paint mixing services from Johnstone's Trade, Crown and Dulux are also available in-store.

To celebrate the opening, Australian racing driver Mark Webber, a nine-time Grand Prix winner, hosted a welcome breakfast for team members. The store's complex manager, Kevin Dale, said:

It is great to finally open our doors to customers. Our team members have worked really hard to get the store ready for opening. Collectively we've already completed more than 1,500 training hours to make sure we have the expertise to help with home or garden projects.

BUKI also has plans in place for a fifth pilot outlet in Folkestone, before overhauling Homebase stores in Thanet, Sittingbourne and Basildon Vange.

Related:

Europe update - HNN

Executive moves at Kingfisher

The CEO of Kingfisher-owned DIY retailer Screwfix is leaving to become chief executive of British kitchen supplier, Howden Joinery.

Andrew Livingston has headed up Screwfix since 2013, joining the company as commercial and ecommerce director in 2009. This followed stints as chief operating officer of Wyevale Garden Centres and as commercial director of kitchens and bathrooms at B&Q.

Screwfix, with over 500 stores, has recently been a major driving force at Kingfisher, last year growing sales 23% to GBP1.3 billion thanks to strong growth from the specialist trade desks, digital growth and the opening of 70 outlets in the UK and Germany.

Mr Livingston will be succeeded by Screwfix's operations and property director Graham Bell, who has held roles within the Kingfisher group for 18 years.

At Howden Joinery, Mr Livingstone will replace its founder and chief executive Matthew Ingle, who will retire in the first half of next year after 22 years at the helm.

Kingfisher's head of sales & operations head has also exited the company after less than a year. Jean-Paul Constant's departure follows soon after B&Q retail director Damian McGloughlin leaving to go to Bunnings UK and Ireland.

Travis Perkins seeks new tech to lift trade

Builders' merchant and home improvement retailer, Travis Perkins has initiated an accelerator program called BreakThru as a way to benefit from tech start-up businesses.

BreakThru is part of a company-wide initiative to embrace digital methods that could future-proof business operations and enhance customer experience across Travis Perkins' 22 brands.

Led by chief digital officer Cheryl Millington, the program has been launched to expose the group, which operates over 2,000 branches, to entrepreneurial thinking and new products.

BreakThru, in collaboration with innovation specialist L-Marks, will allow successful start-ups to validate their business ideas over the course of an 11-week partnership program.

Up to GBP200,000 each is available for those digital entrepreneurs coming up with the most viable solutions.

Travis Perkins said it is exploring ways to streamline customer service, improve health and safety, and create fleet and workforce efficiencies. It also hopes to find start-ups that can create a seamless digital customer experience, including technologies to create real-time inventory visibility and management. Chief executive John Carter said:

Our goal is to provide a seamless customer experience through harnessing the latest innovations and ideas brought by start-ups.
We hope the start-ups who join us can challenge us internally, while we also hope to provide them with the expertise and support to take their product or solution to the next level.
bigbox

Big box update

Store builds in Toowoomba and Devonport

Recruitment will begin soon and no decision yet on Panorama store in South Australia

Bunnings said the North Toowoomba (QLD) store is expected to create 180 team member jobs and over 100 jobs in Devonport (TAS) once they open; and Mitcham Council is trying to find out whether a Bunnings outlet will open in Panorama (SA).

Bunnings developments on schedule

Construction work on the $43 million Bunnings Warehouse development in North Toowoomba (QLD) is progressing as planned. Bunnings general manager - property Andrew Marks said the new store is expected to open in late 2017.

The warehouse is located on the corner of Ruthven and Bridge Streets and is the second Bunnings for Toowoomba, the other being on Anzac Ave in Harristown. Once completed, the latest store will have a total area of more than 17,000sqm.

It will include the main store, indoor timber trade sales area, building materials and landscape supplies yard and outdoor nursery. The development will also include an indoor playground, cafe and parking for more than 370 cars on the site of the former Toowoomba foundry.

Devonport location

The old K&D Warehouse building in Devonport (TAS) has also been painted the signature green of Bunnings Warehouse as preparations continue for the store's opening.

The new Bunnings is located at the Devonport Homemaker Centre and is expected to open in late 2017. Mr Marks told The Advocate:

The erection of structural steel is complete and the pre-cast concrete wall panels and the roofing works are well underway.

Panorama store not confirmed

Bunnings has not said whether it will continue with plans for a $42 million outlet at the former TAFE site in Panorama (SA) after almost three years of fighting with objectors.

Bunnings general manager - property Andrew Marks would not say if the hardware giant would lodge a third application to Mitcham Council to build the warehouse on Goodwood Road.

Mitcham mayor Glenn Spear said he had been "left in the dark" about the future of the development. He wanted it approved so the old TAFE buildings, now dilapidated and vandalised, could be demolished.

Bunnings has previously lodged plans for a $45 million store in Edwardstown, 2km from the Panorama site. Mr Marks did not confirm what that proposal meant for the Panorama plans.

Mitcham Council's development assessment panel knocked back Bunnings' first application for the TAFE site in August 2016 at a meeting that attracted at least 80 people. The big box retailer submitted an amended plan in December, which was also rejected.

Panorama resident Neil Baron appealed that decision in the Environment, Resources and Development Court. The matter is still before the courts.

bigbox

USA update

Enhanced rental offerings from Home Depot

Second year for e-commerce event and Home Hardware's latest advertising campaign

Home Depot agrees to purchase Compact Power Equipment which is set to improve its customer experience for professionals; the Home Improvement eRetailer Summit will be held in September 2017; and Canada's Home Hardware emphasises projects in its new advertising campaign.

Home Depot buying tool rental company

The Home Depot is acquiring Compact Power Equipment, a provider of construction and landscape equipment rental and maintenance services, in a USD265 million cash deal.

The deal bolsters Home Depot's position in the market for equipment rental to both professional and do-it-yourself customers. Home Depot CEO Craig Menear said in a statement:

The acquisition allows us to further improve the customer experience - in particular for pros - through enhanced equipment and tool rental offerings. It also allows us to grow Compact Power's best-in-class building services capabilities.

Compact Power Equipment has been a business partner of Home Depot's since 2008. The companies' partnership began with three pilot equipment centres at the retailer's Charlotte, North Carolina stores. By 2015 it had grown to 1,000 Home Depot stores across the US and Canada.

Home Depot said the cash acquisition would close in the company's fiscal second quarter.

Revenue for the U.S. equipment rental industry was expected to increase by 3.4% to USD49 billion in 2017, based on an American Rental Association report conducted with IHS Markit. Tool rentals are expected to grow by 4.3% annually from 2016 through 2020, according to the projection.

The deal is Home Depot's first big acquisition since August 2015, when it acquired Interline Brands Inc. for USD1.7 billion to establish a platform in the maintenance, repair and operations (MRO) market where it primarily serves institutional customers (such as educational and health-care institutions), hospitality businesses, and national apartment complexes.

Also in 2015, Home Depot acquired HD Supply Hardware Solutions, known as Crown Bolt, a leading supplier of fasteners and builders hardware to retailers in the US. And in January 2014, Home Depot acquired Blinds.com, an online seller of window coverings.

Compact Power is majority-owned by Canadian private equity firm Kilmer Capital Partners.

Related:

Home Depot buys Interline Brands - HNN

Home Improvement eRetailer Summit expands focus

Accelerating online sales in the home improvement retail space is the mandate of the second annual Home Improvement eRetailer Summit. This event, being held September 13 to 15, 2017, at the Rosen Shingle Creek in Orlando, Florida (USA) will feature a conference and networking opportunities for vendors and e-commerce retailers.

The purpose is simple: to help the hardware and tools, home decor, paint, housewares, lawn and garden, outdoor living, and flooring sectors develop winning e-commerce strategies. This year's event will also include housewares and kitchenware, furniture, and large appliances.

The highlight of this year's eRetailer Summit is an "e-commerce boot camp" to learn best practices from leaders in the online selling marketplace. The conference will be capped by a presentation by Alyssa Steele, divisional merchandise manager - home and garden for eBay.

A logistics Q&A will examine the demands being put on the delivery aspect of online sales. Event founder, Sonya Ruff Jarvis from Jarvis Consultants said:

Online housewares sales are hot, and large home goods have historically been considered too large or unwieldy to sell online. We want to make sure retailers and vendors alike are on top of the trends affecting all these important categories.

Retailers looking to understand the e-commerce space and vendors who wish to make real connections with leading e-retail decision makers will find this forum a way to meet, share ideas, and develop concrete strategies for growing online sales.

About the Home Improvement eRetailer Summit.

If you are interested, please contact Sonya Ruff Jarvis: sonya@eretailersummit.com.

Home Hardware's "Here's How" campaign

As part of its latest brand positioning, Canada's Home Hardware has launched a new campaign that shows a couple stepping into their new home and discovering all the projects they have ahead of them to fix the place up. They are able to tackle them, though, thanks to the supplies and advice they get from their local Home Hardware store.

The retailer recently debuted its "Here's How" positioning, replacing the "Homeowners helping homeowners with expert advice" tagline it had used for nearly eight years.

The core of the old brand positioning was that Home Hardware stores were a place would-be DIYers could get friendly, helpful advice from people living and working in their communities. The new campaign keeps that element of the brand's positioning, albeit in a more subtle way, with the spot ending with the tagline "Do it yourself doesn't mean do it alone." Rick McNabb, VP of marketing and sales at Home Hardware, said:

The old positioning has been around for a while and it's served the company well, but it's a mouthful. What got us here is a higher level of customer care and going the extra mile. It's less about 'expert advice' and being more grounded in the experience our staff has and how helpful they'll be. 'Here's How' is not a radical departure from that, because that's our differentiation.

Mr McNabb adds that "customer care" differentiation is important to maintain as a competitive advantage in a crowded category that also includes The Home Depot, Lowe's and Canadian Tire.

The advertising agency, John St. has also created a series of short videos focusing on products exclusive to Home Hardware stores. That was a major part of Home Hardware's previous marketing efforts, and Mr McNabb said those efforts were successful in drawing traffic into stores.

It's a traffic driver and differentiator, and the hope is we can get you excited about the other stuff in the store once you're there. But along the way, it can get you away from the notion of home improvement and you run the risk of becoming known as an 'exclusive item' brand.

That's part of the reason why the newest campaign focuses on projects, as it allows the brand to show off every category it plays in and how it can serve any home improvement need someone might have. It's also applicable across the company's three retail banners: the typical, small-format Home Hardware, the larger Home Hardware building centres for contractors and large-scale projects and hybrid locations that tend to be located in more suburban locations. Mr McNabb said:

We wanted a campaign that would be an overarching Home Hardware campaign that could speak to all of our banners and the different needs we serve.

He adds it is also looking to speak a bit more directly to younger consumers, as Home Hardware's previous marketing has skewed older to a demographic that grew up with the brand and already has a high affinity for it.

Link to YouTube video
bigbox

Europe update

BUKI appoints COO

Third Bunnings outlet is unveiled and additional store locations are announced

Bunnings United Kingdom & Ireland (BUKI) has a chief operating officer; an overview of the new BUKI store in Hemel Hempstead; and 10 stores to be up and running by the end of calendar 2017.

BUKI appoints retail executive from B&Q

B&Q's retail director for UK and Ireland, Damian McGloughlin will become chief operating officer at Bunnings UK and Ireland (BUKI). He will report directly to BUKI managing director PJ Davis.

According to a number of reports, Mr McGloughlin has spent 32 years at B&Q after joining at the age of 16.

He has been placed on gardening leave until he starts his new role. This means Mr McGloughlin will stay away from work during the notice period, while still remaining on the payroll.

A B&Q spokeswoman confirmed McGloughlin's exit and added: "We wish Damian all the best."

Industry publication Retail Week writes that Mr McGloughlin's move to Bunnings makes him the latest in a steadily growing list of UK DIY experts to join the business.

Bunnings owner, Wesfarmers axed Homebase's entire board - with knowledge of the UK market and replacing them with existing Bunnings staff - shortly after buying the home improvement retailer from Home Retail Group for GBP340m in February 2016. Since then, it has added many with British DIY experience to its management ranks.

Matt Tyson, former Masters Home Improvement managing director and also ex-Kingfisher, has been advising BUKI and is understood to have been pivotal in convincing McGloughlin to switch allegiances.

"Matt would have been instrumental in bringing Damian to Bunnings," a former B&Q colleague of Mr McGloughlin's told Retail Week. He said:

When they were at B&Q together, Damian was a divisional director and Matt was operations director at the time. Matt was his mentor, his father figure if you like, so he would no doubt have been telling Bunnings how talented Damian is and urging Damian to come on board.

But another former B&Q colleague believes it is one skill in particular that Bunnings will benefit from most. He said:

Damian is really well liked by the B&Q team. His departure will be a big blow for them. He's very much a man of the people - people in stores like and respect him. They enjoy working for him and they want to work for him.
...
On a broader note, he knows the sector really, really well, so he's a great acquisition for Bunnings. Their warehouses are similar in size to B&Q's Supercentres, which Damian knows inside out, so he will bring a great deal of knowledge to that format for Bunnings.
B&Q will be smarting, without a doubt. Their loss is very much Bunnings gain.

Bunnings Hemel launches

The third Bunnings Warehouse in the UK has opened. It is a conversion of a Homebase store located at in Hemel Hempstead, Buckinghamshire. The Insight DIY team led by managing director Steve Collinge made a visit to the location.

They believe "a few tweaks" may be starting to appear in some of Bunnings' in-store ranges. The hand/power tool category in the Hemel Hempstead store is "dominant", and the paint offer and gardening range are "impressive". However the same can't be said of its kitchen and bathroom products, according to Mr Collinge. He writes:

Once again, there's a poorly represented kitchen and bathroom offer, although having spent time with PJ ... I'm beginning to understand why kitchens and bathrooms are a lower priority. However, with the increasing focus on the performance of the remaining 252 Homebase stores, I still don't quite understand why they have effectively handed all their kitchen business to Wickes on a plate.

However Mr Collinge believes the store in Milton Keynes (scheduled to open in the first week of July), will be the "acid test".

With 100,000sqft of space available, there are only so many BBQs the size of small family cars and hot tubs that can accommodate a family of twelve in comfort that you need to offer. We'd therefore expect a more credible offer of K&B than we've seen in any of the three Bunnings stores to date.

In the paint category, the repackaged and refreshed Craig & Rose 1829 range takes centre stage.

(The Craig & Rose brand is owned by DuluxGroup. To read more about its acquisition, go to /http://hnn.bz/fullView?articleIndex=4432242937940}DuluxGroup FY results 2015-16 - HNN)

Insight DIY believes this is an "important move" for Bunnings as it provides an exclusive, premium range to deliver a key point of difference to its decorative offer. B&Q stocks the Farrow & Ball paint line. Mr Collinge writes:

The core chalky emulsion range looks great, is well positioned on price and has developed its colour offer to reflect the whites and greys now popular in the UK. The small Artisan Decorative Effects range offers some interesting products, but at GBP49.95 and GBP69.95 for a 2.5L can, we'll be updating you on the depth of dust gathering on these tins over the next few months.

According to DIY Insight, the other brands to get significant exposure in the Hemel Hempstead store include Monarch and Paint Partner (painting ccessories), Selleys, Ozito power tools, Kaboodle kitchens, Aqua garden watering, Matador BBQs, Trojan hand tools, Marquee garden furniture and Flexi storage.

Insight DIY also said it has been tracking Bunnings pricing since the day the first store opened in St. Albans. According to Mr Collinge:

The most recent audit completed on 6th June 2017, showed Bunnings was 10% lower than Wilko, 17% below B&Q and 27% lower than Wickes ... in identical or directly comparable lines. In the garden, Bunnings is 19% below Wickes, 21% below B&Q and a massive 34% below Wyevale.
Of course, you wouldn't expect the bigger players to price match a competitor with only three stores and no transactional website, but this is clearly going to have to happen at some point.

To read more about Insight DIY's impressions of the Bunnings Hemel Hempstead store, go to:

Bunnings tweaks offer in Hemel - Insight DIY

Store specifics

The Hemel Hempstead store is on the site of the former Homebase at Apsley Mills Retail Park. At 64,000sqft, it is slightly smaller than the 67,000sqft store in St. Albans that opened at the beginning of February and much larger than the 40,000sqft Hatfield Road store that opened in April.

In total, the Hemel store stocks over 27,000 products, all of which the team were encouraged to get to grips with during a 10-day supplier expo, where 93 of the largest brands delivered "in the aisle" interactive product knowledge training.

To celebrate the opening, Olympic gymnast champion and Hemel local Max Whitlock MBE hosted a welcome breakfast for team members.

Other stores

Wesfarmers recently confirmed there will be ten Bunnings stores operating by the end of 2017, in locations that include Broadstairs and Basildon Vange.

A Homebase store located in Sittingbourne will be the sixth to be converted to a Bunnings Warehouse. Sittingbourne is an industrial town situated in the Swale district of Kent in south east England. Insight DIY said:

With Folkestone and Sittingbourne being only 42 miles apart, as expected the next tranche of openings by Bunnings are likely to be part of a Kent Cluster enabling them to invest heavily in local advertising to build awareness of their brand, which is unknown to UK home improvement customers.

Related:

Europe update: Bunnings reveals its fifth UK store location
bigbox

Big box update

Bunnings builds close to Home store

Kingaroy may get a Bunnings and Lesso Home opes in Greenacre to attract trade

Home store in Katoomba (NSW) will face direct competition from a new Bunnings; Kingaroy (QLD) is another location for Bunnings; Lesso Home is open to trade customers in Greenacre (NSW); Bunnings Colac is up for sales; and Shepparton store officially opens.

Blue Mountains store close to Home

Bunnings is building a store across the road from the existing Hudson Home Timber & Hardware store located in Wilson Street, Katoomba (NSW).

The new Bunnings store has led to some concerns about whether the market in the Blue Mountains can sustain two large hardware outlets at all, let alone within metres of each other.

Bunnings general manager - property, Andrew Marks, said the new store will be a "small format" model. He told the Blue Mountains Gazette:

We generally find that there is ample room in the market for both larger and specialty providers. Almost everywhere we operate we have successful competitors located close by to our stores.

Mr Marks also referred to environmental concerns which had been raised about the site, part of the Leura Falls Creek catchment. He promised that "measures have been put in place to ensure receiving waters of Leura Falls Creek are maintained at the highest standard". He said:

We will continue to work with the builder to ensure there is no environmental impact from construction works in and around the site.

The Bunnings store is expected in early 2018.

Bunnings lodges DA for Kingaroy

Bunnings is planning a $15 million store in Kingaroy (QLD), and has lodged a development application with the South Burnett Regional Council (SBRC) for the highway frontage site on the D'Aguilar Highway (Walter Road).

If Bunnings' development application is approved by the SBRC, the development would go ahead within sight of the Sunshine Mitre 10 store in Rogers Drive.

According to recent editorial in southburnett.com.au, the announcement that Bunnings has lodged a development application to build a new store in Kingaroy has provoked a mixed response.

On the one hand, some residents welcome the news that Bunnings would like to open up a South Burnett outlet. They feel the chain will offer them better hardware prices, and see the announcement as a sign the region is moving forward again after several years in the doldrums.

Against this, some other residents feel the arrival of Bunnings could spell the end of several other "home grown" small businesses that compete in the same market, and lead to an increase in unemployment.

The last two big retail chains to open up in the South Burnett were Harvey Norman in late 2008, and Aldi in 2009. At the time both these stores opened, the population of Kingaroy's town area was about 9154; but by the end of last year it was 10,125, or about 10.6% bigger.

A statistical snapshot based on data available shows the first three years after Harvey Norman and Aldi were both up and running, the South Burnett's unemployment rate was fairly stable at between 6.5 and 7.5%. This was despite the 2011 floods, the 2012 drought and the flow-on effects of the 2008 Global Financial Crisis.

The editorial goes on to say that while it is likely the arrival of both these large retail chains did lead to the closure of some other businesses, the net effect of these closures on overall unemployment was negligible.

In other words, any jobs that were lost in the businesses that closed down were made up for by the jobs the new retail entrants created.

The arrival of these businesses also seems to have had no negative effect on the region's long term growth rate.

If anything, their arrival could be a sign that the South Burnett is a market worth investing in for the future, and people willing to back that belief with bricks and mortar.

It would be ideal if a large retail chain that didn't compete with any existing businesses, according to the editorial That would create new jobs that really were new, and add to the local retail mix that people currently have to travel outside the region for.

Lesso Home Greenacre welcomes the trade

Lesso Home has opened its first overseas complex in Greenacre (NSW). It is located in a 30,000sqm building in Mayvic Street, and is what the company calls a "one stop global building materials, home furnishings and hardware trade hub". It is just blocks from a Bunnings outlet.

The Chinese firm is part of China Lesso Group Holdings Ltd which has more than 50 subsidiaries and 22 production bases in China, North America, Asia and Africa. It manufactures more than 10,000 different products and the Greenacre display space brings some of them together in one location, the company said.

The Australian reported last year that Lesso is expanding into the Australian market after warning of challenging conditions in China. Victor Lin, vice-president of China Lesso Group, told the newspaper:

Our offering in Sydney is a trade-focused outlet, rather than a consumer-focused outlet, that brings more choice to Australian businesses. China Lesso Group products are already widely available in Australia from a number of outlets and Lesso Home is bringing all these products under one roof.

The Express had a preview of the centre before it officially opened. It said the complex has a large number of displays featuring most components needed to build or renovate, including bathrooms, kitchens, mirrors, furniture, flooring, lighting, windows and doors, shower screens, beds, furniture and electrical appliances.

Unlike other retailers, Lesso Home Greenacre is only be open to customers with an ABN and for people who join up with a free membership.

A spokesman for Lesso Home Greenacre told The Express the centre was designed for online to offline sales and the location was chosen because it was close to both logistics and the building industry. He said:

So many people go to China to purchase and bring here but we've tried to bring the supply here. We want to work with local people and we want to support the local retail industry and bring some new products and building ideas into the market.

The company said over 60 tenants are currently renting spaces within the centre.

Home designers can bring their clients here and see what's on offer. It's something very different to what the Australian market has been doing.

The group is planning to open another outlet in Australia in early 2018, focused on lighting and furnishings, and has plans for other home building offerings in the future.

In 2016, China Lesso bought the St Hilliers Estate in the western suburb of Auburn and a major block of land in the outer suburb of Huntingwood East, which will serve as a longer-term distribution hub. Dr Lin said the group is "currently working on plans" for its Auburn site. Melbourne is also "high on the list" for further locations in Australia.

The company's move into Australia could be driven by hopes of diversifying from manufacturing into e-commerce, after it set up the Lesso Mall platform in China in 2015.

If the Lesso Greenacre centre pays off, it would be a blueprint for sites in other major cities in Australia and the USA, the Middle East and Asia.

Related:

Big box update: Another "threat" to Bunnings? - HNN

Bunnings Colac store hits the market

The sale of the Bunnings Warehouse in Colac (VIC) is expected to generate additional interest from international investors.

The 6500sqm property at 130-138 Bromfield Street is located in the commercial centre of the Colac township and has a 10-year lease to Bunnings which has been operating from the site for the past two years.

The 3912sqm Bunnings site nets $475,090 in rent and it will be sold with fixed annual rental increases of 2.75%, with options up to 2035. CBRE Melbourne agent Joseph Du Rieu said:

We've seen first-hand over the last six to twelve months, the influx of Chinese investors into the retail investment markets ... it would suit a private investor or business owner looking for something they can put in the bottom drawer and not worry about for eight years.
This is only the second Bunnings to sell in Victoria this year. The first one was in Bendigo for $14.5 million to a private, Melbourne-based family.
The location is very strategic - directly opposite the new Colac Plaza - that's ultimately going to underpin the investment for years to come.

Open for business in Shepparton

In a few days since its opening, the new Bunnings store in Shepparton (VIC) has already had a few thousand people through its doors, according to complex manager Paul Connaughton.

The $53 million warehouse store, is the second biggest in Victoria, and has an increase in range as well as depth of stock compared to its old location. He told the Shepparton News:

People really have to come down and see the 18 kitchen displays and four bathroom displays, and take the time to walk through the six aisles of timber. The nursery is also the second biggest in the Victorian network with thousands of plants.

Mr Connaughton said staff were proud to be able to offer the store to the people of Shepparton.

We really look forward to servicing the Greater Shepparton area for many years to come.
bigbox

Big box update

Glynde does not want a Bunnings store

Bunnings makes adjustments for Gladesville store and more stores sold to retail investors

A $26 million Bunnings at Glynde (SA) has been rejected by the local council's development panel; Bunnings is proposing additional changes to its store in Gladesville (NSW); the new Shepparton store prepares to open as the old one is sold; Bunnings Colac is being sold; Queenstown (NZ) is set to get another Bunnings store; and the just-opened Grey Lynne store in New Zealand has been placed on the market.

Bunnings Glynde "knocked back"

Plans for a Bunnings store in Glynde (SA) has been rejected by the local council's development panel.

Bunnings lodged an application with Norwood, Payneham & St Peters Council to build a $26 million store on the corner of Penna Avenue and Glynburn Road. The site is located within a light industry zone.

However panel members rejected the plans, saying the store would generate heavy traffic in the surrounding streets and would not be "manufacturing on a small scale".

The decision comes about eight months after more than 1000 small business owners and residents signed a petition opposing the plan because of traffic concerns.

Amanda Price-McGregor, speaking on behalf of Capaldo Investments, which owns Mitre 10 Glynde, said the Bunnings proposal was at odds with the council's development plan. She told Adelaide Now:

It does not meet the intent of a light industry zone (and) it will have a significant, detrimental impact on the existing bulky-goods traders in the area. A large number of vehicles will avoid Glynburn Road and that will cause rat-running in the backstreets due to the easy access of roads.

Bunnings property general manager Andrew Marks said he was disappointed with the panel's decision and said the company would now "evaluate its options".

We will continue to work with authorities to bring investment and jobs to Glynde.

Bunnings' application for the site was made in April 2016 and came after Home Timber & Hardware closed its store on the corner of Magill and Glynburn roads in 2015.

Related:

Big box update: Bunnings planning SA store - HNN

Design accommodations for Bunnings Gladesville

The Bunnings store for the corner of Victoria Road and Frank Street in Gladesville (NSW) has planning approval, but the big box retailer has proposed more changes. These include 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 and Frank Street. The previous design required excavating the retaining walls, which could affect their stability and pose risks to public roads, according to the company. The changes would increase the setbacks and reduce the risk.

The Joint Regional Planning Panel is expected to approve the proposed changes. Bunnings general manager - property, Andrew Marks told the Northern District Times that there are no firm timings on when building will begin or when the store will open.

When the big box retailer first proposed the store, some Gladesville residents were concerned about builder traffic using residential streets. They successfully called for nearby College Street to be closed to through-traffic. Ryde Council put barriers in the street in November for a trial period.

A council spokesman said the barriers will remain until Bunnings is operational for at least 12 months. The council will prepare a report on the findings of the trial period. Its traffic committee will consider the report to decide whether the barriers remain.

Shepparton store opening, old store sold

As preparations continue for the opening of the $53 million Bunnings Shepparton in regional Victoria, the company has been recruiting an additional 50 new team members to help run the store.

Bunnings Shepparton store manager Paul Connaughton said the site would have an approximate total store size of more than 18000sqm, making it the second largest in Victoria. He told Shepparton News:

It's a big investment in the region and in terms of employment for local people, with our team now 170-strong. Training is under way for our existing and new team members.

Mr Connaughton said Bunnings would be in a better position to supply commercial products for the numerous building projects in Greater Shepparton, along with a wide range of home improvement and outdoor living products for its DIY customers.

The previous Bunnings centre was bursting at the seams and the new store will make it easier than ever for customers to get what they want.

The old, soon-to-be-vacated Bunnings site has been sold to a private Brisbane-based family for $5 million, in a deal negotiated by real estate services firm CBRE.

Joseph Du Rieu from CBRE told the Financial Review it was his understanding the new owners intended to convert the warehouse into a large-format retail centre. The previous Bunnings Warehouse measured 6500sqm and stands on a site of almost 22,000sqm.

Bunnings Mackay also sold

Another Bunnings Warehouse located in South Mackay (QLD) has been purchased by listed property trust, Charter Hall Long WALE REIT for approximately $28.5 million, reflecting a yield of 5.95%.

The $830 million Long WALE property trust - its acronym refers to weighted average lease expiry - was launched in November last year through a spin-off of properties held across the Charter Hall's unlisted platform.

Charter Hall has a strong relationship with Bunnings and has an ownership stake across its managed funds platform in 34 Bunnings stores valued at about $1 billion.

Related:

Big box update: Bunnings gets bigger in Shepparton - HNN Big box update: Mackay Bunnings up for sale - HNN

Bunnings Colac on the market

Real estate firm, CBRE Victorian Retail Investments is handling the sale of Bunnings Warehouse in Colac, western Victoria.

Located at 130-138 Bromfield Street, the 6,500sqm property is secured by a 10-year net lease to Bunnings. The big box retailer has been operating from the site for two years.

CBRE is selling the property on behalf of a local syndicate who have owned the property since developing the site in 2011. Justin Dowers from CBRE said:

Bunnings Warehouse assets have been a highly sought after investment vehicle over the past two or so years - and given the fixed rental growth of 2.75% per annum and the secure lease in place, we anticipate this property to be well received.

Proposed store for Frankton Flats, NZ

Bunnings has plans to build a big box store on a 1.62ha site at Frankton Flats in Queenstown, New Zealand.

Bunnings New Zealand general manager Jacqui Coombes told the Otago Daily Times the company had lodged a development application for a store, which would front State Highway 6.

The application said Bunnings' planned 8119sqm store would be divided into a main warehouse building, timber trade sales area, outdoor nursery and a building materials and landscape yard, along with 134 car parks.

The only other store in Queenstown of a similar size is Mitre 10 Mega, about 150m from the Bunnings site, which is 8000sqm. That opened 18 months ago.

The application said Bunnings would help develop the construction sector "and will contribute to lowering the costs of construction, which in turn will assist in delivering more affordable housing, among other projects".

The Queenstown Lakes District Council had "raised concerns" about the company occupying industrially zoned land. Its planner, however, quoted a report that "categorises [Bunnings] as, in many ways, akin to an industrial activity".

The retailer is also consulting with the NZ Transport Agency. If approved, it would be the South Island's sixth Bunnings Warehouse. The nearest to the proposed store is in Dunedin.

Grey Lynn NZ store for sale

The newly-opened Bunnings Warehouse store located in Grey Lynn, an inner suburb of Auckland, New Zealand is on the market.

Surrounded by some of the country's wealthiest suburbs, the 7207sqm site is one of the biggest private landholdings in Auckland's city fringe. Bunnings will take a new 12-year lease with eight six-year rights of renewal when a sale is settled. Whillans Realty Group managing director, Bruce Whillans, told the New Zealand Herald:

[Bunnings] chose this site because of its prominent corner position and frontage to Great North Road, which is a major arterial route connecting Auckland's inner west suburbs with the CBD.

The new store has been constructed using a steel portal frame, precast concrete walls and reinforced concrete floors to provide a building area of about 8872sqm. There are two levels of car parking with 212 bays connected by two sets of travellators and lifts to the main retail and trade areas.

The nearby suburbs are undergoing substantial development and intensification because of the city's strong population growth. Demand for closeness to the CBD by both homeowners and businesses is pushing land values higher.

Five of Auckland's 10 most affluent residential suburbs are within a 3km radius of Bunnings Grey Lynn. Over the past two years, about 300 apartments have been built within a 1km radius of the property, with a further 500 units under construction.

Related:

Big box update: Bunnings NZ makes changes to Grey Lynn store - HNN
bigbox

Big box update

Woolworths closer to selling Masters sites

Proposal for Bunnings Edwardston store and accommodations for Bunnings NZ store

US home improvement retailer, Lowe's has been court-ordered to sell its shares in Masters; Bunnings lodges plans for $45 million store in Edwardstown (SA); Woolworths successfully appealed a Supreme Court judgement over a Masters store that was never built; the Bunnings Devenport store in Tasmania should be open in 2018; and a Bunnings NZ store in Grey Lynn is trying to blend into the local neighbourhood.

Lowe's to sell stake in Masters: arbitration

Woolworths recently announced that US retailer Lowe's is required to sell its 33% stake in joint venture vehicle Hydrox Holdings, the corporate entity that owns Masters Home Improvement, following court-ordered arbitration between the two parties.

The value of Lowe's stake in the failed Masters business will be determined by a third-party independent expert, then Woolworths will be required to pay that amount to its former partner.

The sale of Lowe's shares to Woolworths will enable the Australian retailer to then sell the business to Home Consortium. The statement from Woolworths said:

As a consequence of [the] award, Woolworths will be able to conclude the proposed transaction with Home Consortium without the consent of Lowe's, once the final valuation and share transfer processes have taken place.

In August last year, Woolworths announced that Home Consortium - which includes families behind Chemist Warehouse and Spotlight - would buy 40 Masters freehold sites, 21 Masters freehold development sites and 21 Masters leasehold sites.

In addition, it said it would sell inventory for about $500 million and sell the Home Timber and Hardware Group business for $165 million to Metcash.

Combined, Woolworths said it would reap $1.5 billion in gross proceeds from the three deals, but only $500 million after costs and prior to shareholder payments.

Lead up to arbitration

Woolworths and Lowe's have been arguing over the value of the latter's 33% stake. Experts hired by Woolwoths have judged the stake to be worth nothing, while Lowe's has said it is worth $654 million.

Lowe's also accused Woolworths of acting in bad faith when it offloaded 82 sites to the Home Consortium as part of its exit from its Masters hardware business.

The legal wrangling had delayed the completion of the $750m agreement as Lowe's was unwilling to sell its 33% stake in the joint venture.

Woolworths said the latest development would allow the conclusion of the proposed sale to Home Consortium without the approval of Lowe's.

Bunnings submits plans for Edwardstown

The inner suburb of Edwardstown located 6km southwest of Adelaide (SA) could be the location of a new Bunnings store. Developer Commercial & General has lodged plans for a $45 million Bunnings Warehouse at 1028-1042 South Road, Edwardstown, the site of a former Bridgestone factory.

Bunnings also continues to negotiate with Mitcham Council over a $42 million store proposed on Goodwood Road, Panorama. The big box retailer has not confirmed whether the latest plans are instead of or as well as those for Panorama. The two sites are 2km from each other.

However Southern Business Connections co-chairman Phil Ransome believes the site would be better used as a start-up business hub like the former Mitsubishi factory at Tonsley. He told Adelaide Now:

Bunnings will attract people to the area, but how many Bunnings can you go to?

He said the area was already congested with the Castle Plaza shopping centre just to the north and Melrose Plaza on the other side of South Road.

Mitcham Council's Development Assessment Panel rejected the Panorama proposal in August 2016 because of concerns about landscaping, paving and a lack of trees. A court appeal by local resident Neil Baron is on hold while Bunnings works out revised plans with the council.

The 4.3ha Edwardstown site is in the Marion Council region but the development application will be handled by the State Government's Development Assessment Commission. It is still owned by Bridgestone and car parts maker Toyoda Gosei, which ended operations there in 2015.

Mitcham mayor Glenn Spear said he would be disappointed if Bunnings did not go ahead with redeveloping the Panorama TAFE site, which was looking "shocking" because of vandalism. He said:

Bunnings has bent over backwards to appease residents' concerns about the site. They've been very good corporate citizens.

The Bridgestone site is still listed as for sale, and the Marion and Mile End stores will not be closing.

Related:

Big box update: Assessment for Bunnings Panorama - HNN

Woolies' wins appeal over Masters in Bendigo

The Court of Appeal has ruled in favour of Woolworths in its $14 million legal battle with a landowner over its failure to build a Masters Home Improvement store in Strathdale, Bendigo (VIC).

Woolworths successfully appealed a Supreme Court judgement that it pay $10 million in damages and $4 million interest to North East Solution Pty Ltd (NES).

The trial judge had initially found that both Woolworths and Masters had breached the terms of an agreement for lease of a property on the McIvor Highway on which a Masters store was to be built in 2010. The judge found that Woolworths had not acted in good faith and reasonably and ordered that it pay NES damages of more than $10 million and interest of over $4 million.

The Court of Appeal has set aside those orders and made orders dismissing the claim by NES.

The agreement for lease provided for Woolworths and NES to negotiate reasonably and in good faith the amount that Woolworths would contribute towards the construction costs of the Masters store. The trial judge found that Woolworths had failed to comply with the obligation in a number of respects.

In allowing the appeal, the Court of Appeal concluded that there was not sufficient evidence to prove Woolworths failed to negotiate in good faith.

The store was to be built on the McIvor Highway in Strathdale in 2010 on land owned by NES.

Woolworths ditched the deal with the company to chase a lease on another site in Bendigo being pursued by Bunnings.

Related:

Landlord sues Masters over lease - HNN

2018 opening for Bunnings Devonport

The construction of a Bunnings Warehouse in Devonport (TAS) is continuing. The store is taking over the K&D Warehouse site at the Devonport Homemaker Centre.

The Bunnings development was originally proposed for a site at Stony Rise Road next to the Devonport Homemaker Centre. Towards the end of 2015, $2 million was spent on site preparation for the warehouse chain and a smaller development.

Bunnings general manager - property, Andrew Marks has not provided an update on the future of Stony Rise Road site. He told The Advocate the $19 million store is expected to open in 2018. He said:

Construction works are currently underway and progressing as planned at the new Bunnings Warehouse Devonport site.

Fairbrother Construction has been contracted to build the store.

Related:

Big box update: Bunnings moving into Devonport - HNN

Bunnings NZ makes changes to Grey Lynn store

A controversial new Bunnings store that a group of Auckland residents fought hard to stop, has recently opened. However, the big box retailer says it will operate in a way that aims to make it less intrusive in the neighbourhood.

Jacqui Coombes, Bunnings NZ chief executive, showed the New Zealand Weekend Herald how the chain's first inner-city warehouse would have smaller delivery trucks, an internal truck turntable to ensure delivery vehicles did not back out on to the street and lower noise levels broadcast into the surrounding areas.

After a long battle, the Arch Hill Residents Association won concessions in the Environment Court: nearby houses must be checked for structural damage from the building work, summer trading hours are limited, loudspeaker use will be controlled and traffic slowed.

Ms Coombes said the three-level store is a NZD42 million (AUD39.2 million) investment by the Wesfarmers, which expects 3500 customers a day. She showed how trucks arriving at the city store could not be any more than 7m long because they would not fit on the turntable.

The nursery on the northern side has only two speakers and broadcast volumes would be controlled, she said.

We're very conscious we're operating in a high-residential-use area so we cut down on traffic flow and noise. People will come here and we'll continue to work with the local community. We want to be part of the community.

Ms Coombes also said the new store would be the 54th New Zealand Bunnings and the 349th Bunnings store in Australasia.

David Batten, a Grey Lynn Residents Association board member, said:

The store is what it is. Our views haven't changed at all, to be honest. This came out of mediation. Bunnings has showed themselves to have attempted to be good neighbours.
bigbox

Big box update

New Bunnings in Lilydale

Bunnings' position on Tasmanian timber and continued store expansion in Queensland

Bunnings to open a store in Lilydale in Melbourne's outer eastern suburbs; Dandenong store staff relocate to ex-Masters store in Dandenong South (VIC); Bunnings has ruled out sourcing timber from 356,000 hectares of forest the Tasmanian Government plans to open to logging; a new Bunnings store for Gatton in the Lockyer Valley (QLD); construction on East Albury store could start in mid-2017; a Bunnings store is planned for Westgate, New Zealand; a site in Jolimont (WA) has been purchased by Bunnings; the Palmerston warehouse in the Northern Territory will be replaced; and Bunnings puts Warwick (QLD) up for sale.

Lilydale gets its own Bunnings

Bunnings is building a $16 million store the outer eastern suburb of Lilydale (VIC), at the site of the old Olive Tree Shopping Centre on Main Street. The store is expected to open in mid-May.

Yarra Ranges Mayor Noel Cliff said the opening of the retail giant would be good for the shopping precinct. He told Leader Newspapers:

Lilydale needs to start filling that centre. It will hopefully bring activity into Lilydale and liven up the place.

The planning application, lodged by the big box retailer in July last year, met with controversy on Lilydale Leader's Facebook page, with more than 160 comments.

Local resident, James Head said he thought the local population was not big enough to support both small businesses and large chain stores. While Sandra Williams said plans could affect traffic congestion near the train station.

But others thought it was a great idea. Andrew Driscoll said: "Totally a great idea. Especially if it's combined with Dan Murphy's". And Lauren Jarvis said the store was closer to her home and had extended opening hours on weekends.

Ex-Masters Dandenong store

In the Melbourne south eastern suburb of Dandenong, the Bunnings store is relocating to Dandenong South (VIC), formerly a Masters store. Bunnings general manager - property, Andrew Marks said the company had entered into an agreement with the landlord of a site at South Gippsland Highway and Princes Highway to convert it into a new Bunnings store. He told Dandenong Journal:

Following necessary conversion and reformatting works, all team members from the current Bunnings Warehouse Dandenong, will relocate to the new store.

Mr Marks said works would start in the coming months, with the store set to open in the middle of the year.

Bunnings takes a stance on timber

Bunnings said it will not sell timber sourced from contentious Tasmanian forests that the State Government wants to re-open to logging earlier than planned.

Labor leader Rebecca White recently tabled a letter in State Parliament sent by Bunnings managing director Michael Schneider to Premier Will Hodgman and former Labor leader Bryan Green.

Mr Schneider wrote that Bunnings had "no desire" to be drawn into the debate over the government's forestry Bill, but that the company had been asked to confirm its position.

We have been consistent in stating publicly that we welcome an outcome that supports the timber industry, local communities and the environment. Our Tasmanian suppliers have advised us that they will not be sourcing our timber from outside their existing coupes.

Bunnings had a "long-standing commitment to pursue sustainability across our operations by striving to make them socially responsible and economically viable," Mr Schneider said.

The company had "committed a zero-tolerance approach to illegally logged timber almost two decades ago...and we can now state with confidence that more than 99% of our timber products are sourced from low-risk plantations or verified legal and sustainable forest operations".

"We recognise consumers are increasingly aware of issues relating to procurement and expect to know the source of timber they purchase," Mr Schneider said.

The government tabled legislation to open 356,000 hectares of forests that had been set aside under the former Tasmanian Forests Agreement, including forests on Bruny Island, Wielangta, the Tarkine and the Blue Tier, from July next year. It wants to allow logging on this land otherwise protected under a moratorium until 2020.

Premier Will Hodgman told Parliament that he respected Bunnings' right to choose not to use the wood, but said the legislation would help end subsidies to the industry and support jobs and regional areas.

Another Bunnings for Lockyer Valley

Planning for a new Bunnings store in Gatton (QLD) is going ahead following approval from the Lockyer Valley Regional Council. A council spokesperson told The Chronicle planning approval was given to Bunnings in December 2015 for 289 Eastern Drive, Gatton.

The Bunnings location sits just outside of the town, a few minutes from the CBD. The spokesperson said:

The property is 7.84ha in size, with Bunnings to occupy 2.14ha of the total area.

However, since the project was approved, no work has started at the site which would be the town's only hardware store after the closure of Mitre 10 in early 2016.

The Lockyer Valley has one other major hardware store, Plainland's Hardware and Rural Centre at Plainland about 10 minutes from Gatton. The spokesperson added:

A start date for construction is not known as there is no requirement for a developer to provide this information to council.

The spokesperson said the big box retailer had four years to commence construction, which could push the start date to December 2019 at the latest.

Bunnings property general manager Andrew Marks could not confirm a start date, but did confirm the approval for the new Bunnings store. He said:

The timing and details of the project have not been finalised at this stage.

The Bunnings Gatton store comes after the current construction of a second warehouse for Toowoomba and one for Dalby, which has yet to begin construction, but is set to be finished by the end of the year.

The Gatton location is part of Bunnings' expansion in Queensland announced in 2014.

Related:

Big box update: Bunnings $810m QLD expansion - HNN

Mid-year start for East Albury store

Bunnings is looking at a mid-2017 building date start on its East Albury (NSW) warehouse.

A former Kimberly Clark factory site is being cleared to make way for this store. Once complete, it will be one of the biggest in Australia and replace the existing store located on Young Street in Albury.

Bunnings' trade centre in Wodonga is also relocating to East Albury.

Demolition work on the factory, which shut nearly two years ago, where Bunnings will be built is nearing completion.

Ballarat-based construction firm, H. Troon, has been confirmed as the builder for the $20 million project. Troon has built Bunnings stores in Queensland, NSW, Victoria and Tasmania. Bunnings general manager - property, Andrew Marks said:

The new warehouse is expected to create approximately 70 new jobs once open, as well as continued employment for team members transferring over from the existing warehouse and trade centre.
Construction is due to commence in mid-2017...The new store is expected to open early 2018.

Bunnings gained development approval from Albury Council last year to build the 20,000sqm warehouse plus 400 car parks.

A 24-hour service station and convenience store is being built on the opposite side of Drome Street next door to the McDonalds restaurant. Plans have also been lodged recently with council for Total Tools to build next door to McDonalds.

Peards Garden Centre, located nearby received development consent for a reconfiguration of the business estimated to cost almost $1 million.

Bunnings Bendigo sold for $14.46m

The sale of a Bunnings Warehouse located in Kangaroo Flat, Bendigo (VIC) for $14.46 million was a highlight for real estate agents Burgess Rawson recently - and not just because it achieved the top result of the day.

The 8600sqm on the Calder Freeway looked set to be surprisingly passed in on a vendor bid of $14.4 million before the owner, 72-year-old Guiseppe Scaturchio, stood up and demanded that auctioneer David Scholes, who had been growing increasingly impatient, give him more time. Fairfax Media reports that Mr Scaturchio said:

You spent 30 minutes selling a service station, this is a Bunnings.

He then resumed whispered discussions with his selling agent Raoul Holderhead, who had been dashing back and forwards across the auction room at Crown casino between his vendor and the highest bidder, a local investor.

In the end, the Bunnings sold on a relatively high yield of 6% for the Wesfarmers-leased property.

A factor in the lacklustre bidding was the relative short length of the Bunnings lease of just five years (with renewal options) meaning an investor might be left with an empty warehouse in a few years.

A Bunnings in Bathurst in regional NSW underpinned by a 12-year Wesfarmers lease sold for $25.5 million last December on a yield of 5.35% while Bunnings warehouses in Osborne Park in WA and Swan Hill in Victoria transacted on yields recently of 4.65% and 5.09% respectively.

Bunnings being built in Westgate, NZ

The fast developing regional town of Westgate, north-west of Auckland in New Zealand is set to get a Bunnings store. Plans for this Bunnings Warehouse were announced in February 2016 with an opening date in the first half of the 2017 financial year.

Bunnings Warehouse in Westgate would be spread over a 17,000sqm site.

But the signs on the proposed store's site had been taken down. This prompted speculation on social media that Mitre 10 Mega in Westgate was the reason the Bunnings Warehouse signs had been taken down.

Theories included that rival Mitre 10 Mega had launched legal action to stop Bunnings operating in Westgate; an overspend at another store forced Bunnings to sell the land; that the company failed to obtain resource consent; and a rumour Bunnings had taken Auckland Council to court over proposed road changes.

However, Bunnings Group senior public relations co-ordinator, Veronica Castro, told Fairfax New Zealand the signs and mesh hoarding were taken down because they were damaged in a storm and needed to be replaced.

Bunnings Group general manager New Zealand, Jacqui Coombes said construction of the new store will begin in the coming months. Ms Coombes said the details of the project had not been finalised yet and an opening date would be announced as soon as possible.

Bunnings buys Jolimont site

Bunnings has bought a 9984sqm landmark development site on Hay Street, Jolimont (WA). Bunnings general manager - property Andrew Marks confirmed to Western Suburbs Weekly it had purchased the site. He said:

Plans for the development of a new store are in the early stages, and will be subject to development approval. If approved, it is expected that the new site would replace the current Homebase Subiaco store...

The City of Subiaco-owned land attracted multiple bidders at the onsite auction held by Colliers International. Agent Tory Packer said the site between Tighe and Bishop Streets had more of a commercial target market. She said:

There were a few commercial players involved in the enquiring and bidding. And there was quite a crowd; maybe 30 to 35 people.

Bunnings Palmerston is on the move

The big box retailer is planning a new development about 4km from its existing site which is close to the Palmerston CBD in the Northern Territory.

Bunnings general manager - property Andrew Marks said the company was in the process of preparing a development application for a new Bunnings Warehouse just off the Stuart Highway at Pierssene Road, Yarrawonga (NT). He said:

If approved, Bunnings will be investing approximately $58 million in the development. This includes the fitout and stock for the new store. [It] will be a bigger and better warehouse. It will replace the existing Palmerston Warehouse on the corner of Roystonea and University Avenues.

Mr Marks said the new Bunnings Warehouse Palmerston was expected to provide employment for more than 230 local residents, and create more than 250 jobs during construction.

Bunnings did not say what it would do with its current Palmerston site.

Bunnings Warwick property for sale

The Bunnings store in Warwick (QLD) has been offered to the market via expressions of interest which closed on April 12. Bunnings Group Limited has a five-year lease through to October 2018 and are paying an annual net rental of $172,096 per annum. In his pitch to potential buyers, Markus Eames from commercial real estate brokers, Cushman & Wakefield said:

The property offers excellent frontage in an established commercial precinct with principal centre zoning. Positioned in Warwick's CBD the property is in close proximity to other key retail and business premises...
Not only does this asset represent a great rental return from Australia's leading hardware retailer, there is also fantastic future upside with a prime land component of 6916sqm over 10 lots combined with a 2075sqm of building which will provide a number of future alternatives for redevelopment.
bigbox

Europe update

A look around B&Q's new London store

Bunnings UK & Ireland planning ecommerce and profits decline at Travis Perkins

Inside Retail Group takes a tour of B&Q's small-sized London store; an online store is in the works for Bunnings UK & Ireland; DIY event is renamed for 2018; Travis Perkins reveals a profit slump; and Grafton Group looks at growing its presence in Europe.

B&Q breaks away from big box format

Steve Collinge, managing director, Insight Retail Group takes a closer look at the smaller format 3,000sqft (280sqm) B&Q store on Holloway Road, North London.

The B&Q "City" store occupies a former post office, and its closest competitors include Screwfix in Kings Cross (1.9kms away), Homebase almost 2.6kms away in Haringey, a B&Q mini-warehouse, Wickes and Selco in Tottenham (around 5kms) and a B&Q Supercentre in Barnet (5.9kms). The nearest independent hardware store is Woodland Hardware located 1.6kms away on Highbury Park.

The store carries the new, simplified B&Q branding originally seen in the B&Q Cribbs store and has now been rolled out to a further seven revamped stores including the Milton Keynes warehouse.

The team consists of 15 full and part time staff, almost all of whom are new to B&Q, but with extensive high street retailing experience. They have all been through the B&Q training programmes, which is critical in a store of this size where you have to be multi-skilled and understand all departments.

A lot of attention is paid on the added value propositions. In this store, there is key cutting, click 'n' collect, paint mixing, Hertz van hire and customers can get a kitchen designed by a professional kitchen consultant.

Deciding on the range to squeeze into a 280sqm store, less than 2% of the size of a typical B&Q warehouse format is a challenge. Product categories represented including kitchens, wallpaper, timber, tiles and wooden flooring.

The Kingfisher brands tend to dominate in-store. In the categories where brands still exist, hand tools for example, the offer is very simple with brand leader Stanley and B&Q's MACAllister. In painting and decorating accessories, it's Harris and B&Q's Diall.

With the exception of the opening offers, which run for 10 days or until stocks are exhausted, all pricing is national, both for stores and B&Q's website DIY.com. Dulux white emulsion, DeWalt power drill, Karcher Window Vac and bistro garden furniture are part of the opening offers..

To read more about Mr Collinge's views on B&Q's North London store, click here to see the full story:

A tour of B&Q's new London store: Steve Collinge, Insight Retail Group - LinkedIn

The smaller format is part of a trial by B&Q owner Kingfisher to adapt to changing shopping habits. The company said that the trial store would provide shoppers with an offer focused on home decoration, repair and maintenance as well as having a click and collect options which will allow them access to its range of 35,000 SKUs.

As a trial store, a Kingfisher spokesman said that it wouldn't necessarily pave the way to hundreds of other similarly sized stores opening.

Related:

Europe update: B&Q signals a change in direction - HNN

BUKI commits to online store

Bunnings plans to launch a transactional online store in Britain within the next 18 months.

In a presentation to analysts and investors ahead of store tours recently, managing director of Bunnings UK and Ireland (BUKI), Peter Davis said the retailer needed to offer customers the ability to buy online to succeed in the highly competitive GBP38 billion (AUD61 billion) UK home improvement market. He told the Financial Review:

In this (UK) market we believe strongly we need to be transactional...We're working on that right now.

Homebase - now owned by Wesfarmers -- already has a transactional website, which will transition to a new digital platform over the next few months.

As Bunnings opens new-format stores under the Bunnings brand in the UK, the retailer will build out a digital eco-system that includes product information and how-to demos, mirroring its digital offer in Australia. Mr Davis said:

We have a holding website for Bunnings UK, our next step is to really lift that and make sure it has strong pre-shop engagement for the UK. It should be transactional within 18 months, that's what I'm personally aiming for. We're not in a rush but we want to get it right.

Mr Davis also told analysts that he recognised the UK market, unlike Australia, was not about "pergola, deck or pool'' but was "all about living inside''. He said:

I don't pretend for one moment that outdoor living is as significant in the UK as in Australia but we have had more success with barbecue and garden furniture than we originally expected" over the "dark months" of the winter.

Mr Davis said sales after October 1 had been good in outdoor living, suggesting Bunnings was seeing or bringing change to UK buying patterns.

The UK hardware market is very fractured with the top two players only having less than a 15 per cent market share.

The Australian reports Mr Davis unveiled his plans over the next five years to expand and enrich the Bunnings UK shopping experience. He said despite the uncertainties around Brexit the fundamentals of the hardware sector remained strong.

To back up its expansion plans in the UK, Bunnings has invested GBP130 million in fresh stock and begun renovating dilapidated Homebase stores.

DIY event rebrands for 2018

Taking place on 3-4 June 2018, the National DIY Show will be held at the Ericsson Hall at the Ricoh Arena in Coventry (UK). The event will switch to running the show on a Sunday and Monday.

Formerly known as Totally DIY & Tools, the show will have the same DIY and builders' merchant visitor base, with the Sunday opening day enabling hardware retailers to attend without taking valuable time out of the business. Lucyanne Matthews, event manager of the National DIY Show, said:

Our focus over the last 20 years has been on providing innovative and international products for independent retailers. By returning to a Sunday show opening, we are responding to demands from this key section of our visitors. The show will feature various zones and plans are moving ahead towards a special new forum for the trade.

This year's Totally DIY & Tools show held on 14-15 February featured 80 exhibitors with a wider national and global base than ever before.

For more information, click on the following link:

National DIY Show 2018

Profits have slumped for Travis Perkins

Britain's largest supplier of building materials and Wickes DIY chain owner, Travis Perkins has posted a 67% decline in annual profits after taking hefty charges from branch closures and its troubled plumbing and heating business.

The group, which also owns Toolstation, revealed a GBP235 million (AUD377.5 million) impairment charge largely on its embattled heating and plumbing and tile businesses, which are under review.

Its retail chains Wickes and Toolstation are not affected by the overhaul.

It also took a GBP57 million (AUD91.5 million) hit to cover costs of its plan to shut more than 30 branches and a revamp of its supply chain. This left bottom line pre-tax profits down by more than two thirds, at GBP73 million (AUD117 million) against GBP224 million (AUD359.7 million) in 2015.

Revenue increased 4.6% to GBP6.22 billion (AUD10 billion).

Travis Perkins shares also came under pressure as it cautioned over challenges for the year ahead, with worries over the impact of the weak pound and a possible slowdown in the housing market. Chief executive, John Carter said:

The sharp decline in the value of sterling since June 2016 has created cost pressures on imported goods and materials, and the expectations for secondary housing market transactions and growth in the repair, maintenance and improvement market have weakened.

He cautioned that rising inflation was set to hit home buyer demand, which in turn could impact builder merchant sales. Mr Carter said:

Pressure on consumer discretionary spending from rising inflation could impact secondary housing transactions in the second half of 2017.
Any significant reduction in consumer confidence may have a more pronounced impact on big-ticket purchases such as kitchens and bathrooms which make up around 10% of the group's sales.

But Travis Perkins is hoping that any knock to sales will be "broadly" offset by price increases.

Results for 2016 showed underlying earnings slumped 21.7% to GBP36 million (AUD57.7 million) in its heating and plumbing division, but its Wickes and Toolstation division saw underlying operating profits rise 6.3% to GBP101 million (AUD162 million).

The company said it will report back on its plans to transform the heating and plumbing division at the 2017 results.

Grafton growing European presence

Builders suppliers Grafton Group is looking at further expansion throughout Europe.

Chief executive officer Gavin Slark recently said the company has a reasonably healthy pipeline of potential acquisitions and significant financial headroom for such activity.

He said that the group could comfortably spend 200 million euros (AUD279 million) on acquisitions if it so wished but will be looking for "good businesses in good markets with good management at the right price".

Grafton will, in the short-term, mainly continue to look at bolt-on buys in the UK and further acquisitions in the Netherlands where it has largely driven growth for the group since Grafton entered via acquisition in 2015. Its main Dutch business is specialist tools provider Isero. It contributed 10.4 million euros (AUD14.5 million) to group operating profit last year.

Mr Slark said that the medium-term objective is to expand into other European areas.

While acquisition opportunities are low in Ireland, the group will open three new Chadwicks building supply stores there this year. Mr Slark said the gradual growth Grafton is seeing in its Irish business is a good thing as it hints at more sustainable progress.

It owns Woodie's DIY retail chain, as well as a merchanting business. The Irish merchanting division grew revenue by 12%, last year.

While he sees some uncertainty in the UK market, Mr Slark said that he remains largely unworried about Brexit. Grafton's main exposure in that regard is via the repair, maintenance and improvement market.

Key to that sector's growth is consumer confidence and Mr Slark said that will only be properly gauged later in the year when there is more clarity and visibility around what a post-Brexit UK will look like.

However, he said management anticipates further modest growth in the British market this year.

Overall prospects for the current year remain favourable with continued growth in Ireland and the Netherlands expected to support an increase in profit in the year ahead.

Belgium remains the only underperforming market for Grafton, with revenues falling 11%.

Mr Slark said that the Selco merchanting business in the UK, the exposure to a recovering Irish market and having a leading position in the Dutch market are the three characteristics differentiating Grafton from its peers at present.

Related:

Grafton's multiple markets boost revenues - HI News, page 42
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Big box update

Bunnings building in Shepparton

Bunnings moving into Masters Albion site and former Masters staff gain jobs at Woolies

The Shepparton Bunnings store will be the second largest in Victoria; there are plans for Bunnings to move into the former Masters site at Albion Park (NSW); Bunnings' head office site has been sold; and several ex-Masters staff have transferred over to Woolworths supermarket stores.

Shepparton will be second largest in VIC

The $53 million Bunnings store being built in the regional area of Shepparton (VIC) is on schedule to open in mid-2017, according to the Shepp Adviser. It is set to become the second largest Bunnings Warehouse in Victoria.

Currently under construction at 90 Benalla Road in Shepparton, the new Bunnings' will see approximately 50 new jobs created following its opening, taking the team to approximately 180. Bunnings property - general manager, Andrew Marks said:

On-site, the majority of ground works are complete with construction progressing to the erection of structural steel and concrete wall panels. Bunnings Warehouse Shepparton will have an approximate total store size of 18,000sqm...The development will include a main warehouse, indoor timber trade sales area, building materials and landscape supplies yard and outdoor nursery, as well as an indoor playground and cafe and parking for over 410 cars...
Bunnings has been part of the Shepparton community for over 15 years and is looking forward to bringing a bigger and brighter offer with the new store.

Masters Albion site for Bunnings

Bunnings has flagged plans to move into the former Masters site at Albion Park (NSW). The Advertiser Lake Times reports that Bunnings has lodged a development application with Shellharbour council, seeking to modify the Masters consent.

Instead of being a classed as a "home improvement centre" Bunnings wants to create a "hardware and buildings supplies" store, and make a series of minor design modifications.

If approved, the Albion Park location would add a growing stable of Illawarra Bunnings outlets. A $30 million development is planned at Kembla Grange, and a store is underway at Russell Vale in addition to the three others in the region.

Bunnings' HQ sold off

The Bunnings head office based in Hawthorn East (VIC) has been sold for $24.7 million to a private syndicate. It was purchased on a yield of 6% in a deal negotiated by Colliers International's Peter Bremner and Rob Joyes, according to the Urban Developer.

Despite the sale, Bunnings' staff will continue to operate from the same location, having commenced another six-year lease in August, with an additional six-year option to renew.

Mr Bremner said the buyer recognised the property, which has a net lettable area of 5295sqm, as an "outstanding" opportunity to secure strong-performing real estate with a solid income stream in a prime location. He said:

Bunnings is Australia's largest private employer and largest company in terms of revenue and has been a long-term tenant since the building was specifically constructed in 2004. The building offered a predictable and secure cash flow stream until at least August 2022, as it continues to be Bunnings' national headquarters, plus significant future rent reversion in a thriving inner-east suburban location.

The off-market campaign achieved a quick turnaround, selling to the syndicate within two weeks of the first inspection.

Ex-Masters staff deployed to Woolies

Woolworths has found new jobs for more than 1500 of its former Masters workers in its supermarket chain, according to a report in Fairfax Media.

Approximately 1650 Masters staff of a workforce that used to total 6000, have accepted new roles at Woolworths. This represents a take-up rate that equates to just under half the number of people who were offered alternative jobs.

An additional 600 workers have taken roles at other, mainly hardware-aligned businesses through Woolworths' outplacement program implemented when the retailer announced plans to shut down the store network.

Woolworths home improvement human resources director Gillian Davie said workers who didn't take up alternative employment offers were able to gain redundancy payments, which included access to a job placement program. She said:

We are proud to say that every Masters store employee who wanted a job in Woolworths was given a job offer as per the commitment made by Brad Banducci at the time of the announcement of the home improvement exit.

Matthew Dickson was working as an assistant store manager at Masters but has moved from Newcastle (NSW) to take a store manager role with Woolworths at Coonabarabran, two hours from Tamworth.

Mr Dickson said it was quite a transition, moving from hardware to grocery but he said there was also a lot of similarities.

The main difference between hardware or home improvement and a supermarket is the product you are selling, you are still in a role where you are looking after a team and leading a team and making decisions based on the customers and that doesn't really change no matter what retailer you are working for.

Retail analyst Steve Kulmar said the high number of Masters staff moving across to the Woolworths chain reflected just how tough it was in the retail sector and he warned the outlook was uncertain for retailers that hadn't kept up with the shopping habits of the millennials. He said:

Millennials are now the dominant group and they have a very different approach to retail, which is more considered and they do a lot more research. They are inclined to shop less but they make very considered purchases and in-store or brand experiences play a massive role. A lot of retail businesses just don't know how to do that and I think they're secretly wishing they were still selling to impulsive baby boomers out of average stores.
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Wesfarmers-Bunnings sales results 2016-17 Q1

Results subdued due to inclement Spring weather

There has been substantially more rain along the eastern seaboard of Australia during September 2016 than there is on average

Australian retail/resources conglomerate Wesfarmers has announced its sales figures for its retail operations over the first quarter of its FY2016/17. Bunnings, Kmart and Officeworks performed well. Coles Food and Liquor returned a mediocre result. Target returned negative growth results.

>http://hnn.bz/bunnings-2017q1-results.png}Bunnings results for FY2016/17Q1}http://hnn.bz/bunnings-2017q1-results.png

Bunnings

Bunnings Australia and New Zealand (BANZ) reported sales of $2659 million for the quarter, up by 7.4% on the previous corresponding period (pcp), which was the first quarter of FY2015/16. Like-for-like store growth was 5.5%, according to the company.

These numbers were substantially lower than growth for the two previous first quarters. According to the company, there were two contributors to the lower numbers. The first was that Australia experienced wetter and cooler conditions throughout this early Spring quarter, resulting in an induced incentive to commence home improvement tasks. Additionally, the liquidation sale of Masters may have affected sales, though only for a limited proportion of the quarter.

In response to a question from an analyst, Wesfarmers Home Improvement CEO John Gillam commented on the factors which had impeded results for the quarter. He began by commenting on the difficulty of estimating any impact from the Masters liquidation sale:

If you think right back to February [2016], we talked about the risks of unprecedented liquidation event, because we thought it would be May/June, then we called it out again in August, because then there was more knowledge about it... There is no transparency over the volumes that are being liquidated, so your guess is as good as ours.

He also offered this assessment of the impact of the poor weather during Spring 2016:

I would point out...you've got to go back to about 2012/13 financial year to find a Spring that has been as late, and a Winter that has just kept going, and the water that has been around. We are very sensitive to weather. That is not new news. We call it out when we've got the wind at our back, and this time we're having to tack pretty hard to set up for the Spring. Hopefully, when the warm weather comes, there will be very good growing conditions, given the sort of moisture that is around. But, you know, Richard's [Goyder] comments at the start were there because it is very obvious that what started at the start of September has continued in October, and is continuing as we speak.

Bunnings UK

Bunnings UK reported sales of GBP320 million ($554 million), as Bunnings completed its seventh month of operating the acquired Homebase stores. Another metric offered by the company was total customer transactions, which it says increased by 8.4% as compared to the pcp.

Mr Gillam expanded on why Bunnings offered this particular measure, and the task that the company faces in developing Bunnings UK:

The reason we have included this [number] is that we are rebasing sales quite significantly. If you recall back on the June strategy day, my self and PJ spoke about the best number to think of is GBP1.2 billion across the full year, and there is a bit of a washing machine of product that was Argos coming out, and reported previous revenue, like Habitat that was part of Homebase [also going out]...and closing stores -- with all of those changes it seemed best to provide some measure of what is going on.
We are pleased with the progress, but there is a helluva lot to do. It is a big, big job we've got in front of us. Nothing too scary, but just lots to do. But eight months in, we're on track.

Analysis

The following map shows the normal, average rainfall pattern across Australia during September:

>http://hnn.bz/Aust-rainfall-avg.png}Average Australian rainfall for September}http://hnn.bz/Aust-rainfall-avg.png

The following map shows the rainfall for September 2016:

>http://hnn.bz/Aust-rainfall-sept2016.png}Rainfall for September 2016}http://hnn.bz/Aust-rainfall-sept2016.png

As these maps illustrate, there has been substantially more rain along the eastern seaboard of Australia during September 2016 than there is on average. Mr Gillam is correct in recalling this condition has not occurred since 2012, and is in this case slightly more severe. As Mr Gillam suggested, this kind of weather event is more likely to affect the timing of many sales rather than the extent. Lush conditions brought on by wet weather should help improve sales, and at the very least partially compensate for any renovation work that may have been postponed due to poor conditions.

It is likely that any impact from the Masters liquidation will show up more strongly in the results for the second quarter of the current year, with peak sales from the liquidation reached during October and November. However, Bunnings will after that be the sole big box hardware retailer operating in Australia, through an expanded network, and it seems very possible that in the second half any losses due to the Masters liquidation will be compensated for by increased sales.

It remains to be seen how competition between Bunnings and the two chains now operated by Metcash, Mitre 10 and Home Timber and Hardware Group, will play out. Given the difficulties of integrating a business that largely consists of independent retailers, it's unlikely a clear strategy will emerge much before the second half of calendar 2017.

As HNN has remarked previously, it seems unhelpful to try to estimate how the Bunnings UK business is doing, until at least the completion of FY2016/17. The indications, based on the numbers Wesfarmers has provided, is that Homebase is continuing to trade successfully. The first Bunnings UK store is expected to open in February 2017 at St Albans, with another three expected to open in the following four months. These will provide the first solid information on how the Bunnings concept can be translated to the UK

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Big box update

Bunnings UK outlines its strategy

Shepparton will have a bigger Bunnings store and Bunnings asks for land to be re-zoned

Bunnings unveils pilot store plans to the UK industry; larger Bunnings store planned for Shepparton (VIC); potential re-zoning for Bunnings-owned land at Tura Beach (NSW); Bunnings Yarrawonga is set to open; and Bunnings UK could present opportunities for some suppliers.

PJ Davis presents at UK event

Bunnings chose a recent networking forum run by BHETA (British Home Enhancement Trade Association) to outline plans for the roll out of the brand in the UK and Ireland.

In a presentation held at the Ricoh Arena in Coventry, Bunnings UK and Ireland managing director PJ Davis revealed that the first Bunnings Warehouse pilot store would open mid-February at St Albans in Hertfordshire.

This will be followed by at least three more pilot stores by the end of June as the company phases out the Homebase brand, and a further four to six by the end of 2017.

Industry publication, Horticulture Week reports that Mr Davis said the pilot would have a "wider assortment than anything you've seen in this country before". The UK pilots will also have the warehouse format. He added:

All the (range) changes we're going to make we've made.

Duvets and cups and saucers have been replaced by a lot more home improvement, timber, hardware and storage. Mr Davis said:

We'll buy where we can get best value and the best innovative product. It's not just value, it's easy to use. We'll source from wherever...

Mr Davis also said he and finance director Rodney Boys made some mistakes this year when adding GBP80 million (AUD132 million) of product to stop out-of-stock issues. He said:

We were not going to allow empty shelves. In some cases there was too much stock. Some stores were a bit messy.

Mr Davis told 350 BHETA members there is a "big job to be done" at Homebase, with areas such as tills and systems up to 20 years out of date. There are also distribution, legal, property and head office issues to separate from previous owner Home Retail Group.

Mr Davis believes the UK has a GBP38 billion (AUD68.2 billion) growing DIY market. He said Homebase stores are generally the right size and in the right places but he wants to add new builds as well as conversions.

Mr Davis said the 200,000sq ft. or 145,000sq ft. average Bunnings warehouse in Australia is too big for Britain because it is "hard to drive around here". He said Australian stores have a 15.5-minute drive time ideally, and up to AUD90 million turnover, "but in the UK 15 minutes doesn't get you far". He added:

We probably need a few more stores. I just don't think they will be as big. We'll convert a few pilots to find out what customers really want then convert a lot more. We also expect to build new stores and take over other properties, which is cheaper than converting our own stores.

In terms of pricing, Mr Davis said it will be "very difficult" to put prices up because wages are not rising as fast as inflation.

Many UK import prices have risen by up to 20% post-Brexit and retailers and suppliers are debating on who should bear the brunt of the increases. Mr Davis said:

Inflation is going to be driven by exchange rates not wages, which makes it very difficult to put prices up. If we put prices up, less will be sold. If wages were going up and there was more disposable income, it would be a good reason for prices to move.

He said pricing is about trust because people can search prices instantly on the internet.

They know when you're ripping them off.

Online

Mr Davis said Bunnings' website was in the top five in Australia with 130 million hits but bunnings.com.au is all about pre-shop and advice with its 760 how-to videos.

He explained how his father taught him how to change a tap washer and car tyre but younger customers are no longer taught these tasks. Mr Davis said:

We don't do online transactions in Australia.

He said customers don't like them and trust Bunnings to have product in stock so there is no need for click and collect. They also enjoy store visits "but this market is different. It will be a fully transitional site".

Lessons from Masters

Mr Davis said Bunnings had learnt from Lowe's setting up Masters as a failed rival to in Australia. He said this was "one if the most expensive case studies in the world when Lowes took us on", adding that they lost AUD3 billion and were "very arrogant" and Bunnings would not show the same attitude in the UK.

He said that he did not want his buyers to try and develop innovation:

We're hopeless at it and so are a lot of other retailers in this country...I want them [my buyers] to work out how to sell more.

Mr Davis said he wanted DeWalt or Bosch to wake up thinking, "How can we make better drills for less money?"

Mr Davis also sees advantages in older British homes with 40% being over 50 years old, in contrast to Australia's newer homes.

Bunnings gets bigger in Shepparton

Bunnings plans to build a brand new, larger facility on Benalla Road in the regional town of Shepparton (VIC).

The store's larger facility, with more car parking, space and jobs comes on the back of several other major projects in the area - the $70 million magistrate's court precinct, the $40 million Shepparton Art Museum and the relocation of the Coles Express service station to Riverside Plaza at Shepparton's southern entrance.

The investment should augur well for a growing city. It also poses some questions - what will become of the old Bunnings site?

Community uses

According to a recent article in the Gold Coast Bulletin, there are some interesting possibilities for empty Bunnings stores in Queensland, with local councillors checking out the recycling of large empty bulk goods stores.

For example, the former Bunnings Warehouse in Burleigh (QLD) has been earmarked for conversion to a community centre by Cr Pauline Young.

The councillor confirmed she was running the ruler over the store, which has been tipped by property industry insiders as a possible facility for the staging of the Commonwealth Games. She said:

We're running very tight on community centres in Burleigh and would like to think that post-Commonwealth Games we would be able to put something together. It's only very early days as far as the process goes...

This comes as the number of groups using council's community centres booms, with five new centres opening in the past four years. Cr Young also said buying a bulk goods centre offered other benefits.

We don't want to go out and design something and this store has already got car parking which is not metered so with a large number retirees looking to use a community centre that's perfect.

Bunnings' rezoning request

Another zoning review will be made of Bunnings-owned land at Tura Beach (NSW) after the big box retailer asked council for its support.

The review request follows the NSW Department of Planning and Environment's gateway determination that a change of zoning to B5 business, be refused. It is not the first time that owners of the land have tried to get the zoning changed without success, according to Merimbula News Weekly.

Some of the issues raised by NSW Planning were that the proposal did not fit council's view of Tura Beach as a village and the "primacy role of Bega" which it said was a "major regional centre".

The matter will be taken to the Joint Regional Planning Panel (JRRP). Director of planning and environment, Andrew Woodley said that it was council's submission going to the JRPP that, if successful, would go as a recommendation to the state government. If the government agrees to let the matter proceed, the rezoning would be publicly exhibited and receive submissions.

Only then, after a successful rezoning would Bunnings be in a position to lodge an application as development of this type is currently prohibited on this land, he explained.

Final prep for Bunnings Yarrawonga

Local newspaper, The Yarrawonga Chronicle toured the new Bunnings Yarrawonga store prior to its official opening.

A typical warehouse operation, it has an extensive garden and outdoor furniture range, paint supplies, a large tool shop and a two-lane trade drive thru. In line with the retailer's commitment to sustainability, Bunnings Yarrawonga will implement a number of energy and water saving design features including energy efficient lighting and rainwater harvesting tanks.

The new store forms part of the redevelopment of the Kaiela Industrial Estate on the Murray Valley Highway in Victoria and is more than 6,000sqm in size. Development of Bunnings Yarrawonga represents an investment of more than $10 million including a lease commitment, fit out and stock.

Deb Thompson has been appointed store manager and will oversee over 70 staff. She said:

Team members have supported a number of community groups already, working together to assist in local community projects including refurbishing the Fairy Garden, building a Mud Kitchen and raising garden beds at Yarrawonga Kindergarten as well as refurbishing the school veggie garden, fertilising, weeding and mulching the garden bed and fruit trees and installing a garden shed at Sacred Heart Primary School.

Bunnings Yarrawonga was sold to Chinese investors for a reported $11.5 million earlier this year.

Related:

Big box update: Bunnings Yarrawonga has Chinese owner - HNN

Bunnings UK looking to suppliers

There is an opportunity for garden suppliers to add to a broader offer being introduced by Wesfarmers-owned Bunnings UK, according to Horticulture Week.

Phase one of the new Bunnings-branded offer will be introduced over the next three-to-five years to "combine essential local elements with the best of Bunnings to build new business". This will include more local sourcing, including plants.

The warehouse format will include "lowest prices, wider choice with trusted brands and great service". Opening hours could be extended, and Bunnings will aim at trade as well as consumer customers, becoming more of a builders' merchant format.

The "always low prices" approach will mean not having discounter-style seasonal plant promotions and having more customer-facing staff. There will be higher stock weights and wider assortments, including for plants and gardening goods.

Wesfarmers will prioritise bringing higher store merchandising standards to Homebase, with refits likely. Bunnings stores are refitted every five or six years.

Long-term growth will be through a stronger team, better stock flow, higher productivity and deeper community involvement. This will all include more customer value, a better customer experience, greater brand reach and more merchandise innovation, which will be led by big brands. Rival B&Q has moved towards own brands in recent years.

Store closures have also stopped but Bunnings UK will not consider any new outlets until the pilots are working. Omagh in Northern Ireland is the latest of 18 stores to be reprieved within the chain after a renegotiation of tenancy.

Bunnings UK managing director Peter Davis and finance director Rodney Boys are leading a team that includes general managers Craig Castelino (merchandise), Shane Mealor (store development), Craig Wallace (operations) and Keith Murray (marketing). Property general manager Andrew Mason is ex-Halfords and Wickes. HR general manager Martina Kay is ex-Marks & Spencer.

bigbox

Big box update

Bunnings distributes Blanco

Suppliers say Masters is cancelling orders and Bunnings is bullish about the British market

A Blanco range is being distributed through Bunnings; supplier sources report that Masters has been cancelling orders; an update on the Masters inventory sale; Costco not interested in Masters sites; Bunnings CEO John Gillam is upbeat about Britain; decisions should be made soon on Bunnings stores in Coolum (QLD) and Warwick (QLD); speculation around Bunnings buying a site in Kingaroy (QLD); and the property where Bunnings Takanini in New Zealand is located is being sold.

Blanco brand in Bunnings

Appliance Retailer exclusively reports that a line of Blanco appliances including two ovens, a gas and ceramic cooktop, a telescopic and undermount rangehood is now being ranged in Bunnings stores. The move could represent a change in Bunnings' approach as it usually just stocks house brands, Everdure and Bellini, in the appliance category.

German-made Blanco is distributed and marketed by Shriro in Australia and New Zealand.

In the six months to June 30, 2016, revenue for Shriro fell due to a change in distribution for Blanco kitchen appliances in October 2015. The brand was previously sold in Harvey Norman and The Good Guys stores. It continues to be sold through Harvey Norman commercial channels. Shriro general manager of retail appliances, Craig Handley told Appliance Retailer:

With the departure of Blanco from traditional retailers Good Guys and Harvey Norman, and many longstanding customers loyal to the Blanco brand, Bunnings presents an ideal opportunity to reach millions of people who highly value the Bunnings shopping experience.
Bunnings is also one of the largest sellers of flat pack kitchens, so adding Blanco with the recognition and history it has will likely appeal to a large number of these kitchen customers.
A tight range has been selected designed to offer the customer real value and quality synonymous with the Blanco brand, with all products made in Italy and offering a four year warranty. I believe the Bunnings partnership positions Blanco well for growth in the future, and both existing and new customers will be delighted with the offering.

Masters "cancels orders"

A supplier - who wished to remain anonymous - has told Fairfax Media that Masters has attempted to cancel orders and suggested the fire sale was not going as well as expected. He said:

I understand week one of the sale went really well, the first week straight after the announcement, but after that it's been pretty terrible. What they had to do was go hard in the first week so people would buy and then tell their friends.

The supplier said there was a view within Woolworths that stock divestment specialist Great American Group Australia (GA), which is responsible for the inventory sell-down, had moved too slowly and failed to capitalise on shopper excitement about the closing down sale.

Some suppliers also claim Masters has tried to bring forward the delivery date for existing orders and warned it may not accept stock received after this new deadline which would free Woolworths from having to buy the products and limit the risk to GA of even more unsold stock.

Masters confirmed it has tried to bring forward supplier orders, but a Woolworths spokesman claimed this was only to give it more time to clear stock. He said:

It's not [on the basis that] if you can't bring the order forward it's cancelled. [It's] better for Masters, they have more time to clear stock and better for the suppliers, they get paid earlier.

A spokesman for GA said the only reason suppliers had been asked to bring forward orders was because the sale was going so well and it expected to get a big uptick in sales now the football grand finals were over.

GA claims the sale is ahead of schedule and the chain may shut down ahead of the December 11 deadline.

However, the closing down sale is not just stock on the floor at Masters or in distribution centres, it is also understood there are as many as 5000 pallets "on the water" which have not hit Australian ports yet, let alone distribution centres or stores.

Masters' inventory sale update

A number of newspaper reports have indicated that sales of Masters' inventory has at times broken company records but has been marred by consumer complaints of discounts that don't live up to the promised bargains. HNN believes the main effects of the sale on the industry may not be seen until mid-November.

Some customers have complained on social media about smaller discounts than expected, provoking angry exchanges with Masters more loyal supporters. On every occasion, Masters has apologised and promised to investigate.

Fairfax Media gathered a number of customer complaints regarding the sale for its article.

Masters fire sale doubles record daily sales with some complaints about price - Fairfax Media

News Corp. had a similar story about the Masters sale and referred to it as a "disaster".

This price tag perfectly sums up the disaster that is the Masters sale - News Corp.

Smartcompany.com.au has taken a look at the complexities of liquidating stock. Insolvency experts told the website that going out of business sales are incredibly complicated, and some of the specifics on the Masters arrangement are not known.

In broad terms, selling stock to a liquidator could lead to that liquidator setting prices and deciding on the amounts at which items are discounted to maximise the amount recouped -- then communicating the prices and information to a company's staff if they are still involved in operating the business. Managing director at Insolvency Guardian Jarrod Sierocki told SmartCompany:

What they're doing is a controlled sell down -- they're trying to sell as much stock at the best price that they can. If Masters has set an end date of December, I'd say they will fire sale everything right up until that time.

Gess Rambaldi, partner in the business recovery and insolvency team at Pitcher Partners, said a liquidation process doesn't have to have a formal time frame attached to it. If a public end date for a business is set, but all the stock is not sold by that time, it is possible for a liquidator to look at other ways of selling stock. He said:

It could be sold through the use of other agents, brought to different markets to different forums. One of the things that can happen is that they can remove the stock from the businesses and sell them off site.
Masters website shuts: complexities of liquidating stock - Smart Company

Costco has no plans for Masters sites

The Australian managing director of Costco, Patrick Noone said it would not be acquiring Masters' sites, referring to recent media reports as a "mix up". He said speculation the company was acquiring Masters sites around the country was "incorrect".

Numerous media outlets reported the retail giant had its eyes on soon-to-be vacant sites. Mr Noone said the confusion appeared to have come from a consultant suggesting in the media that Costco take over the failed stores.

Retail analyst and managing director of Marketing Focus Barry Urquhart told news.com.au that it would be a smart move for Costco to take over Masters sites. Purchasing the abandoned Masters stores would be a logical plan, according to Mr Urquhart, as they were built for shopping in bulk. He also believes purchasing the former hardware sites would not be a risky move for the discount supermarket. He said:

Simply, Masters wasn't around long enough to establish an image or position in consumers' minds. Masters was not successful, all the stores had annual sales that never exceeded the annual profit of Bunnings, so there'll be a lot of 'virgin' consumers walking into these stores that used to be Masters.
Costco sets its sights on failed Masters warehouses - News Corp.

Ballarat has a Masters at Wendouree, which will close with other stores around the country by December 11.

Plans for the Home Consortium - comprised of Aurrum Group, Spotlight Group and Chemist Warehouse - to take over the lease at Eureka Homemaker Centre and redevelop the site into a large format retail centre are unchanged, according to a company spokesperson.

Bunnings remains confident about UK

Bunnings CEO John Gillam spoke recently at an Australian British Chamber of Commerce event in Melbourne. He said the big box retailer is no "one-trick pony" and the fragmented nature of the British home improvement sector presents a lucrative opportunity.

He also said it has experience running smaller stores, with a quarter of Bunnings outlets the same size as those it picked up in its British Homebase acquisition. He said:

One of the things we are most remarkably misunderstood on is people think it is the same Bunnings warehouse everywhere. We have got about 330 trading locations across Australia and New Zealand and there are hardly two that are the same.

Mr Gillam said Bunnings was well versed in getting the best out of smaller shops. He said:

Twenty-five per cent of our fleet across Australia and New Zealand is the same size as the Homebase fleet so we understand merchandising intensity in that size format. We have embraced variability on property size as a way of fuelling growth versus trying to find the same site everywhere and being stymied by our inability to do that.

Mr Gillam said the British market was highly fragmented, with the top two players having a combined market share of less than 15%.

We see a more fragmented market and that is attractive to us...We paid for a platform...it's very hard to get a network and start from scratch and that has proven to be in this (Australian) market.

Mr Gillam said the Homebase turnaround was a long-term project and Bunnings would be experimenting with various store formats in its early rollout.

We don't expect the first store to knock the lights out. Stores one, two and three have got to do some different things as we work out what is more impactful and more space efficient and more customer friendly.

Succeeding in Britain

Mr Gillam also talked down the risks from Britain's planned exit from the European Union while urging patience as the group "learns like crazy" through its British expansion. He believes the long-term opportunity in the British market was exciting and its Homebase acquisition set a platform for a "new Bunnings", according to a report in The Australian.

Eventually the group will completely overhaul all Homebase outlets with the Bunnings livery, but this will take place steadily over a broad two- to five-year time frame as it refines its strategy. He said:

We could be in stage one for quite some time and that won't bother us.

Mr Gillam added that the integration was proceeding "boringly well", while also warning significant supply chain work was needed to repair a business plagued by poor stock availability. He said:

Out of stock levels were possibly the worst we've seen from any player of scale in our sector globally.

Not long after Bunnings purchased Homebase, confidence in the British economy was hit by the yes vote in the Brexit referendum. It caused a severe weakening of the pound but Mr Gillam said the vote would not affect Bunnings' plans. He said:

Brexit was a very obvious risk. [But] over the long term we think the market characteristics that attracted us to the UK don't change.
The ageing housing stock gets older, the population ages and has more needs, and the population grows and has more demands. And the way that people use their homes and gardens...we think supports a strong home improvement and garden operator if we can get our offer right.

Mr Gillam believes the shock Brexit vote could offer opportunities in expanding its network as property prices potentially stall.

The UK property market post-Brexit has probably got a little bit more pause in it in terms of price appreciation than it had before and we certainly don't want to waste that opportunity.

Decision expected on Bunnings Coolum

Bunnings' third attempt at getting a store approved in Coolum (QLD) will be decided soon. However the Sunshine Coast Daily believes the big box retailer will be knocked back at establishing one of its warehouses in the region.

Sunshine Coast Council officers have recommended refusal as the scale of the development sits outside the planning intentions of the area, with visual amenity a major factor in the advice given.

Almost 1000 public submissions were made to the council on the proposal. Out of the 982 properly made, 980 were opposed to the development.

One of the arguments made against the development has been the impact it would have on local employment. The other side of the argument is that a new Bunnings would be a boon for local employment.

The council's economic development branch advised a 5850sqm store would deliver about 70 extra retail jobs, delivering about $15 million per year in economic impact and 113 ongoing jobs based on "economic modelling".

The branch was broadly supportive of Bunnings' argument the development would not significantly impact other higher-order centres or "compromise the role of Coolum Beach and its intended function".

Surveys conducted by opponents of the Bunnings proposal found 18 local businesses in similar sectors (hardware, garden, landscaping etc.) were currently operating below capacity. Coolum resident Fiona Sykes found 127 employees were currently employed by those 18 businesses, but that could rise to 184 employed if local stores were operating at full capacity.

Bunnings' latest proposal for a 5850sqm store was the smallest of the three put forward. The previous two proposed stores had gross floor areas of 12,150sqm and 8600sqm respectively.

Related:

Big box update: Opposition gathering in Coolum - HNN

Consideration for Bunnings in Warwick

A decision on the Bunnings site for Warwick (QLD) is expected at the next Southern Downs Regional Council meeting.

Public submissions on the plan for a new Bunnings store on the flood plain at the corner of Canning and Condamine Streets near Warwick East State School closed recently.

It is understood that at least a dozen business and property owners in the vicinity of the site have lodged objections, with at least one engaging a professional planning consultant from Brisbane to put their submission together.

Alan Olsen of Olsen's Home Timber & Hardware insisted it was not Bunnings the residents had a problem with. He told the Warwick Daily News:

It could be any business that decided to build in the flood zone, and we would be equally as zone concerned. The matter is, no one should be building there.

A group of 20 local residents gathered recently to discuss their issues with the Bunnings development lodgement, compiling a list of reasons why they thought council should knock it back. The group claims the development:

  • Compromised the planning schemes of the area;
  • Did not comply with the purpose of the zone;
  • Conflicted with the framework of the planning;
  • Was at a height above natural ground level that was excessive for the area;
  • Did not provide sufficient car parking;
  • Was over development of the site
  • Was subject to flooding
  • Flooding is the main concern, according to Mr Olsen, whose business is one of the first to go under during floods. He said:

    They have worked off a one-in-a-100-year flood model. What we want to know about are the smaller floods and what effect the Bunnings building will have on us then. Then there's the one-in-200 [year] flood; what effect will something more intense have?

    He feared that once one building was allowed in the flood zone, others would follow suit.

    Former Deputy Mayor Ross Bartley agreed, saying the land came under mixed zoning, something that would be compromised by the introduction of a bulky goods trade store.

    Bunnings in Kingaroy?

    Speculation surrounds the possibility that Bunnings may have purchased highway frontage in Kingaroy (QLD) which was to have been the site of a multi-million dollar motel development. That project fell over in late 2015 after initial earthworks had been completed.

    Recently, southburnett.com.au spoke to the real estate agents handling the sale of the land who confirmed that the block, which fronts the D'Aguilar Highway, was under contract. They would not confirm who the interested party was, only to say that it was not a motel development.

    No development application has been lodged as yet with the South Burnett Regional Council. Kingaroy developer Kevin Taylor said he had also heard that Bunnings had bought the motel site. Bunnings general manager - property, Andrew Marks said:

    Kingaroy remained an area of interest for Bunnings and we would consider opening a store there in the future if the right opportunity became available.

    Bunnings NZ property for sale

    The property housing Bunnings Warehouse Takanini in New Zealand, which is generating total annual rental income of NZD1,388,000 plus GST, is for sale. It is offering a new owner built-in annual rental growth of 2.5%. The freehold property comprises a 10,433sqm large format retail complex.

    Dave Stanley of Bayleys South Auckland and James Chan of Bayleys' international division are marketing the property by international tender.

    Bunnings developed the site and opened the store in December 2013. Mr Stanley said:

    They chose this site because of its prominent corner position and road frontage to both the main arterial Great South Road and to Graham Street, which gives the store huge exposure and profile. It is also close to many other major retailers.

    The store follows Bunnings' format and layout with a trade and retail offering and expansive high stud design, a separate garden centre, cafe and children's play area. There is also an open air parking directly outside the store as well as underground parking for close to 230 vehicles.

    Jacqui Coombes, general manager - Bunnings New Zealand, said the sale forms part of its long-term strategic approach of releasing capital on lease terms that provide flexibility from a long-term operational perspective. Ms Coombes said:

    It also provides investors with exposure to high quality retail properties backed by the strength of Bunnings' covenant.

    The 12-year lease with eight six-year rights of renewal has the potential to take Bunnings' occupation of the property through until 2076 and the annual 2.5% increases commence on the first anniversary of the lease commencement and subsequent renewal dates.

    bigbox

    USA update

    The Home Depot targets Pros with digital

    Lowe's unveils Open House and how Canada's Home Hardware remains competitive

    Professional end-users are a priority for The Home Depot; Lowe's has launched a digital newsroom called Open House; mobile payments at The Home Depot; and Home Hardware in Canada is unfazed by its big box competitors.

    Digital engagement with Pros

    The Home Depot CEO Craig Menear recently spoke at the Goldman Sachs Global Retail Broker Conference where he discussed the use of digital technology to target the home improvement professional (Pros).

    Sitting alongside the enthusiastic amateur, the Pro customer is an individual with regular needs and a different, more specific, set of requirements. As such, they need to be targeted with particular care, he argued. Digital is at the heart of this with personalisation the key. He said:

    The marketing that we do to the Pro customers is now beginning to take advantage of the digital capabilities that we have. Instead of broad-brush marketing to the Pro as a Pro segment, it's individual marketing to a specific type of customer within Pro with defined messages that meet their needs.

    The Pro customer wants to engage with Home Depot via digital channels and in growing numbers. They are looking for very specific things from digital engagement. Mr Menear said:

    The thing that customer responds to is enhanced capabilities. Visual capabilities on the site are hugely important to the customer. The data that you provide around the product is important. We have seen strong engagement with the video content at a product information page level helps drive conversions. So the customer is definitely guiding how you engage with them in the digital world. And they are requiring upgrading content.
    One of the things that we have built into our app and mobile web is the ability for a consumer or a Pro to look up inventory in-store. We get a lot of feedback from our Pro customers that this is something that they value and benefit. So we are seeing the Pro engage. We are seeing the Pro engage in what we call BOPUS (Buy Online, Pick Up in Store). So they can be home at night, take a look at some things that they need, they can place their order and we have that ready for them for pickup the next morning when they swing by.

    But Mr Menear was also keen to emphasise that there are limited expectations for the firm's app play. He said:

    We don't believe that that The Home Depot app is going to be the first app that people are going to go to. But we also have to be relevant and continue to offer the app. But everything we put on the app, we also try and migrate to our mobile website as well as tablet and PC.

    Ted Decker, executive vice president - merchandising, believes that when it comes to pitching to the Pro customer base, there's an inherent advantage that the firm can exploit. He said:

    What we have with the Pro business is many of our Pro customers have our private label credit card. We have quite a bit of information. Other than digital marketing, we haven't done a lot of individual marketing.
    In data overall, we have always had a tremendous amount of data. And we are continuing to build tools and processes and in teaching our merchants and marketers how to better price the product and look at elasticities by market, how to assort our products, constantly looking to leverage that data map across the enterprise.
    We are increasingly contacting through e-mail campaigns those customers based on more in segmented customers as opposed to an individual customer. So we know someone is more engaged in garden, for example or may know someone is looking at a kitchen remodel. We will approach them as a segment, not so much individual.

    Lowe's debuts Open House

    Lowe's has launched Open House, a digital newsroom that will take consumers behind the scenes at the brand.

    About a year in the making, Open House was a "cross-functional" effort involving IT, recruiting, marketing, corporate communications, supported by an external agency, according to Colleen Penhall, vice-president of corporate communications. She said:

    People want to know more about the companies they shop with beyond the products and services they sell. At Lowe's, we are trying to build deeper and more meaningful relationships with our customers and, ultimately, more brand loyalty and advocacy.

    Open House serves as a digital avenue through which Lowe's can meet consumers "where they are," she added.

    The newsroom launched with stories such as the refurbishment of a Detroit school gym that was made possible because of a partnership between Lowe's and The Ellen DeGeneres Show. Ms Penhall said:

    We want to share authentic content they will not only share across channels, but they also feel is inspiring and relevant to them.

    Social media weighed heavily in the team's decision-making and the way consumers share "snap-able, bite-size" content, but long-form storytelling isn't off the table either. Ms Penhall said:

    [It's not] a cookie-cutter approach. We approach it from a variety of different ways people consume content and taking those [lessons] and applying them in the future.

    Lowe's marketing division recently launched "The Weekender," a 10-part DIY web series that shows homeowners how they can tackle a project in a weekend on a small budget, hosted by Monica Mangin, co-author of the East Coast Creative blog.

    The retailer also launched an app on Apple TV, and made content available on Amazon Fire TV and Roku TV.

    Rather than spearhead a campaign, Open House will serve primarily as a branding tool and "give people more insight into what went into the strategic thinking at Lowe's", Ms Penhall said.

    Mobile shopping expectations

    Retailers in the US such as The Home Depot are optimistic about the upcoming holiday season and they believe mobile payment users could be a big factor affecting their end-of-year sales. To cater to the mobile shopper, Home Depot is introducing chatbots.

    The home improvement retailer is pursuing beacons and chatbots for mobile consumers, who account for 50% of the company's online traffic, according to Mobile Commerce Daily. The chatbots can help consumers with advice.

    In a presentation at the MMA SM2 Innovation Summit 2016, an executive for The Home Depot stated that the growth in mobile is inspiring exploration of Internet of Things (IoT) technologies to drive sales. By focusing on mobile platforms, the company hopes to attract younger consumers from Gen Y and Gen Z, who The Home Depot calls "mobile prodigies". According to Yvette Davis, manager of media strategy for Home Depot:

    Mobile prodigies value personalisation, and they use mobile for shopping inspiration. Everything that we're doing is keeping those mobile prodigies in mind.

    The Home Depot is also experimenting with beacon technology and creative optimisation but claims it still has a ways to go. Ms Davis said:

    We have our beacon technology that we've acquired, but...we have to get mobile right. Mobile significantly drives foot traffic to my physical retail locations.

    Home Hardware focuses on growth

    Tony Flanagan, a 25-year veteran of Canadian-owned Home Hardware, operates in a tough retail environment -- the Home Depot, Lowe's and Canadian Tire are all in close proximity to his 18,500-square-foot store. He said:

    The reason I'm still here at the age of 69 is because I'm still having fun. I worked too many hours to develop hobbies, so now I'm turning my job into my hobby.

    Long service, such as Mr Flanagan's 25 years, is a common trait at Home Hardware, which has had just three chief executives since entrepreneur Walter Hachborn founded it in 1964. It's a retailer-owned enterprise -- the proprietors of its 1,100 retail locations across Canada are also its shareholders. Each dealer/retailer can tap into a range of services offered by corporate headquarters, in the heart of Ontario's Mennonite community. Chief executive Terry Davis explains:

    It's a culture of service. Retailers are normally controlled and owned by the head office. Our only purpose here is to serve those dealers in the stores, so we just have a different mindset. We are here to look after them. We are like a concierge service at the best hotels. I absolutely believe that makes us a strong competitor.

    Mr Davis, who is 65 years-old, joined Home Hardware in 1970 as a "picker" in what was then a modest warehouse operation, and he never left. Hired as the firm's 36th employee, he now oversees an operation with 2,300 employees at its head office and central distribution centre, and C5.8 billion in annual sales.

    Mr Davis admits Home Hardware's quasi-co-operative business model presents some challenges because the firm has neither the deep pockets of its publicly traded rivals, nor the top-down control of a franchise operation. But he says the model also offers benefits rivals can't match.

    He cites flexibility and communication as two factors that help Home Hardware compete. For instance, individual retailers select the goods that will best meet the needs of their local markets. Management conducts regular surveys of store owners' priorities.

    Twice a year, about 70% of the dealer-owners show up for big marketing events at its headquarters, where they can meet management, talk to suppliers and generally stay in touch with what's going on. Mr Davis said:

    One of the biggest challenges we face is having to be nimble and competitive and aggressive and all of those things without having the funding that's available to publicly listed companies.
    It must be nice to be a franchise organisation, and go out and tell every branch exactly how it has to operate, but we don't have that either. We don't dictate to our members as much as we persuade them. We are a group of 1,100 retail operations out there trying to work as best we can as one big team, and I think we do it very well.

    Yet Mr Davis also recognises the need to maintain quality. The company is four years into a five-year plan that targets 42 locations for termination -- ordering dealer-owners to improve their stores or leave. He said:

    There were a number we ended the relationship with. It was a difficult exercise, and the first time we've done anything like that. But we feel pretty strongly about what the brand stands for.

    So far, 29 of those 42 stores have closed; in nine of those markets, Home Hardware has recruited new retail members.

    Mr Flanagan shares the desire to protect the brand and concedes that the need for consensus among retailers can make the company conservative and risk-averse. For instance, there would be no agreement on moves like increasing loan funding for dealers wishing to open stores in Canada's biggest urban centres, where, he says, the brand remains relatively weak.

    But Mr Flanagan is very satisfied with the service he receives from the management team, a pay-as-you-go list of options that includes help with branding, design and display materials, as well as access to experts in fields like human resources, finance, health and safety, and real estate. He said:

    If I were to sum up the Home Hardware culture in one word, it would be 'helpfulness. We are run by a board of directors that are Home Hardware dealers, so it's the dealers telling head office what we require. We're a ground-up, not an ivory-tower-down, organisation.
    bigbox

    Big box update

    Bunnings not beating Masters on pricing

    Tura Beach rejects Bunnings and Woolworths executives step down from Hydrox Holdings board

    Bunnings will not be matching prices with goods sold during the Masters closing down sale; Bunnings is not building a store at Tura Beach (NSW) for now; Bunnings Warwick and Bunnings Hastings (New Zealand) both move to bigger sites; and Hydrox Holdings board lose Woolworths and Lowe's executives.

    Bunnings not matching Masters prices

    Bunnings CEO John Gillam has clarified his position on the Masters inventory sale. He has reiterated that Bunnings will not be reducing prices, and reminded consumers that Bunnings does not price match in this way.

    The Masters sale will likely see Bunnings miss out on $200 million to $230 million in sales over two months. However, with the Masters competition ended, a further $1200 million will be available in the hardware/home improvement market for calendar 2017.

    While results for the first and second quarters will be affected negatively, sales in the third and fourth quarter will be boosted. The net effect for 2016/17 will likely be positive at around a $150 million gain. The effect in 2017/18 should be a gain of around $500 million.

    HNN has reported earlier remarks Mr Gillam made in reference to the potential fallout from the Masters exit.

    HI News 2.3: Wesfarmers-Bunnings H1 results, page 12

    According to Fairfax Media, it is understood Bunnings has informed both the Australian Competition and Consumer Commission as well as the state-based consumer affairs authorities that it would not extend its "if you happen to find a lower price on a stocked item, we'll beat it by 10%" promise to undercut the closing down sale prices at Masters.

    Bunnings appears to be taking action to get ahead of any customer complaints from what could be a three-and-a-half-month closing down sale at Masters stores.

    Wesfarmers has already warned Bunnings could face some "short term volatility of trading margins" as a result of the Masters wind-up.

    Bunnings' price guarantee has never applied to stock liquidations and sources close to the big box retailer said there were concerns that cutting prices to below cost, just to beat Masters discounts could put it in breach of consumer law. A Bunnings spokesperson told Fairfax Media:

    It may be unlawful and it is not responsible for us to price match or beat stock liquidation prices where large volumes of stock are sold below cost. We believe this undermines our focus in delivering long-term value for customers and may damage competition in the industry as a whole.

    There is a lot of speculation over exactly how much stock there is in Masters, with hardware insiders telling Fairfax Media there is inventory in the stores, distribution centres as well as "on the water" in containers that haven't arrived in Australia yet.

    Bunnings rejected on rezoning

    The NSW Planning and Environment Department has refused the rezoning of two blocks of land at Tura Beach (NSW) for a Bunnings store.

    Minister for Transport and Infrastructure and Bega MP, Andrew Constance said he would meet with the big box retailer after its application was denied.

    Bunnings general manager - property, Andrew Marks said the company was disappointed with the state government's decision. He told the Merimbula News Weekly:

    The proposed new Bunnings Warehouse Merimbula would represent an investment of over $17 million and provide employment for over 70 local residents, as well as approximately 140 jobs during the construction phase. Bunnings appreciates the support of the Bega Valley Shire Council and will now evaluate its options to bring jobs and investment to the Tura Beach community.

    Mr Constance is also disappointed at the outcome but believes the matter shouldn't be written off yet. He aid:

    We need the job opportunities that come with Bunnings setting up in our community. There has to be a compromise so everyone wins. Planning has been sensitive to residents adjoining the land but ultimately there has to be a way through this.

    Council has twice endorsed rezoning the land to allow Bunnings to further explore its options and draft a development application. But voting was always close and the council staff recommendation, in the past, has been against rezoning to B5, business development.

    In rejecting the rezoning the Planning department said there was a need to protect the character of Tura Beach; rezoning was incompatible with the existing neighbourhood business precinct; there was a potential conflict with the adjoining seniors living development; and Bega was the major regional centre.

    Tura Beach resident, Chris Kunz has been a vocal supporter of the Bunnings development and said he believed there is an obligation on council to ensure that the regional strategy reflected the real situation. He said:

    Tura no longer fits the village marker with small shops just supplying people in the vicinity. The Tura Woolworths has the biggest turnover of any Woolworths in the shire.

    Council said there were already a number of suitably zoned sites in the shire that would support a development of this nature, and that it was keen to work with the proponents and advance the idea for the benefit of the community.

    Related:

    Big box update: Bunnings plans Tura store

    Bunnings Warwick moves location

    Bunnings will set up shop on a bigger site in Warwick (QLD). Bunnings general manager - property, Andrew Marks confirmed speculation it was taking over a bare Canning Street lot to build a warehouse. He told the Warwick Daily News:

    We can confirm we have recently submitted a development application for a new warehouse in Warwick. This development is in the very early stages of planning and we look forward continuing to work with authorities throughout the process.

    The confirmation comes after almost two years of speculation over whether the current site in Palmerin Street would move or be upgraded. In 2014, a Bunnings spokeswoman told the Daily News the Warwick store would be moved to a "bigger and better site if one were to become available".

    In February 2014, Southern Downs councillors voted in favour of allowing fill lot to be placed on the vacant site at the corner of Canning and Condamine Streets for the building of what a report termed a "bulky goods store".

    When the initial story came about over the move for the Bunnings to the vacant lot, reader feedback reflected concern about how the new building would face floods. The land, behind the KFC and BP service station on Albion Street, was hit hard in the 2011 floods.

    The initial 2014 application claimed the project would not worsen flood flows in the event of a future deluge.

    Photo credit: Warwick Daily News

    Related:

    Big box update: Warwick store move unconfirmed - HNN

    Bunnings moves to bigger NZ site

    Bunnings is moving to a larger store in Hastings (New Zealand), spending NZ4 million on stock and refurbishment. It will span more than 4000sqm and include a nursery area and parking for about 100 cars.

    Bunnings New Zealand general manager Jacqui Coombes said Bunnings Hastings was expected to employ about 50 people, with the existing team of 25 joined by about 25 new recruits.

    The new Bunnings Hastings is expected to be open in December this year and should give it a chance to compete with Mitre 10 Mega. Bunnings has had difficulty finding a suitable site for a large store in Hawke's Bay, Hastings - the present site is small by the company's standards.

    In 2004, Bunnings had an option to purchase the current Mitre 10 Mega site but let the option lapse while waiting on ratification from its Australian head office, allowing the Hawke's Bay-based Ricketts family to secure the property.

    In 2011 the Environment Court turned down Bunnings' appeal for zoning of a 10,263sqm site because it was zoned for food production.

    Bunnings closed its Napier branch in 2014 with the loss of 23 jobs, saying it was too small and it was actively looking for a suitable site in the area.

    Hydrox board loses Woolies execs

    The Australian reports that Woolworths has officially cut ties with its home improvement chain Masters after a mass resignation of Woolworths executives from the board of Hydrox Holdings, the joint venture with US hardware big box retailer Lowe's that owns Masters.

    They will be replaced with senior staff from Australian insolvency firm, KordaMentha.

    There has also been a clean sweep of Lowe's directors sitting on the Hydrox Holdings board with its nominees resigning, including Lowe's chairman and chief executive, Robert Niblock who has stepped down, according to documents issued by the corporate regulator.

    Woolworths has made KordaMentha founder and partner Mark Korda a director of Hydrox Holdings. Along with three other executives, David Winterbottom, John Mouawad and Ryan Shaw, they now form a majority of directors on the board that controls the soon-to-be closed Masters stores.

    Mr Winterbottom is a Sydney-based partner of KordaMentha and Mr Mouawad is an executive director of the firm.

    However, KordaMentha's founder and his colleagues now being in control of the Masters boardroom does not signal the hardware chain is about to be plunged into administration or immediate liquidation.

    A spokeswoman for Woolworths told The Australian the resignation of Woolworths executives and replacement by KordaMentha executives was simply to help with the orderly wind-down of the Masters chain, which will include a $1.5 billion sale of its properties, hardware inventory and Home Timber & Hardware business. Mr Korda is a consultant to Woolworths.

    Woolworths chief financial officer David Marr, its chief strategy officer James Goth, chief legal officer and company secretary Richard Dammery and group director Colin Storrie have stepped down from Hydrox Holdings.

    Mr Dammery has been leading the protracted negotiations with Lowe's since February to settle on a price for the supermarket giant to buy back Lowe's one-third stake in Masters. He said in a statement:

    Mark and his team are experienced directors in complex restructuring and closure situations. They were appointed to the Hydrox board to replace me and the other Woolworths appointed directors in order to allow us to focus on our day-to-day responsibilities.

    Lowe's has appointed a number of its legal officers to sit on the Hydrox Holdings board, taking up three seats, with Woolworths' nominees from KordaMentha keeping four directorships.

    Australian lawyer, Anthony Bancroft from the firm of Gilbert & Tobin has been nominated by Lowe's as an alternative director on the Hydrox Holdings board. Gilbert & Tobin is acting for Lowe's in its Federal Court action against Woolworths.

    bigbox

    Europe update

    Homebase progress invites comments

    B&Q goes high tech with avatars in-store and spoga+gafa 2016 attracts more visitors

    Commentators are divided on how the Bunnings' transformation of Homebase will go down in the UK; high-tech avatars are being used at a number of B&Q stores; spoga+gafa 2016 had a slight increase in attendance; and revenue increase at Grafton Group for its first half.

    Homebase conversion process

    A number of commentators and UK-based observers have weighed in on the transformation of Homebase into Bunnings UK.

    According to UK industry publication Retail Week, Homebase is in early stages of being changed into Wesfarmers' DIY brand Bunnings.

    It writes that first impressions are looking good. Like-for-like sales at Homebase have increased 7.5% in the four months since Bunnings parent company Wesfarmers acquired the retailer.

    HNN has covered Bunnings' acquisition of Homebase extensively.

    HI News Vol. 2 No.10: Br-entry, Bunnings explains global strategy, page 37 HI News Vol. 2 No.1: Bunnings acquires Homebase, page 3

    Upon making its GBP340 million purchase of the business in February, Wesfarmers unveiled plans to remove concessions from Homebase stores and to stop selling decorative and soft furnishings lines. It will gradually turn Homebase into a hard-end, home improvement retailer and core ranges are being rapidly reshaped to fit. There will be more tools and fewer cushions.

    Retail Week Prospect analyst Duygu Hardman points out that this is a dramatic shift away from Homebase's traditional proposition. She told Retail Week:

    Homebase's offer was differentiated before, but now its products are going to be similar to B&Q, Wickes and Screwfix, with an emphasis on trade.

    Referring to Screwfix's double-digit growth, Ms Hardman added: "This could be a good move, because trade has been one of the strongest growth areas in the market, mainly because of the Do-It-For-Me trend."

    Bunnings is also targeting a broader range of products and aims to hold more stock in stores as it moves away from the former Homebase model.

    Under Home Retail Group's (HRG) ownership, Homebase was developing its multichannel and online capabilities and benefiting from synergies with then-HRG stablemate Argos. Ms Hardman said:

    With consumer attitudes towards DIY shopping changing and younger shoppers preferring to go online or to more convenient locations, it seemed that Homebase's former omnichannel focus was a wise one.

    But she remains cautions: "I'm sure Bunnings will continue to leverage omnichannel capabilities, but changing stores into big warehouses like its signature mega-sheds in Australia may not necessarily be the root to success."

    B&Q, which currently stocks up to 45,000 products in an average store, is seeking to cut down stock levels, realigning its business away from big sheds towards a multichannel approach.

    Homebase's marketing slogans have changed, and in store, prices are being slashed. Its new strapline, "Always low prices" resembles Bunnings' marketing approach in Australia with its well-known "Lowest prices are just the beginning". Ms Hardman said:

    Previously Homebase had a very different marketing strategy, driving the quality of goods and appealing to female DIY consumers. The new marketing campaigns target more of a core DIY consumer - older and often male consumers.

    The way price is communicated has also changed. Similar to Bunnings' approach in Australia, large orange price labels are affixed to items of stock.

    Ms Hardman believes Homebase's new price focused campaigns and value-led credentials could present a challenge to B&Q. She said:

    Homebase can afford to cut prices because Wesfarmers and Bunnings are so big. They already have immense supplier networks and well-established direct sourcing capabilities in place. This puts them in a very strong position.

    The UK's first pilot Bunnings store is on track to open as soon as October, and between four and six Homebase conversions are pencilled in for the 2017 financial year.

    Bunnings' UK environment

    In the West Australian, Kim MacDonald writes that Morgan Stanley analyst Tom Kierath believes Bunnings will poach at least half of the $1 billion in extra annual sales it is targeting, on top of Homebase's current sales, directly from B&Q.

    The article goes on to day that Bunnings is entering Britain at a time when consumer confidence is at its highest level in almost a decade and employment is at record highs, with unemployment at only marginally above 5%.

    Even if it does stare down B&Q's parent Kingfisher, there may be challenges emanating from Wesfarmers' typically brash approach. It displayed its trademark brutality it sacked Homebase's entire executive staff.

    The move could well put the workforce offside by fuelling speculation of further job cuts, which IBISWorld's Britain-based Chris Edwards expects is likely. (It should be noted Mr Kierath does not think job losses are likely, given Bunnings' focus on customer service.)

    Managing director of British retail research agency Conlumino, Neil Saunders points out that morale is not the only potential pitfall in marginalising the locals.

    There are features of the British household to which Australian managers are not particularly well attuned, such as rising damp in walls. He tweeted:

    On the surface, retail in a foreign country can seem obvious and easy. In reality it never is. There are nuances and hidden traps.
    Wesfarmers' bold $4b plan for UK Bunnings - The West Australian

    WA-based business commentator Tim Treadgold visited the Homebase London Battersea store and gave it a 5/100, calling the store a "disaster zone" that was low on customers, with poor ranging. He said the garden centre was the best part of the store, but time, money and competition from B&Q and Wickes are issues Bunnings will have to face.

    Wesfarmers fighting on two fronts with Homebase in far flung Britain - Business News Australia

    B&Q tries out avatar service

    Home improvement retailer B&Q is responding to new research that reveals UK customers' reluctance to seek advice.

    Statistics confirm that 70% of Brits refuse to ask for advice and 26% would rather go online than consult a real person. In light of this research, B&Q is trialling a hi-tech customer service channel using "advice avatars" to help encourage people to overcome their phobia of asking for assistance.

    High-tech avatars were twinned with real life colleagues at the B&Q Wallasey store, to help customers with DIY tasks. The avatars, dubbed "iB&Qs" took live advice and tips directly into customers' homes, linking in real time with store colleagues. Each avatar is equipped with its own orange apron and a unique "I" name badge to match its human partner. For example, team member Megan Peters controlled iMegan.

    When looking at why the UK is so reluctant to ask someone for help, the research shows that 70% of people think they can manage on their own, 29% are too embarrassed to ask and 24% simply don't want to impose.

    Mums were edged out of the top spot for those who give the best advice in favour of those with professional expertise and experience. Of those who do feel comfortable asking for advice, they are more likely to ask for directions than they are for home improvement tips.

    The iB&Q trial is supported by team members across 300 stores, as well as a colleague takeover of Twitter and Facebook accounts as B&Q staff respond live to requests for tips and advice. DIYers can also find further help online at B&Q's YouTube channel and DIY.com, which feature 300 how-to articles and 250 videos. Richard Sherwood, B&Q customer and marketing director, told Retail Times:

    Some customers may be nervous about asking for advice, but help is always at hand at B&Q. Whether you're planning a project, buying your tools or materials, or needing a bit of guidance during your home improvement, our colleagues can help you in person, online, and from other new technologies in the near future.

    More attendees at spoga+gafa 2016

    This year's spoga+gafa event closed on 6 September 2016 with over 39,000 visitors from 106 countries. This compares favourably to last year's event that attracted 37,000 visitors from 108 countries, representing an almost 6% increase.

    Katharina C. Hamma, chief operating officer of organiser Koelnmesse said 60% of attendees came from abroad and the remaining 40% were from Germany.

    In terms of exhibitors, 2,032 companies from 57 countries (83% from international markets) chose spoga+gafa as the platform to present their latest products and services. John W. Herbert, general secretary of the European DIY-Retail Association (EDRA) said:

    This year's gafa was successful for our members from EDRA and GHIN (Global Home Improvement Network) ... I spoke to the four members of the our second largest Japanese member Komeri with over 1.000 stores and they were delighted with what they experienced and are taking time to look at other the stores in the region. Home Depot were also well represented with a delegation of buyers from the US and Canada.

    EDRA/GHIN has 121 home improvement retail members operating in 102 countries with over 23,000 stores and members' sales exceed EUR230 billion. For these associations, spoga+gafa is a recommended trade fair.

    spoga+gafa 2016 covered 225,000sqm of floor space and all four product sections were presented along the entire length of the trade fair boulevard. It showcased a wide range of ideas for the garden and outdoor category.

    In 2017, spoga+gafa will be held from 3 to 5 September.

    Related:

    spoga+gafa 2015 increases "internationality" - HNN

    Grafton Group's Irish boost

    Builders merchanting firm Grafton Group has reported revenue growth of 13% to GBP1.23 billion for the first six months of the year. The company posted an adjusted pre-tax profit of GBP68.4 million, representing a 12% increase.

    Average daily like-for-like revenue growth in the period from July 1 to August 21 was 1.8%, Grafton said, with the UK merchanting business reporting marginally positive growth. However its Irish merchanting business had growth of 11.2%, in line with the first half.

    Its core UK business which includes the Selco brand saw a near 1% year-on-year fall in adjusted operating profit to GBP46.9 million, despite revenue rising by over 8% to GBP884 million.

    The company said it has implemented a number of measures to help mitigate the competitive pressures in the UK market. These included organisational restructuring which resulted in an exceptional cost of GBP1.2 million in the period. Grafton said it planned further measures in the second half that will result in an exceptional charge of GBP20 million for the full year but should deliver benefits in 2017.

    The UK merchanting business has continued to see flat trading in the early part of the second half of the year - with pressure particularly noticeable in the plumbing and heating businesses. Chief executive Gavin Slark told the Irish Examiner:

    As with anything in life, the worst position to be in is one of uncertainty. Once you know what is happening you can plan accordingly. We can't pin everything happening in the UK market on Brexit but there is uncertainty because of it and that will continue until we know the terms and timeline [for Brexit].
    There are some fundamentals [in the UK market/economy] that will remain strong; the UK remains a mature and sophisticated economy.

    Grafton said its Irish business benefitted from strong growth in the residential repair, maintenance and improvement market and the early stages of recovery in the new housing and commercial property markets. Its Woodies DIY business also performed well due to increased household spending in the sector.

    Sales at its Irish merchanting arm rose almost 20% to GBP158.3 million, and were up 12.6% on a constant currency basis. Operating profit at the unit was 43.5% higher at GPB10.7 million. It was up 35.1% on a constant currency basis.

    The company said Belgium continued to be a challenging market but trading conditions in the Netherlands are expected to be positive as the economy and housing market there recovers.

    bigbox

    Masters closed up by 11 December 2016

    Woolworths splits Masters into three

    Woolworths has moved to dispose of all of the assets of Hydrox Holdings, selling them to three separate buyers

    Woolworths has announced that it is close to finalising its exit from its home improvement joint venture with US-based Lowe's. In a press release, the company explains that it has divided up the assets of Woolworths/Lowe's joint venture Hydrox Holdings into three parts. These are:

  • The Home Timber and Hardware Group (HTH)
  • The Masters Home Improvement inventory
  • The Masters real estate assets
  • HTH

    The first, HTH, is set to be acquired by the hardware operations of retailer Metcash, Mitre 10. The majority of HTH (excepting two corporate-owned stores and a distribution centre in the state of Victoria) will be sold to Metcash for $165 million. The sale is expected to be completed in the first weeks of October 2016.

    Masters inventory

    The Masters inventory will be sold by GA Australia. GA Australia appears to be a subsidiary of the Great America Group, which is a wholly-owned subsidiary of B.Riley Financial Inc. According to its "landing page", GA Australia has helped with "strategic store closings" for companies such as Eddie Bauer, Office Depot, and Tractor Supply Co (a regional hardware group in the US).

    About GA Australia

    According to the press release:

    The underwritten recovery is subject to certain adjustments and is estimated to deliver gross proceeds of approximately $500 million.

    Masters real estate

    The deal for Masters real estate assets seems less certain that the other two. According to the press release:

    Subject to Lowe's consent, Home Consortium (Aurrum Group, Spotlight Group and Chemist Warehouse) has proposed to purchase the Masters properties through acquisition of 100% of the shares in Hydrox. The transaction will include 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites.

    At the moment, Woolworths states that it expects to realise $500 million from all three transactions. This includes a commitment by Woolworths to pay $105 million for three Masters sites. Woolworths will also take on 12 freehold leases held by Masters.

    Closing down Masters

    Should all three of these deals go ahead, Masters is expected to be fully closed by 11 December 2016. Woolworths CEO Brad Banducci is quoted in the press release as saying:

    The agreements provide certainty to our Masters team, suppliers and customers. It is the right resolution for our shareholders. The Home Consortium transaction remains subject to Lowe's consent.
    Woolworths' top priority remains to do the right thing by our employees, customers, suppliers and shareholders. We will provide a certain and transparent timetable to all our stakeholders during the exit process.
    Since the sale process began, our 7,700 staff in the Home Improvement businesses have worked extremely hard in an uncertain environment and we sincerely thank them for their commitment.

    Mr Banducci further stated:

    We will work hard to find Masters employees jobs within the Group, or pay full redundancy where suitable roles are not available.

    The press release also notes that all gift cards will be honoured, and that contracted work, such as for kitchens, will be fully completed.

    The Home Consortium that will control the Masters sites is described as having the following plans for its acquisition:

    The Home Consortium will seek to implement plans to repurpose the existing Masters sites into multi-tenant, large format centres anchored by a selection of Australia's leading home, hardware, family and lifestyle retailers (subject to landlord and authority consents where required).

    The Aurrum Group is an aged-care provider. Spotlight Group Holdings manages the Spotlight fabric stores and the Anaconda camping stores under its Spotlight Retail Group banner. It also has a substantial property portfolio, managed by the Spotlight Property Group. Chemist Warehouse operates a chain of discount chemist outlets, and is owned by Mario Verrocchi and Jack Gance. It has recently expanded its operations into China through online marketplace Alibaba's Tmall facility.

    Analysis

    The details about the dispute between Woolworths and Lowe's remains covered by confidentiality. As the press release states:

    Woolworths has today exercised its right to terminate the JVA with Lowe's and WDR, and the associated option contracts arising under the JVA, as a result of a dispute about the process to value Lowe's shareholding under the option mechanism in the JVA. The confidentiality provisions in the JVA survive termination of the JVA and accordingly no further comment will be made about any dispute between the shareholders.

    It seems likely that this dispute will continue into 2017.

    Further details will become available at the announcement of results for the full-year FY2015/16.

    bigbox

    Big box update

    Clash over Bunnings Coolum

    Results for Masters and HTH sell off due soon and profit outcome for BWP Trust

    The battle to have a Bunnings store at Coolum (QLD) is ongoing; green light for Bunnings Doncaster; the proposed Bunnings Panorama store is undergoing an assessment process; Bunnings Yarrawonga is now owned by a Chinese investor; Woolworths should decide on who will own its home improvement businesses soon; and a $310.5 million profit for Bunnings Warehouse Property (BWP) Trust.

    Bunnings Coolum continues to polarise

    Bunnings Group Ltd have lodged an appeal with the Planning and Environment Court over the Sunshine Coast Council's rejection of its original proposal for a 12,150sqm development at one of the major entry points to Coolum Beach (QLD).

    The hardware chain has also started public notification on a third development application for the site, having been knocked back twice already by the council.

    Bunnings' actions have infuriated some community members including Development Watch president Lyn Saxton who told the Sunshine Coast Daily they would be joining the council as co-respondents to the appeal. She asked:

    What's the purpose of having the third application that hasn't been decided on and going to court with the first one?

    Ms Saxton labelled the moves "pushy tactics" from Bunnings and said she did not expect the council to "give in" on the third application for a scaled-down, 5850sqm Bunnings along with a service station (300sqm) and restaurant (300sqm). She said the council's reasons for rejection of the previous proposals were not changed by the size difference of the latest incarnation. Ms Saxton said:

    Council can't now turn around and approve the third one. The reasons for refusal will not have changed. The reasons for objections for us and in the council decision was not because of the size.

    She believes there were a number of areas where the previous applications hadn't complied with the planning scheme.

    Sunshine Coast mayor Mark Jamieson said he respected the "democratic right" Bunnings had to lodge the appeal and added it was important each application was assessed independently by the council. He said he could also understand the community's frustrations with the process.

    The economic development branch was "broadly supportive" of Bunnings' claims the development wouldn't significantly impact or compromise the role of Coolum Beach. But the strategic planning department advised the project would service a catchment far wider than the local community and would be likely to negatively impact hardware and specialty stores in the area.

    Bunnings' general manager - property, Andrew Marks, said he was "very disappointed" the council had refused the application and the appeal had been lodged as a result, saying a Bunnings Warehouse in Coolum would provide a number of benefits to the community.

    The public notification period for the latest proposal on the site will wrap up on August 25 which is the last day submissions on the proposal can be made.

    Related:

    Big box update: Bunnings fights for Coolum - HNN Bunnings tries a second time to build in Coolum - HNN

    Bunnings Doncaster will be built

    Construction on the Bunnings store in Doncaster (VIC) is set to go ahead after Manningham Council gave the green light to the latest version of the plans.

    The $73 million development will go up next door to Westfield Doncaster shopping centre and include 250 apartments - 99 flats on top of the 11,000sqm multi-level store as well as two apartment towers. There will be 350 carparks for shoppers.

    Initially the Bunnings development threatened a legal battle between the retail giants, with Westfield concerned it would affect future growth of its huge Doncaster complex, which has recently announced a massive $500 million expansion.

    There were further worries about traffic chaos created by the proximity of the apartment towers on top of the Bunnings store and Westfield, but the retail giants ironed out the problems with the towers moving to the other side of the development site and the hardware store shifting even closer to Westfield.

    It is not yet known when construction will start, but Andrew Marks, Bunnings' general manager - property told News Corp. the development would be undertaken in three stages and was designed in line with Manningham Council's vision for Doncaster Hill.

    Related:

    Big box update: Bunnings still in Doncaster - HNN

    Assessment for Bunnings Panorama

    Plans to build a $42 million Bunnings store in Panorama (SA) will be assessed by October, seven months later than initially expected.

    Amendments to the plans were submitted to the local council late last year. However, in February the big box chain delayed the application "to allow new information to be considered".

    A Mitcham Council spokesperson said Bunnings had submitted a number of amended plans to address community and council concerns. The spokesperson told Adelaide Now:

    The application is currently being assessed and it is anticipated that a report will be presented to the Development Assessment Panel within the next three months.

    The council wanted extra information about landscaping, hours of operation and heavy vehicle access, while residents were concerned about traffic issues.

    The Say No to Bunnings Panorama spokesman Peter Bryant said he was still concerned about the company's application. The group has collected more than 2000 signatures against the development since October last year. He said:

    Resident sentiment hasn't changed when it comes to having a giant bulky goods outlet dropped on their doorsteps, particularly one with no economic or planning justification.
    We're still concerned about the impact of an extra 5000 car and truck movements in our suburbs every day and around an intersection already at capacity. We remain hopeful the Mitcham Council will protect our community by saying no to a Bunnings at Panorama.

    Panorama Clapham Community Group spokesman Neil Baron was comfortable with the delay, providing community concerns were addressed. He said:

    It appears they are doing the right thing to meet the needs and requests of the locals. They won't make everyone happy, but that is the way of the world.

    Bunnings general manager - property, Andrew Marks said the company had worked collaboratively with the council to amend plans.

    This includes providing additional technical information in recent months in order for council to make a proper assessment.

    Related:

    Big box update: Bunnings could rethink Panorama store - HNN Big box update: Bunnings attracts protest and support - HNN

    Bunnings Yarrawonga has Chinese owner

    A mainland Chinese investor has purchased the Bunnings Yarrawonga store in regional Victoria for $11.5 million on a sub-5% yield, according to the Financial Review.

    Selling agent CBRE said it was the first time a Chinese investor had acquired a Bunnings Warehouse, and the sub-5% yield was a record for a Bunnings store outside a major metropolitan region.

    Bunnings stores have become among the most-sought-after retail properties by private investors because they are supported by long leases.

    Recently it was revealed that New Zealand commercial property investor Ben Cook was the buyer of the 14,760sqm Bunnings Warehouse in Sydney's Eastgardens that sold for a record $56 million in October.

    The sales campaign for the Yarrawonga Bunnings was steered by Justin Dowers, Mark Wizel, Kevin Tong and Joseph Du Rieu of CBRE Retail Investments. Mr Wizel at the start of the sales campaign:

    There is evidence that buyers are gaining more confidence in the performance of key regional cities within Victoria, stemming from increased government expenditure in these regions, along with improved living conditions (mostly related to affordability) driving population growth.

    Related:

    Big box update: Construction starts on Bunnings Yarrawonga - HNN Big box update: Bunnings in Yarrawonga - HNN

    Woolworths' hardware decision coming soon

    The Street Talk column in the Financial Review reports that a decision on Woolworths' home improvement businesses could be made by the end of the week.

    Street Talk understands the wealthy Sydney-based Salteri family, is among the group of wealthy investors, that have submitted a competitive offer for the Masters sites and have already started sounding out retail partners.

    The Salteris helped to establish Transfield Holdings that has interests in infrastructure, renewable energy and industrial services, along with services company Tenix, which is now owned by Downer EDI.

    Private equity multinational Blackstone, which submitted final offers for the Masters business and the Home Timber and Hardware business, was still waiting on an update from Woolworths and its adviser Citi as of August 14. In the same position is the consortium of big box retailers backed by property group Charter Hall, which bid only for Masters. However, both are understood to remain in the race.

    Although Blackstone and Charter Hall both bid for Masters, it is believed Blackstone is also prepared to take on the asset's leasehold liabilities, which could amount to $1.2 billion when all the rent on vacant properties is taken into account.

    Sources also told Street Talk that Anchorage Capital Partners is the frontrunner to acquire Home Timber and Hardware and may be close to securing exclusivity on this part of the deal.

    For now, it has currently displaced Metcash as the leading bidder for the HTH business. A company spokeswoman said: "Metcash is still part of the sale process being run by Woolworths."

    BWP Trust achieves $310.5m profit

    The property boom has delivered a bumper $310.5 million profit to Bunnings landlord BWP Trust, courtesy of $202.6 million portfolio revaluations. That represents a 48% increase on the 2015 result.

    As private investors, searching for yield, pay more for Bunnings-leased stores, the value of the BWP Trust portfolio rises.

    Recent Bunnings transactions are yielding around 5%. The capitalisation rate for the overall BWP Trust portfolio tightened 56 basis points over the year to 6.77%. Even without the portfolio gain, BWP Trust's underlying profit lifted 6% to $107.9 million.

    Total return over 10 years hit 13.5% a year, its highest level in the past five years. However the trust faces a quandary. New stores are too expensive to buy, and nor does BWP Trust want to necessarily sell off the ones it owns. No acquisitions were made in the last year. Managing director Michael Wedgwood told the Financial Review:

    We're looking at everything at the moment, but at current pricing we just can't make the numbers add up.

    Citi analyst Adrian Dark noted during an analyst call that, even as investors place a premium on BWP's security of income, the average lease length across its portfolio is steadily declining. It is now at 5.9 years.

    Mr Wedgwood and his team were quick to point out that the structure of leases has changed - with more options - and the great majority of Bunnings' were expected to go well beyond the 5.9-year figure. He said: "It is only one indicator of the risk of the portfolio."

    Related:

    Big box update: BWP Trust monitors Masters sites - HNN
    bigbox

    USA update

    Brand acknowledgement for The Home Depot

    Interline being integrated into Home Depot and more sensor products from Sears

    Top hardware and home award for The Home Depot; unification between Interline Brands and Home Depot following acquisition; and Sears expands its sensors for the connected home.

    The Home Depot wins brand award

    The Home Depot is the 2016 Hardware and Home Brand of the Year for the fourth consecutive year, according to The Harris Poll 2016 EquiTrend(r) Study. The 28th annual study reveals the strongest brands in nearly 100 categories across the media, travel, financial, automotive, entertainment, retail, restaurants and household industries, based on consumer response.

    Measuring brands' health over time, the EquiTrend Brand Equity Index is comprised of three factors - familiarity, quality and purchase consideration - that result in a brand equity rating for each brand. Brands ranking highest in equity receive the Harris Poll EquiTrend "Brand of the Year" award for their respective categories.

    This year, more than 97,000 US consumers assessed more than 3,800 brands (including more than 200 retail brands), across nearly 500 categories.

    This year's Harris Poll study marks the fourth consecutive year The Home Depot has been named Hardware and Home Brand of the Year. Compared to other award industries assessed, retail ranks high on the brand equity scale, placing just behind the restaurant industry. Meanwhile, within retail, Hardware and Home tops all other retail categories.

    Joan Sinopoli is vice president of brand solutions at Nielsen, which owns The Harris Poll. She said:

    The Harris Poll shows that most retail categories have above average brand equity scores. Hardware and Home has the strongest equity rating, and baby boomers and GenX shoppers - consumers who are investing in home improvements and moving up from starter homes - are driving that.
    To maintain their strong brand equity, hardware and home retailers will need to understand the increasing number of millennials entering the market - consumers who are more likely to make their rentals into longer-term nests, or who are able to satisfy their pent-up need to become first-time home buyers.

    Interline, Home Depot becoming "one"

    After almost a year to the day of coming together, the theme of Home Depot's and Interline Brand's acquisition is "one". Frank Blake, general manager of renovation services for Home Depot said:

    We want one account for customers, one technology platform for everyone, one product catalogue and one team working for the same thing.

    That process of merging the two is going smoothly, according to both Home Depot and Interline Brands, which was acquired in July 2015 by the home improvement chain. Interline CEO Ken Sweder said:

    We've had a very good experience with the Home Depot. We've been working closely for about a year, and that work together has been focused on bringing our associates and teams together.

    That process of blending the teams - including 1,000 Interline sales associates - was made easier by the similarities between the two. Mr Blake said:

    Home Depot is a value-based company. Its core values are our moral compass, and one of our values is excellent customer service. Interline has shown a history of excellent customer service, and we share a common core value.

    When the companies joined a year ago, there was a goal to bring together two companies that could complement each other. Home Depot is known for its home improvement stores, but also caters to professional contractors of all sizes.

    Interline Brands is one of the largest MRO, or maintenance, repair and operations, in the US, supplying janitorial and toiletry supplies to companies, businesses and housing complexes. Mr Blake said:

    There was a natural progression for targeting the professional contractor. Interline has their pros and Home Depot has theirs: Together we can cover the whole spectrum of contracting.

    For example, Interline provides products like toilets, but has historically not installed them. Home Depot provides installation services, which it can now offer as an add-on.

    For Mr Sweder, the synergies are broken down into several aspects, including more products and services, better technology and procurement platforms, a better last-mile effect with faster delivery and a combined sales force to bring face-to-face service to customers.

    He adds that there was certainly something that it brought to the table, especially complementing Home Depot's retail with its sales team, last-mile delivery and MRO expertise.

    The knitting of two companies has been a slow, careful process, Mr Sweder said, especially given the fact that they're two large ones. The process has been a "thoughtful" one, with the two wanting to bring out what's best about the other one.

    For now, Interline will continue to operate under its name - along with its customer-facing brands Supplyworks, Wilmar and Barnett - while embracing the Home Depot name. Mr Sweder said:

    We really like the affiliation with the Home Depot name. It's one of the best brands in the US. The company acquired us for our core competencies, so we plan to continue to operate with that name recognition, but some day down the road, it could change.

    Mr Blake said that looking ahead, the focus will be on creating a value-added joint company. He said:

    We have an opportunity to better serve in the professional space and have a unified solution for the future."

    Related:

    Home Depot buys Interline Brands - HNN
  • Sears sensor technology
  • Sears will release the second generation of the WallyHome sensor products in October.

    The new products will expand on WallyHome's ability to alert homeowners to water leaks and other problems caused by changes in moisture, temperature and humidity. They can tell people when they've left a door or window open and includes a built-in digital speaker, battery back-up, and integration with other connected devices.

    Sears Holding Corp. acquired the WallyHome technology last year from Seattle startup SNUPI Technologies, a company that was first established at University of Washington. It was based on research by professor Shwetak Patel.

    The new WallyHome products include a hub and multi-sensors. Sensors track conditions in parts of the home and the hub connects sensors and enables notifications through text messages, emails, push notifications or phone calls.

    Sears has made a big bet on smart home technology through its Connected Solutions division. Its connected products include devices to control and adjust temperature and lighting, as well as smart appliances like refrigerators, washers and dryers.

    bigbox

    Big box update

    Bunnings competing with Aldi

    Woolworths offers HTH discounts for longer and another Bunnings property sold at auction

    Sometimes Bunnings has to match the prices of Aldi products; no action at the Bunnings Devonport site in Tasmania; Bunnings Halls Head in WA is open for business; a development application for a new Bunnings site in Maitland (NSW) has been lodged; the battle for the hardware retail dollar is set to heat up in Kingston (TAS); a Bunnings Warehouse in Osborne Park (WA) has been sold at auction; Woolworths has extended its discounts to Home Timber & Hardware members; speculation about Steinhoff looking to buy Masters' sites; and Roger Corbett says Lowe's claims of hardware experience were an "absolute disgrace".

    Bunnings responds to Aldi

    Website traffic for Bunnings spikes when Aldi runs a special on its hardware and tool items. That's according to the manager heading up Bunnings in Australia and New Zealand, Michael Schneider. Responding to an analyst's question at the Wesfarmers' Strategy Day held in June 2016, Mr Schneider explained that his team was quick to respond to the discounted Aldi products.

    It's good for us because competition drives you to go harder at what you want to do. We're very quick to respond in terms of putting products in front of customers.

    At the time, Bunnings Group CEO John Gillam suggested that Mr Schneider was being a little modest, because the team had worked out how to pre-empt competitors through product range and marketing.

    The kinds of items that could pose a competitive threat include not just drills and saws. Bunnings and Aldi both sell a broad range of products, from garden hoses and outdoor furniture to mops, buckets, storage tubs, lighting, heaters and fans.

    However, while people can head down to Bunnings on a whim, to get their hands on the Aldi's discounts, they have to wait for them to appear in the grocery retailer's Special Buys catalogue.

    These factors mean that Aldi's threat to Bunnings' bottom line could be limited. But that hasn't stopped the hardware from taking it seriously. Aldi has its own private label "Workzone" brand, and can get effective discounts from manufacturers by using its massive worldwide scale to bulk order.

    A good example is its recent release of an $89.99 cordless hammer drill. The Aldi Work Zone cordless tool is 24-volts, has two gears, includes one Lithium-ion battery, and comes with a one-hour fast charger. It also has a three-year DIY warranty.

    The closest matching tool from Bunnings would be the Ozito Power X Change 18V Compact Drill Driver Kit. It costs more, at $99, and does not offer a hammer option, but does include a five-year warranty.

    In fact, the Aldi tool is a very clever move, taking advantage of a budget gap in the Bunnings range. However, for savvier buyers, it probably isn't that attractive. The point of cordless tools is buying a system that relies on a single battery system, and Aldi, with its sporadic offerings, can really offer the same degree of system accessibility that Bunnings does. Ultimately, cordless tool systems will tend to favour non-discount suppliers.

    Of course, this does not stop the less knowledgeable from making odd comparisons. For example, one News Corp journalist compared the Aldi offering with a bare-skin Ryobi drill at roughly the same price.

    Why Bunnings is keeping a close eye on Aldi - News Corp

    That said, the one-off Aldi offerings have garnered an almost cult following among the retailer's regular shoppers. Some analysts have attributed the success of Aldi in Australia to these regular bargains.

    A spokesperson for Aldi told SmartCompany that its Special Buys are designed to "help customers get the best value on products which support their passions and interests". The spokesperson said:

    Special Buys arrive in store each Wednesday and Saturday and are themed around activities our customers are most likely to be interested in at that time of the year. [They] deliver hard to beat value because our streamlined business model enables us to keep our prices low. Our logistics and supply chain operate with world-class efficiency, keeping delivery routes short and employing best practice warehouse techniques.

    David Gordon, retail expert and business advisor at LZR Partners, told SmartCompany that it's all about the message the stores are sending. He said:

    What Bunnings is trying to convey is that the deals at Aldi aren't that much more special than what consumers can get at Bunnings.

    Mr Gordon said Aldi's marketing works by triggering a reminder in customers that they need or want a specific item. The retailer then tries to cover all bases with its wide and erratic range of items on sale.

    It's a completely different shopping experience between the two. Consumers will go to Bunnings with a plan to buy multiple things, where consumers will go to Aldi to buy the one thing that might be on sale. People always feel like there is a deal to be done at Aldi.
    Bunnings keeping eye on Aldi Special Buys - SmartCompany

    Related:

    HNN wrote about the direct competition between Bunnings and Aldi in number of categories in August last year.

    Has Aldi out-Bunningsed Bunnings? - HNN

    Bunnings Devonport site

    There is still no word on when Bunnings will begin construction on a planned store at the Homemaker Centre in Devonport (TAS).

    The Advocate reports that ground preparations got underway in December last year, but since then there hasn't been much done at the site. A spokesperson for Devonport City Council said that no building permits, beyond those required to undertake the ground preparation works, have been applied for by the hardware chain.

    Bunnings property general manager, Andrew Marks, said the company has "development approval" for the new store. He said:

    The timing of the project is not certain but we remain confident of bringing a Bunnings store to Devonport in the future.

    Second Bunnings store in Mandurah

    The 13,000sqm Bunnings Warehouse Halls Head was officially opened by former Fremantle Dockers captain Peter Bell, local councillors and Bunnings staff recently.

    The store represents an investment of more than $29 million and created over 100 jobs in the Mandurah community. It features 14 kitchen displays, five bathroom displays, a coffee shop and nearly 300 parking bays. It also has a playground and nursing facilities.

    During the opening ceremony, store manager Darren Feenstra presented the projects the Bunnings Halls Head team had been working while waiting for the store to open. These included the revamp of Glencoe Primary School garden, the renewal of Mandurah's Southern Districts Fire Brigade facilities and a new shed of the 1st Falcon Scouts Group.

    Related

    Big box update: Bunnings in Halls Head gets go-ahead - HNN

    Application for different Maitland site

    A development application for a new Bunnings Warehouse site has been lodged with Maitland City Council. Plans for the 17,500sqm premises on Bungaree Street have been lodged 14 months after the existing Bunnings Warehouse facility was seriously damaged during the April super storm.

    Repairs to the warehouse were finally completed in May, though the store re-opened last August. A statement to Fairfax Media from the company said flood management experts had been engaged to extensively research the site. The latest warehouse is expected to replace the existing store.

    The statement also said the larger premises was expected to employ more than 220 team members - an extra 75 jobs compared with the current warehouse. The project is expected to cost more than $35 million.

    Bunnings general manager of property, Andrew Marks said the site would meet the growing demand in Maitland.

    We have been part of the Maitland community for over a decade and have been keen to bring a bigger and better offer to local residents for some time. The store will continue to operate as usual throughout the development application and construction process for the new warehouse...

    The development will include a main warehouse, indoor timber trade sales area, landscape supplies yard, an outdoor nursery, an indoor playground, cafe and 340 car parking spaces.

    Related:

    Big box update: Bunnings seeks new Maitland site - HNN

    Battle in Kingston

    Kingston is the scene of the latest battle for the hardware dollar as Bunnings opens its $26 million, 9000sqm outlet a few hundred metres from the locally owned Mitre 10 store. The two outlets will go head-to-head in one of Tasmania's fastest growing areas.

    >http://hnn.bz/Bunnings_Kingston.jpg}There has been opposition to Bunnings Kingston in the past}http://www.themercury.com.au/news/tasmania/hardware-battle-looms-as-kingston-businesses-oppose-bunnings-megastore-plan/news-story/9e2855dbb5a3b1b4a86f84835d4cc7ad

    The opening comes after the owners of Clennett's Mitre 10 led the opposition to Bunnings' plans. William Clennett helped form the Kingborough Region Development Association to oppose Bunnings, warning local retailers would go broke if the hardware giant arrived. He told The Mercury:

    It's been sad to see small hardware businesses close over the last 12 months and more are closing within our sector, at times removing the heart of the small regional towns. You only have to look to the experience within the fuel industry to see a major lessening in competition.

    But now Mr Clennett said he is ready to welcome the competition.

    Our customers know if they are not happy they can ring me, and if they are still not happy they can ring my dad. That's the essence of a family business.

    Bunnings Kingston manager Andrew Fox believes there is room for both stores in Kingston. He told The Mercury:

    There's a strong differentiation. They're still going to be really strong in that trade space and we recognise that. We do a lot more things with families - we're probably really about the weekend warriors, the home improvement, helping you do it yourself.

    Both stores have tried to entice tradies with special events in recent weeks, with Bunnings flying in former AFL stars Barry Hall, Brian Lake and Tony Shaw. Mr Fox attended Clennett's industry night and invited his rivals to Bunnings' night. He said:

    We've both got our own businesses, we both do things our way and I think it's great for Kingston now there's this competition. It pushes both of us.

    The store, which is not as big as the Bunnings at Glenorchy, includes a large nursery, undercover drive-through timberyard, cafe and playground.

    Related:

    Big box update: Local businesses oppose Bunnings - HNN

    More hardware discounts

    In an attempt to stop Home Timber and Hardware (HTH) retailers from quitting the group before the sale process winds up, Woolworths has offered to extend a 2% settlement discount on purchases for another three months until September 30. The additional payment will be made in October but is subject to retailers' accounts being in normal trading terms at that time.

    Woolworths' move accords with reports that HTH retailers are becoming increasingly concerned about the outcome of the sale process and the prospect of a successful offer from Metcash's Mitre 10.

    Leading HTH retailers are worried about Mitre 10 becoming the monopoly wholesaler and the impact this would have on wholesale and retail prices. Some have made their concerns known to the ACCC.

    Sources told Fairfax Media that Blackstone Group is bidding for both Masters and HTH which may strengthen its position against Charter Hall, which is backed by Bunnings and Harvey Norman.

    Bunnings is said to be seeking to buy about 20 Masters stores and Harvey Norman seven or eight, but Woolworths is reluctant to sell to its arch rivals. Charter Hall only wants the Masters real estate and would need to sell HTH to Metcash or Anchorage Capital Partners.

    Meanwhile the relationship between Woolworths and Lowes is said to be deteriorating as losses deepen at Masters and the gap on price expectations widens.

    Steinhoff targeting Masters sites?

    Woolworths has not commented on speculation that it has held talks with Steinhoff International about selling some of its Masters sites and its struggling discount department store chain Big W.

    Trade publisher Inside Retail has reported that Markus Jooste, CEO of Steinhoff International, has been in Australia to talk with Woolworths. It said a sale of Big W and Masters sites would help new Woolworths CEO Brad Banducci to focus on turning around its flagship supermarkets.

    Steinhoff International has also been mentioned as a potential buyer for whitegoods retailer The Good Guys. Its Australian businesses include Best & Less, Harris Scarfe, Freedom Furniture, franchised bedding chain Snooze, and discount furniture and electricals chain POCO.

    The Masters sites could be used by Steinhoff as POCO stores. But a spokeswoman told Fairfax Media that Woolworths "won't be making any comment on speculation".

    Some analysts are sceptical a sale will go ahead now, arguing the business is not in good enough health to get a good price.

    Corbett lays blame on Lowe's

    Former Woolworths boss, Roger Corbett has labelled the retailer's foray into hardware through its Masters chain as a "massive strategic mistake". However, Mr Corbett placed most of the blame on to Woolworths' US partner Lowe's, labelling its claims of experience in the hardware sector an "absolute disgrace''.

    Speaking to The Australian after declaring he would end his consultancy role with the Woolworths board after just seven months. Mr Corbett said he was unable to continue his consultancy arrangement because of the major expansion of Mayne Pharma, of which he is chairman.

    The company director criticised Woolworths' decision seven years ago, under former chief executive Michael Luscombe, to break into the hardware market through a joint venture with US home improvement retailer Lowe's, which proved costly for shareholders. He told The Australian:

    Well, I had nothing to do with Masters, either in the consultancy arrangement or in its original (formation), but Masters was clearly a massive strategic mistake and it was extremely poorly executed...

    Woolworths has been forced to write off more than $3 billion as a result of the Masters experiment. It is still negotiating to buy back Lowe's one-third stake in the business and then either sell the retailer or close it down completely.

    Industry publication ChannelNews reports that a decision has already been reached and that Woolworths will liquidate stock via "massive sales" in late November and December.

    Mr Corbett, a former director of US retail giant Wal-Mart, fired off a stinging criticism of Lowe's, that was supposed to help Woolworths succeed and navigate in the Australian hardware sector. But it failed in the most basic tasks, such as recognising seasonal differences between the northern and southern hemispheres that would impact what products needed to be sold during the Australian winter and summer. He said:

    Lowe's was a partner there, they were the hardware experts and I think ... clearly Woolworths were relying on the expertise of Lowe's and the execution was an absolute disgrace and it caused a terrible problem for (Woolworths) shareholders.

    Current Woolworths chairman Gordon Cairns appointed Mr Corbett as an adviser to the company's board in November last year, hoping some of the shine from his years as the head of Woolworths during its golden age would rub off on the retailer.

    His position was then described as a "mentor to senior management", having been chief executive of the supermarket giant from 1999 to 2006. Mr Cairns said Mr Corbett had assisted him in the role "and has provided the benefit of his vast experience and passion for Woolworths".

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    Bunnings 2016 Strategy Day transcript

    John Gillam on the year ahead

    Transcript of Bunnings CEO John Gillam discussing strategy

    This is a transcript of remarks made by John Gillam, the CEO of Bunnings, a division of Wesfarmers, at the 2016 Wesfarmers Strategy Day held on 22 June 2016.

    The following transcript has been edited to improve clarity. Headings have also been added to improve navigation. Where appropriate, we have provided the slides used in the original presentation to illustrate the points being made.

    In addition to these slides, we have also provided additional graphic and text information, based on details provided in the transcript, as an aid to exploring some of the references made by Mr Gillam.

    Transcript

    We've got a really exciting story to convey to you today about what Bunnings is doing, both the opportunities we have before us in the Australian and New Zealand market, and, obviously, the very, very early days, just into our fourth month, of owning Homebase. We will go back into what was said in January [2016] and update you on our progress.

    I wanted to start by talking about how we think about our business. I'm going to do that in the context of Australia and New Zealand, but as I'm doing this, the thoughts are very, very consistent at a macro level on how we are thinking about the UK and Ireland.

    I'm going to talk about first, long-term value creation, and our thoughts on how we set about running our business day-in, day-out, and how we think about strategy five years, ten years and beyond. And then on top of that think about and talk about our market evolution, because there has been some huge change, and there continues to be a lot of change, and the change is driven by those who are really bringing the best offer to customers. And then I will from that context, talk about our strategic agenda, and then I'll get into Bunnings UK and Ireland.

    bigbox

    Big box update

    Coolum rejects Bunnings - for now

    Bunnings' UK move is not universally approved and deadline for Masters could be extended

    The full version of "Big box update" appears in HNN's HI News PDF magazine. The Sunshine Coast council is deciding on applications for Bunnings Warehouse at Coolum Beach (QLD); Bunnings store in North Orange (NSW) is open for business; Bunnings store planned for Victor Harbor (SA); Construction of the $10 million Bunnings Yarrawonga outlet has begun; Bunnings Warehouse in Kingsgrove (NSW) is close to completion; analyst David Errington disapproves of Bunnings' growth strategy in the UK; Bunnings latest movements in the British market include pulling out of the Nectar rewards scheme, failing to trademark its advertising taglines and letting go of Homebase garden staff; and there is a possibility the deadline for Woolworths' sell off of its home improvement division may be extended.

    New stores

    Bunnings fights for Coolum

    The big box retailer will continue to pursue a new warehouse in Coolum (QLD) after the Sunshine Coast Council refused two out of the three development applications it had put before the local authority. Bunnings general manager - property Andrew Marks told the Sunshine Coast Daily:

    We are very disappointed that Sunshine Coast Regional Council has refused the application for a new Bunnings Warehouse in Coolum.
    A Bunnings Warehouse in Coolum would provide a number of key benefits to the community, including employment opportunities for local residents, ongoing support for community groups, and investment in the local economy. Bunnings will continue to work with authorities to facilitate development and bring employment opportunities to Coolum.

    Bunnings' intentions to build an 8,600sqm warehouse at Coolum Beach have also been dashed, but its fight is not over. It has a third application before Sunshine Coast Council officers for a smaller development.

    Councillors unanimously voted against the second application for Bunnings to build at Coolum shortly after voting against its first application for a larger than a 12,150sqm store.

    The third application, which should come before council in a couple of months, is for a 5600sqm store.

    Mayor Mark Jamieson noted his concerns the council was failing Coolum Beach in that it was not creating new job opportunities.

    But Lyn Saxton from Development Watch believes the number of jobs Bunnings would create would be offset by the number of jobs lost from long-existing small businesses in the area. She said the community's preferred use for the site would be for "government offices or more sports fields".

    Related:

    Bunnings tries a second time to build in Coolum - HNN

    Bunnings Orange store unveiled

    Rugby league legend Brad Fittler helped to officially open the new Bunnings store in North Orange (NSW). He told the Central Western Daily:

    I've been working with Bunnings for a while now, I'm a regular customer at the store and I believe in the company's principles. I've built a few houses myself but not very handy - I like watching and organising rather than hammering the nails. It's a massive store but the area will handle it, which says a lot about Orange.

    The $31 million Bunnings Warehouse is a significant upgrade and includes an undercover nursery that is four times the size of the old nursery. The home section has doubled in size from the previous store in the homemaker's centre on the Mitchell Highway.

    In the past, customers had to order stock that could take as long as three days to arrive, but the size of the new facility means most products will be on the shop floor. The new Bunnings outlet has been more than $8 million worth of stock.

    Store manager Jason Bootsma said everyone was extremely excited to finally be open. He said the store would be "tradies heaven".

    Our indoor timber is three times the size of what it once was and would be the biggest range in the Central West for sure. We have a fully enclosed trade yard which is also twice the size it was before which gives us an infinite range for construction - everything is just big.

    You can view a video of the new Bunnings Orange store, courtesy of Eyetrix Productions, here:

    Link to YouTube video

    Related:

    Big box update: Bunnings' Orange site gains endorsement - HNN

    Re-zoning allows Bunnings to build

    Bunnings, along with Coles and Aldi, will erect new stores in Victor Harbor (SA) following the Minister for Planning John Rau's decision to rezone the land for retail. Bunnings general - manager property Andrew Marks said it is too early to be able to provide detail of any development application. He told the Victor Harbor Times:

    Bunnings is happy with the decision and we are looking forward to submitting a development application for a new warehouse for the Victor Harbor community. If approved, Bunnings would represent an investment of over $23 million and would be expected to employ over 110 team members.

    It is envisaged the Bunnings warehouse will be 9000sqm, which will be smaller than the one at Mile End, and similar to the new Seaford store.

    City of Victor Harbor mayor Graham Philp acknowledged the Minister's decision, but expressed his disappointment in the process. The Minister took control of the planning process from the council after it was judged council took too long to make a decision. Mr Philp said:

    Our focus has always been on achieving the best outcome for our community and the negotiation of infrastructure agreements was our priority. We maintain our position that the Victor Harbor ratepayers should not have to bear the cost of infrastructure required because of new developments.

    Construction starts on Bunnings Yarrawonga

    Bunnings' latest store in Yarrawonga (VIC) is expected to open in November 2016, and have a total area of more than 6,000sqm. Bunnings general manager property Andrew Marks told McPherson Media Group:

    Bunnings' investment in Yarrawonga will provide great job opportunities for the local community with approximately 60 jobs expected to be available in the Bunnings team following the opening of the store...The community has been waiting to see this project commence and we're pleased construction activity is under way.

    In line with Bunnings' commitment to sustainability, the Yarrawonga store will implement a number of energy and water saving design features, such as energy efficient LED lighting as well as rainwater harvesting tanks to reduce energy consumption. Project manager Gareth Phillips said the Yarrawonga location is a fantastic site. He said:

    It is really good ground to build on with hard compacted clay, this makes for a strong foundation.

    Related:

    Big box update: Bunnings in regional Victoria - HNN

    Bunnings opening in Kingsgrove

    Work on $58 million Bunnings Warehouse in Kingsgrove (NSW) is nearing completion with the internal fitout scheduled for August, according to the Daily Telegraph. The store will measure more than 16,000sqm. It makes the Kingsgrove store the largest in Canterbury-Bankstown, with the Bankstown Airport and Greenacre outlets slightly smaller.

    Bunnings general manager of property Andrew Marks said the new warehouse would offer strong employment opportunities and give local residents a wide range of products to choose from.

    The nearby Masters Chullora store is set to be sold but will remain open in the meantime, said a Woolworths Group spokeswoman.

    Is Bunnings set for failure in the UK?

    Influential Bank of America Merril Lynch (BAML) analyst, David Errington has described Wesfarmers' acquisition of UK home improvement retailer, Homebase as "compromising" and compares it directly to Woolworths' disastrous experience with Masters. His comments have been widely reported in all the major Australian newspapers.

    Wesfarmers' $705 million purchase of Homebase puts is credit rating and generous dividend at risk, according to Mr Errington. He said the damage to investor returns and business performance at Wesfarmers from Homebase would "equal" the impact of Woolworths' costly Masters experiment.

    We were critical toward Woolworths entering the Australian home improvement sector (via Masters), and we believe Wesfarmers entering the UK market (via Homebase) will be as equally a compromising decision for Wesfarmers as Masters was for Woolworths.
    Homebase dilutes returns on investment ... and we think it comes with material business risk.

    Mr Errington also said Homebase appeared to have the "distinct competitive disadvantage" of high base costs and low sales.

    Being the lowest cost while having the highest costs is basically unsustainable and irrational for any business.
    Paying $705 million for a business generating $40 million of earnings before interest and tax, and where that business is smaller scale in a tough industry, raises questions.
    And when a further $1 billion is being committed over the next five years to improve the business, we are highly sceptical.
    Due to the planned overhaul of the Homebase business, we believe marketing costs are likely to be hefty as Bunnings has no brand recognition in the UK. We have concerns that Homebase will likely "chew up" any profits currently being generated in re-branding, marketing, pricing and service costs.
    The growth in the home and garden market in the UK has been low for an extended period as shown below. The current five year CGAR (Compound Annual Growth Rate) suggests growth has been below 1.5% Homebase currently holds about 3-4% market share and we question its ability to grow in a slow market against a backdrop of economic uncertainty (Brexit, global GDP concerns).

    Earlier this year, Bunnings CEO John Gillam said the property costs in the UK were higher at something like 2.6 times the percentage of sales paid in Australia. Mr Gillam has said it will take two years before Wesfarmers will be able to show whether the acquisition will be successful.

    Because the rental costs are high, he will operate in smaller format stores much akin to Aldi and Lidl in the UK who are enjoying fast growth over the bigger majors in their large format stores.

    It is believed that Mr Gillam will put the case for the company to open a pilot Bunnings store in the second half of 2016 and, subject to performance, roll out stores from there. This is down from the plan shared with suppliers earlier this year, when it was confirmed that the first Bunnings store would open in the European summer and with another five or six stores in the pipeline.

    It is also understood that Mr Gillam will stress the company is not committed to spending any further money in the UK unless it is fully justified. He will highlight that the Homebase business is not great, adding that the acquisition gave Bunnings entry to the UK market, not an operating business.

    A number of industry participants are concerned the turnaround of Homebase will be costly and require significant investment to build the network and promote the Bunnings brand in the UK, a market dominated by the Kingfisher-owned B&Q.

    It is believed Wesfarmers is testing several different models before rolling out the Bunnings brand and UK hardware sources have suggested to Fairfax Media that it is already working on changes to the product mix.

    Impact on Wesfarmers

    Its expansion into the UK and declining earnings from its industrial businesses could lead to lower dividends and a fall in Wesfarmers' credit rating, reports The Australian.

    Mr Errington said declining profits from Target and Wesfarmers' non-retail businesses, notably coal, will constrain the group's ability to support the British push.

    Mr Errington argued the fixed charge ratio (which measures costs and balance sheet risk and a key metric used by rating agencies) at Wesfarmers fell from 3.17 in 2014 to 2.99 last year and would fall to 2.54 this year and 2.44 in financial year 2017. It is falling as a result of weak performances from its Target chain, and coal and industrial units.

    Combined with $600 million in annual rent charges from Homebase, Mr Errington said Wesfarmers' credit rating could slip by as much as two "notches" from A-negative to BBB, the same level as wounded rival Woolworths.

    It is understood the ratings agencies have looked into the Homebase deal in some detail and sources close to Wesfarmers suggested the fixed-charge ratio was only one metric used to calculate ratings.

    In January, Standard & Poor's downgraded its risk-rating outlook for Wesfarmers from stable to negative, however, Moody's said Wesfarmers' rating was unaffected by its then proposed acquisition of Homebase.

    The recent note from Mr Errington is the latest in a series of reports that are against Wesfarmers and for Woolworths, with him having a buy on the latter and a sell on the former.

    Mr Errington's reputation

    Sean Smith writes in The West Australian, that Mr Errington has long been known for his forthright, sometimes contentious financial analysis. His record on Wesfarmers, however, is mixed, and his calls on the company have occasionally triggered public clashes with management.

    He was an early, vocal critic of Wesfarmers' $19 billion purchase of Coles, warning back in 2007 when the deal was struck that Wesfarmers had under-estimated the scale of the now successful turnaround and that "the actual outcome could be substantially worse than even our cautious predictions".

    He has also supported the break-up of Wesfarmers to release capital to sustain its retail businesses.

    Those in agreement

    Brian Walker, principal of advisory group Retail Doctor, told The New Daily website that selling hardware to Australians is very different than operating in the UK.

    Australia has a big do-it-yourself market and lots of shopping centres, so the big box model works well. In the UK it is a 'you do it for me' culture and health and safety rules mean you can't do a lot of things for yourself that you might do here.

    And while Australia has long enjoyed high home ownership rates, the same has not been true in Britain, where in the post-war years renters were almost as numerous as home owners. Since the 1980s, ownership has jumped but Mr Walker said it's at 65% and declining now. He said, "In Australia it's 72%".

    A tradition of home ownership fuels the DIY urge in Australia, while in Britain a rental culture makes people more inclined to call a tradies when things need doing.

    Bunnings also relies on servicing tradespeople, but in Britain that niche is served by specified "trades counters" at stores such as Wickes and B&Q, competitors to Homebase. Those factors will make it difficult for the Bunnings model to translate into Britain.

    UK-based industry website, Insight DIY agrees with Mr Errington's assertion that "marketing costs are likely to be hefty as Bunnings has no brand recognition in the UK".

    Bunnings have got rid of the most experienced, senior people from the Homebase business. They are planning to dump the Homebase brand and in the process alienate a large proportion of the existing customer base, who didn't mind paying more for the exclusive brands and the softer shopping experience. To successfully replace just one of those elements, people, brands or customers is a massive task in a challenging retail environment, but to successfully replace all three is going to be a monumental challenge.

    Related:

    Homebase acquired by Wesfarmers - HNN Wesfarmers-Bunnings Q3 2015-16 results - HNN

    Support for Bunnings' move into the UK

    Stephen Bartholomeusz writes in The Australian that Bunnings' entry in the UK market will not resemble Woolworths' unsuccessful foray in the Australian home improvement industry.

    ...[W]hatever the eventual outcome of Bunnings' offshore expansion, it won't look anything like the disastrous end to Woolworths' attempt to take on Bunnings in home improvement.

    He goes onto say that Woolworths and Lowe's invested about $3 billion - and lost more than $1 billion - in their ill-fated and poorly-executed attempt to build a rival to Bunnings from scratch.

    Mr Bartholomeusz also points out what Bunnings isn't doing in its first venture offshore. The retailer isn't planning to go from a blank sheet of paper to a 150-store network within five years. This forced the Masters joint venture to embark on a frenetic scramble to acquire sites and construct new stores.

    To read more, go to the following.

    Bunnings won't repeat Woolworths' Masters mistakes - The Australian

    Wesfarmers bets on Britain

    John Durie also writes in The Australian that the local market is leery about companies venturing outside Australia and fund managers would prefer companies to sit in cosy duopolies at home, returning excess cash to shareholders.

    To grow earnings, particularly in this market, companies need to take a risk, which means some pressure on its balance sheet. If everything goes well, this risk will be short term, but companies need to take risks and Wesfarmers CEO Richard Goyder should be congratulated for doing just that.

    Bank of America Merril Lynch (BAML), it should be noted, has a buy on Woolworths and a sell on Wesfarmers so it could be expected to take a negative view on the latter. The aim of the game is to get more people to buy Woolworths and sell Wesfarmers, but at the end of the day, this is based on company performance, and what BAML is doing is positioning ahead of what it thinks will be a change in performance.

    You can read more here:

    Goyder's British bet - The Australian

    Bunnings exits UK loyalty card scheme

    As Bunnings focuses on cutting prices in-store through its recently acquired Homebase chain, it has decided to pull out of the Nectar rewards scheme, the biggest loyalty card in Britain.

    The Aussie retailer will cease to offer or accept points for Nectar's 19 million UK cardholders at the end of December.

    Along with British retail giants such as Sainsbury's and BP, Homebase was one of Nectar's cornerstone members with its shoppers able to redeem points at other businesses such as restaurants, holidays, entertainment packages and other shops.

    But after seven years, and with Wesfarmers planning to transform Homebase into "Bunnings UK", it has decided it can better focus its capital on lowering shelf prices and keeping it competitive with other British hardware chains than be part of the Nectar loyalty program.

    Public notices have been appearing in Homebase stores warning shoppers of the change. The notices, displayed at tills across the chain, read:

    After a careful review Homebase will leave the Nectar programme at the end of the year. This means customers will no longer be able to collect or spend points in store after December 31 2016. Our priority now is offering customers everyday low prices across a wider range of home and garden improvement products.

    Bryan Roberts, retail analyst at loyalty consultant TCC Global, told The Mail on Sunday:

    This is going to be a blow to Nectar. Retailers have been diluting the benefit of their loyalty cards over the past year or two. And there's a sense that loyalty cards are misnamed judging by what's going on, with shoppers flooding to retailers who don't have loyalty cards. Retailers are reviewing strategies and investing in lower base prices rather than loyalty schemes.

    The re-positioning of Homebase as a low price operator by Bunnings will be one of the biggest transformations for a UK retailer. The big box retailer and some of its major suppliers have registered dozens of trademarks in the UK as the group prepares for an overhaul.

    Homebase staff said the transformation would include flooding stores with products bought by the parent firm and already well known in its core Australian market. The Mail on Sunday has learned this will include a host of new names, such as bathroom brand Mondella, lighting range Luce Bella and heavyweight power tool brand Full Boar.

    The supply of old Homebase stock is already dwindling but the flood of new labels could alienate some shoppers.

    Some industry observers believe Bunnings' latest moves could set alarm bells ringing at other home improvement retailers such as B&Q, which have long benefited from the disarray and underinvestment at Homebase. Neil Saunders, managing director at retail research firm Conlumino, said:

    It seems Bunnings is clearing the decks before implementing a big overhaul of Homebase. This is likely to include a complete revamp of the product offering, an improved focus on own brands, and a change in in-store experience. In essence, Bunnings seems to be taking the business back to its DIY roots.
    Such change is sensible given that Homebase has struggled to create a clear position for itself due to a relative lack of investment and focus, especially against the might of B&Q. Bunnings has the financial muscle and expertise in home improvement to challenge existing players.

    He said success would lie in the group's ability to differentiate itself from the likes of B&Q, Wickes and Ikea in product range, in-store experience and service, as well as price.

    UK IP office rejects Bunnings

    Insight DIY reports that Bunnings tried to register its well-known advertising straplines "Lowest prices are just the beginning" and "Lowest prices everyday" for use in the UK - to support its "Everyday low price" approach through Homebase. But the slogans were both rejected as trademarks by the UK Intellectual Property Office (IPO) because the wording was deemed too common. The slogans were classed as "too general" by the IPO.

    Bunnings will now have to find another slogan to represent its every day low price offer and differentiate it from competitors such as B&Q.

    In Australia, Bunnings won an argument with the Australian Examiner when it tried to register "Lowest prices are just the beginning''.

    Bunnings is in the process of rejuvenating the Homebase business and has been lodging a portfolio of trademarks. Some of Bunnings' suppliers have also registered names with the IPO including PPG-owned Taubmans, and bathroom and heating ranges Caroma, Stylus, Fowler and Dorf, which are owned by GWA Group.

    The Mail on Sunday also reports that Bunnings registered trademarks for a number of outdoor furniture and barbecue ranges, including Jumbuck, Mimosa and Matador.

    Homebase gardening staff gone

    Homebase has shed its head of DIY and gardening as well as at least two senior gardening buyers, according to Horticulture Week.

    Jon Kemp was Homebase trading director - DIY and garden, and had been at Home Retail Group for 20 years. Andy Goddard was horticulture category manager at Homebase.

    Jane Templar, who was Homebase plant buying manager has also departed. Paul Emslie was commercial director at Homebase before moving to Wyevale Garden Centres as trading and marketing director. Their replacements have yet to be announced.

    Wesfarmers have not confirmed who were replacing the staff who have left the company.

    Masters bidders want more information

    The July 4 deadline for the bids for Woolworths' home improvement division may be extended because of the scale of its problems and the complexity of the business.

    According to a report in The Australian, a number of suitors have expressed doubt the initial date can be adhered to and anticipate this phase of the process may finish at the end of next month instead. Bidders are continuing to demand more information.

    In the first half of 2016 Masters' free cash flow hit negative $324.6 million. While the retailer's problems are well known, contenders for its profitable Home Timber & Hardware (HTH) are also attempting to acquire some of Masters' stock.

    But any bids for HTH, which is being pursued by Metcash's Mitre 10 and Anchorage Capital Partners along with other smaller rival hardware retailers, will require a ruling from the competition watchdog, the ACCC, amid concerns the wholesale industry would fall in to the hands of just one player.

    However, that line of argument has angered some industry participants who point out smaller retailers are simply attempting to scoop up HTH on the cheap. They also maintain that by keeping the wholesale industry fractured it will heighten the dominance of the industry's biggest retail force, Bunnings.

    The hardware chain has linked up with Harvey Norman and Automotive Holdings to purchase some of Masters' stores while Blackstone and Charter Hall are also in the market.

    bigbox

    Big box update

    Bunnings proposal for Kembla Grange

    Leading bidders for Masters and Bunnings' retail approach tested in the UK market

    A $30 million Bunnings development is being proposed for Kembla Grange (NSW); Bunnings Warehouse's new store in Orange (NSW) is set to open; a shortlist is formulating of final bidders for Masters and Hardware Timber & Hardware (HTH); Metcash asks the competition watchdog to investigate its planned acquisition of HTH; Bunnings has slashed prices at its Homebase chain in Britain; Bunnings is testing its template on Homebase stores; more cuts at Homebase head office; a look at Bunnings' service strategy in the UK; "higher" prices at Bunnings do not discourage consumers; and new Bunnings stores in New Zealand.

    Panel reviews Bunnings plan

    Bunnings Properties has lodged plans with Wollongong City Council to demolish existing structures at the Northcliffe Drive and Canterbury Road site in Kembla Grange. It wants to build a 12,000sqm hardware and supplies store with parking for 455 cars on the ground level of the building, reports the Illawarra Mercury.

    The plans also include a 2,000sqm "pad site" which will make way for a future development. According to the application, the development will comply with all council controls except for height, with some parts of the building exceeding the 11metre limit.

    The Joint Regional Planning Panel will decide whether to approve the proposal as it has a capital investment value of more than $20 million.

    Bunnings Orange to open

    Following its approval in May 2015, Bunnings Warehouse's store in Orange (NSW) is just weeks from opening. Bunnings Warehouse Orange will replace the existing warehouse. Complex manager Jason Bootsma has been a part of the team for over seven years and said he is excited to welcome the new team members. The warehouse will include an indoor playground, cafe, and provide parking for over 300 cars. Bunnings Warehouse Orange will be located on the corner of Northern Distributor Road and Leeds Parade in Orange, and is expected to open mid-June.

    Shortlist for Masters

    Private equity giant Blackstone has emerged as a shortlisted bidder for all of Woolworths hardware operations, according to The Australian.

    Blackstone's offer is understood to have extended to Masters and its property portfolio, along with the separate Home Timber & Hardware division.

    Metcash is also understood to be through to the second round as it seeks to buy HTH, and also mulls a potential bid for all of the Masters hardware stock.

    While property group Charter Hall and its retail consortium comprising Bunnings, Harvey Norman and Automotive Holdings, are yet to be confirmed as through to the next round, the listed property investor and its backers are widely expected to be in the final stages of contention. The Australian's Data Room column previously reported the consortium was interested in up to 20 Masters stores.

    Charter Hall is also understood to be working with US discount retailer, Costco which is seeking to grow its footprint in Australia. Sources said it had looked at four development sites held by Masters.

    It is understood that while multiple parties originally bid for the assets, two to three groups will be short-listed for each component of the business up for sale to create competitive tension. The list of final bidders should be formalised by the month's end.

    Initial offers

    More than half a dozen parties are understood to have submitted bids for Masters and HTH.

    In an attempt to maximise the overall value, Woolworths' adviser Citigroup is allowing bidders to pick and choose assets, even offering to match bidders who are only interested in certain sites or lines of stock with other bidders to come up with an "integrated" solution.

    It seems increasingly likely any indicative offers will be used by Woolworths to put a realistic value on the home improvement business after failing to agree on price with its joint venture partner, Lowe's.

    Woolworths planned to buy out Lowe's to widen its exit options, but after months of negotiations and valuations by two independent experts the pair have failed to agree on what Lowe's stake is worth. They are now likely to use the auction to reach a valuation.

    Metcash goes to ACCC about HTH

    The Australian Competition & Consumer Commission (ACCC) said it had begun initial inquiries into a Mitre 10-HTH tie-up after being informed of a proposal from Metcash to acquire the group.

    ACCC chairman Rod Sims said its review would investigate how a merged Mitre 10-HTH business would affect the broader hardware market and importantly, whether it would decrease competition in both the retail and wholesale markets.

    He said the review was seeking information on a range of issues, including to what extent a combined Mitre 10-Home operation would increase wholesale or retail prices, as well as potentially damage service levels and product range.

    On the one hand, Mitre 10 is going to argue this will allow it to get more scale and therefore be stronger competitor to Bunnings. The alternative view, which we have to weigh up on the other side, the independent hardware players -- those that can decide whether to get their wholesale supply from Metcash or Danks...lose the ability to have two choices...

    The ACCC will make an announcement on its review on June 30.

    One analyst suggested Metcash's decision to request a review from the ACCC was a strategic move, designed to ensure it had broad support for its bid to build a serious second player in Australian hardware. He told Fairfax Media:

    This is really Metcash's way of saying this is good for the market, that it's increasing competition.

    It is not known how much Metcash has bid for HTH but speculative valuations range from between $150 million and $200 million. The company's share price has gone from 99c in September 2015 to over $1.78 on rumours of the acquisition, and talk that it would partner with private equity to fund the bid.

    Bunnings re-positions Homebase

    Bunnings has been drastically cutting prices of some garden and outdoor products as much as 20% in the UK market as it looks to position its Homebase retail network as the cheapest operator in the sector.

    Research by hardware retail intelligence group InsightDIY ranked a basket of goods purchased at Homebase against key competitors B&Q, Wickes and Wyevale, revealing a major shift in Homebase's pricing. It compared a basket of gardening goods to a similar basket bought in April 2015. The report said:

    Comparing April 2016 to April 2015, the B&Q basket has decreased by 1%, Wickes has reduced by 10%, Homebase has dropped by a whopping 21% and Wyevale increased their prices by 4%.

    Last year, Homebase was ranked as the second most expensive. InsightDIY said:

    With the new fitter, streamlined Homebase being fuelled by high-octane Bunnings BBQ gas, it's probably no surprise that they've taken the crown away from B&Q. Credit where credit is due, that's quite an achievement for Homebase in only a three-week period.

    A report from Morgan Stanley retail analyst Thomas Kierath said that while retailers tend to travel poorly because of differing consumer tastes, cost bases, local store and zoning planning regulations and divided management focus, if any Australian retailer has earned the right to make a play overseas it is Bunnings.

    Turning to the British hardware sector, Kierath drew on a recent visit to Australia by Morgan Stanley's British retail analyst Geoff Ruddell, who believes there are clear differences between the Australian and British home improvement markets. Kierath said:

    Notably, the UK home improvement market is shifting towards 'Do It For Me' from 'Do it Yourself' - that is, trade players have performed considerably better than DIY retailers.
    UK may be shifting towards DIFM - HNN

    Kierath suggested analysing the state of the current Homebase business was pointless because of the changes Bunnings intended to make to the store footprint, range, pricing and management.

    Related:

    Big box update: DIY price war in the UK? - HNN

    Bunnings' model in the UK

    Bunnings' British hardware business Homebase recently posted a 3.1% decline in full-year sales and sliding margins. However there were cost savings after an aggressive store closure program helped deliver profits.

    Home Retail Group sold Homebase to Wesfarmers earlier this year for $704 million, and has issued its final financial report that covers its ownership of Britain's second-biggest hardware retailer.

    It reveals a business still struggling to match it with leading hardware operator B&Q in the UK market, as it slashed away at Homebase's store numbers and rationalised the business over the past two years.

    While still profitable, with Homebase's full-year profit rising 18.6% to GBP23.5 million for the 12 months to February 27, the retailer did suffer a 3.1% slide in total sales to GBP1.43 billion.

    In 2014, Homebase announced it would close 25% of its stores in the face of weak trading, which helped comparable store sales with like-for-like sales in 2015 increasing 5.2%. Its gross margin rate decreased by 125 basis points while total operating and distribution costs decreased by GBP44 million.

    When Wesfarmers released its third-quarter sales update last month it did not include sales figures from Homebase. It officially took control of only on February 27, translating to only four weeks of trading.

    Homebase is now being led by former Bunnings chief operating officer, Peter Davis and fellow Bunnings executive Rodney Boys.

    Bunnings culls Homebase managers - again

    UK-based InsightDIY reports that Bunnings has taken the axe to the remaining senior Homebase personnel. It believes all of Homebase trading directors will leave the business between now and the end of August 2016.

    Apparently there is no voluntary redundancy being offered; everyone has been mapped to a specific role within the business and is currently going through an assessment. It is designed to score every Homebase team member out of a total of 130 points, with 25 points being deducted if the person doesn't want to be part of the new Bunnings team.

    InsightDIY said Bunnings is aiming to implement an entirely flat structure, with twenty-two buyers plus assistants, reporting into nine category managers, who then report to the general manager responsible for merchandising Craig Castelino.

    Bunnings' service strategy in UK

    InsightDIY has also turned its attention to Bunnings' "best service" approach and examines whether it be executed successfully through its Homebase stores. Managing director Steve Collinge sees an opportunity for Bunnings/Homebase to create a real point of difference.

    There are obvious challenges to install store staff with the relevant knowledge and experience overnight, to be able to provide a strong service offering. It can take 20 years to become the kind of experienced plumber and electrician that Homebase will need. These tradespeople also need to be convinced they want to work for Homebase on retail salaries that are nowhere near what they can earn as professional tradies.

    Ultimately, Collinge believes British consumers would welcome any investment in the service area. If the investment is made over the long term, he thinks Bunnings can make a difference.

    To read more about InsightDIY's perspective on Bunnings' entry to the UK market, click onto the following links:

    Will Bunnings' strategy work in the UK: service - InsightDIY Bunnings in the UK: lowest prices - InsightDIY Bunnngs in the UK: widest range - InsightDIY

    Bunnings' "high" prices, guaranteed

    The New Daily website has conducted an analysis of Bunnings prices and believes it is cashing in on Australia's home renovation and construction boom by inflating prices of common building products and materials.

    An investigation by The New Daily found that Bunnings has been charging consumers high prices for building materials such as concrete, paving sealers, plaster board, paints, doors, nails, screws, brushes, sinks and lighting since January 2015.

    In some cases the mark-ups on these products were extreme, with the price of a popular stainless steel sink rising 54% during the 12-month period. The cost of LED lights and paint brushes marketed by Bunnings spiked by more than 40%.

    The Bunnings price increases defy the Australian Bureau of Statistics' official measures of inflation, which show that average retail price rises for building products such as cement, paints, renderings and plaster in 2015 were less than 3%. But The New Daily's research suggests the average cost of renovating a bathroom or extending a house rose by more than 11% for Bunnings customers.

    To read more about The New Daily's audit of Bunnings' prices, go to:

    Bunnings turns the screws on home renovators - The New Daily

    The website also turned its attention to Bunnings' prices last year:

    Bunnings prices designed to nail customers - The New Daily

    Readers reaction

    The New Daily followed up its story on Bunnings' prices with one that illustrates that although some consumers say the hardware giant exploits its dominance, they enjoy the fact it's a "one-stop shop".

    Readers of The New Daily corroborated the findings of its investigation into the rising prices of building products at Bunnings, but many say they will continue to shop at the hardware chain because of its wide product range. One reader said:

    I'll still always use Bunnings for the vast array available of everything you could possibly need.

    Others were skeptical about the gap between Bunnings' marketing pitch and its prices. Another reader said:

    The best thing anyone can do is online shopping -- there are thousands of small online Australian suppliers that work on a much smaller markup. All large stores like Bunnings work on using a lead-in line at low prices just to get you in the shop, then once there buy more items at inflated prices.

    Bunnings expands in New Zealand

    Bunnings is building a NZ24.7 million store in South Hamilton and another one in Auckland's Arch Hill.

    The Hamilton store will be more than 11,340sqm and include parking for more than 260 cars. At Arch Hill, plans for a large Bunnings store were highly controversial and the Arch Hill Residents Society sought initially to stop it.

    However planning commissioners allowed it. The society then entered confidential Environment Court mediation to win some major concessions. These included issues over traffic, truck movements, lighting and sound. Nearby houses were to be checked for structural damage from the building work, summer trading hours will be limited, loud speaker use will be controlled and traffic slowed by a proposed raised roadway to soften the big box store's arrival.

    bigbox

    Lowe's uses mobile video

    New push to reach millennials

    Lowe's latest social media campaign features short videos on DIY projects

    Lowe's is turning to Facebook mobile video and Snapchat to help first-time millennial home buyers discover home improvement tricks.

    The home improvement retailer and Omnicom agency BBDO created the new series of social videos to showcase easy spring cleaning and DIY projects in a quick and more interactive way for younger consumers.

    The push is part of Lowe's ongoing strategy to reach potential consumers who are increasingly spending time on visual-driven social media platforms. Chief marketing officer Marci Grebstein said:

    The challenge as a marketer today is, how do you continue to engage consumers differently and within different social platforms. We have to be able to create informative and entertaining content based on how the platform works.

    For Facebook, Lowe's will be the first marketer to take advantage of a flip video application on Facebook's mobile feed that allows viewers to change the orientation of the video.

    The retailer's "FlipSide" videos are short two-sided live action videos that show simultaneously what can happen if a homeowner doesn't clean the gutters and air filters or prune overgrown shrubs, versus what happens when a homeowner does proper spring cleaning. The videos link back to Lowes.com.

    Viewers can watch either story line at the top of the video player depending on how they tilt their phone.

    Lowe's is also pushing into Snapchat for the first time. The retailer's "In-a-Snap" series aims to inspire both young homeowners and renters to pursue simple home improvement projects such as installing shelves to build a study nook.

    Users can tap on the screen during the Lowe's Snapchat story to put a nail in a wall or chisel off an old tile in a game-like fashion to complete a project. The "In-a-Snap" series is not a paid brand story or part of Snapchat's Discover tab. Instead Lowe's is using its Snapchat channel to share the content. Ms Grebstein said:

    Doing a home improvement project does not have to mean gutting and renovating your entire home or kitchen.

    She added that the retailer will also have another series of video tutorials on Facebook and Instagram called "Home School" that uses drawings from chalk artists to animate maintenance projects.

    This isn't the first time Lowe's has made big pushes into the social space. Lowe's launched its first "Fix in Six" Vine campaign in 2013, which featured six-second looping videos centred around a home improvement hack. The retailer's Hypermade series, which launched in 2014, documented DIY projects in super-fast speed on Instagram. Both social media campaigns helped increase brand engagement, according to Ms Grebstein.

    While the social campaigns aim to help first-time homeowners or young renters learn more about home improvement, Lowe's also wants to help consumers think differently about the brand beyond its product and services.

    Lowe's has debuted a long-form video online called "House Love" about the relationship between two young children who live across the street from each other and the relationship between their neighbouring houses. Ms. Grebstein explains:

    The one component that 'House Love' really is about is about driving an emotional engagement.

    Millennials who are becoming first-time homeowners, in particular, "want to know more about the companies they do business with and not just the products and services they offer. They want to understand the deeper meaning of what a company is trying to stand for." She add:

    We have to be a lot more innovative and thoughtful about how and where to capture that millennial audience.

    The "House Love" video will be shared on Lowe's social media channels and will run as ads in movie theatres in the US starting in May. Ms Grebstein said Lowe's may later consider running the creative on more traditional vehicles such as TV.

    bigbox

    Kingfisher FY 2015/16 results

    Mild success, good developments

    While markets in Europe continue to stagnate, Kingfisher has found some sources of growth

    UK-based big box home improvement retailer Kingfisher has reported its results for its FY 2015/16. Total group sales declined by 2.6% over the previous corresponding period (pcp) which was FY 2014/15, to reach GBP10,331 million. However, using constant currency to remove the effects of fluctuating currency exchange rates, Kingfisher reports that its sales grew by 3.8% over the pcp. In like-for-like (LFL) sales measures, Kingfisher reports sales growth of 2.3%.

    Total profit for the group was GBP746 million, an increase of 0.7% over the pcp. In constant currency terms, Kingfisher reports the profit would be up by 7.4%. Kingfisher reports an operating margin of 7.2%, up from 7.0% in the pcp.

    During the year, Kingfisher closed 30 of its UK B&Q stores, a decline of 8%, and opened an additional 62 Screwfix outlets, an increase of 16%. Total selling floor space in the UK declined from 2,595 square metres, to 2,442 square metres, a fall of 5.9%.

    For the fourth quarter alone, Kingfisher reported total sales of GBP2,298 million, up by 0.7% on fourth quarter 2014/15. In constant currency terms, the increase would have been 4.7%, and 2.8% for LFL sales. Profit for the fourth quarter was GBP113 million, up by 35.7% over fourth quarter 2014/15.

    Presenting the year's results to analysts, the company's CEO, Veronique Laury, said:

    The second thing is we've delivered a good set of results. I am pleased with the results. I think we've delivered on expectation. And, even though we still have an underlying business which is volatile, because the things from customers' point of view haven't changed in a year, I am really pleased with the focus and the energy that the business has demonstrated to deliver those results this year.

    Regional results

    Ms Laury summarised the company's regional growth opportunities while speaking to analysts by saying:

    The other thing I want to remind you is that we have three strong businesses in UK, France and Poland and they are some of the biggest home improvement markets in Europe. And we have a growth engine with Screwfix.

    Summarising the results on a regional basis, the company's chief financial officer, Karen Witts, said they represented a

    ... mixed picture across our major markets, with good results in Poland and the UK, including a particularly strong performance from Screwfix, lower losses from our new developing countries offset by softer though stable market conditions in France.

    >http://hnn.bz/KF-country-map.jpg}Revenues by country}http://hnn.bz/KF-country-map.jpg

    UK and Ireland

    Kingfisher's UK and Ireland region delivered the best results of all regions. Its trade sales business unit, Screwfix, recorded sales growth of 26.3%. Screwfix has a large online component to its sales, and represents over 10% of the company in sales revenues. This performance helped boost Kingfisher's performance in its UK and Ireland region to GBP4,853, a 5.5% increase over the pcp. LFL grew by 4.4%, the company reports.

    B&Q delivered an increase of around 1% in sales over the pcp, coming in at GBP3,799 million for the year. In LFL constant currency terms, growth was 1.9% over the pcp.

    Profit for UK and Ireland was GBP326 million, up by 18% over the pcp. Responding to a question from an analyst about growth in UK LFL sales, Ms Witts said:

    There are three contributing factors, I guess, to the LFL progression. One is the sales transference from our own store closures. Another is the sales transference from Homebase store closures. And then the rest is actually what we're doing.

    She also mentioned that there had been something of an uptick in sales of new kitchens.

    France

    Overall sales for FY 2015/16 fell by 8.4% to reach GBP3786 million. In constant currency terms, Kingfisher reports sales would have grown by 1.2%, but LFL sales would have slipped by 0.4%.

    Commenting on activity in France, Ms Witts said:

    This was in an ongoing soft market impacted by weak consumer confidence and subdued housing and construction activity. We may have seen the first positive movements for four years with housing starts up 2% and building permits up 4% but I say may, as this only happened towards the end of the year. Gross margins were up 10 basis points.

    She added that, for Castorama, LFL sales of outdoor seasonal products rose 1.1% and building products fell by 0.5%.

    Brico Depot outperformed Castorama in constant currency sales growth, growing 2.5% for the period, versus the latter's 0.1% growth.

    Ms Witts also commented that progress with enhancing the digital offer in France was pleasing:

    We've also made good progress with click, pay and collect in France, rolling this out to 161 of our stores versus the 34 we had at the previous year end and well ahead of the 114 that we were targeting back then.

    Profit for France was GBP311 million, a fall of 1.6% in constant currency terms over the pcp.

    Poland

    Kingfisher singled out Poland as one of its better performing regions. Sales came in at GBP987 million, down 6.4% on the pcp, but a reported increase of 3.3% in constant currency terms. LFL sales in constant currency grew by 3.6%. Profit came in at GBP113 million, down 4.0% on the pcp, but up 6.0% in constant currency terms.

    Russia

    In pure revenue terms, the worst performing region was Russia, which recorded an over 20% fall to revenues of GBP325 million. However, in currency adjusted terms, Kingfisher reports Russia recorded a 12.9% increase.

    Spain

    Spain suffered a 12.3% decline in sales revenues to GBP269 million, which in currency adjusted terms was still a loss of 3.2%, and 5% for LFL sales.

    Other regions

    Germany, Portugal and Romani all reported negative profits. Kingfisher's joint venture in Turkey returned a profit of GBP7 million, which represented a fall of 6.7% on the pcp in constant currency terms.

    Commenting on the Romanian situation, Ms Witts said:

    We booked an impairment charge, primarily relating to goodwill recognised on acquisition of our business in Romania, reflecting the loss-making performance of the business. The performance to date has been disappointing, but we've got a new management team in place in Romania and we're confident that losses will be significantly reduced this year.

    Screwfix

    Screwfix continues to be the star of the Kingfisher divisions. Commenting on the ongoing growth at Screwfix, Ms Witts said:

    We've already said that we believe that there is a capacity for around 600 outlets in the UK and we will open around 50 this year. We explained in January that Screwfix, which has just won multichannel retailer of the year, will be the benchmark for our brilliant basics digital program in our transformation. Screwfix mobile sales were up 100% on last year, from about 2% to 3% of total sales. This will have helped our growth in click, pay and collect sales, which were up more than 50% from 10% of total sales last year to 12% this year.

    Asked by an analyst for more detail on how Screwfix was achieving its good growth results, Kingfisher's chief digital and IT officer, Steve Willett, said that some of the growth was coming from store maturity, as the recently opened outlets achieved better numbers. He also pointed to key elements of the online business:

    We keep improving the customer experience and, quite frankly, as we speak we're rolling out a new website into Screwfix, by the way, that will be finished by the end of this week, which is basically moving that experience even further.
    ...
    And then the other thing we're doing is what we would call online range extension, which is actually driving the web and the ranging experience, but it's also helping us tune the ranges in the trade counters.

    Ms Laury also commented on the potential for Screwfix in its new operations in Germany:

    Then Screwfix Germany. Karen talked about it. We've opened more stores. I've been with Steve in Germany as well very recently. We are positive about the results. It's still early days but we've decided to continue to grow in Germany. We are seeing right now a week-on-week 10% growth, which is very encouraging and we've decided to double the number of outlets in Germany. To be breakeven with Screwfix as a model we need 50 stores. We may accelerate.

    Mr Willett expanded on the situation with Screwfix in Germany in response to an analyst's question:

    So what we're doing in Germany, so I think there's a few bits. One is that the market structure in Germany is structured slightly differently but it's the same as the UK and what you've got is this serious bottom end of the pro market, very serious hobbyist-type market. So we're seeing the same market dynamic. It plays out slightly differently.
    The other thing we're seeing that we weren't sure about is in the UK people got conditioned to catalogue shopping, probably by Argos, and we weren't sure actually how that would drop into Germany. Quite frankly, it's been a non-issue. And, in fact, they get it absolutely as soon as they've been through it.

    Bunnings

    In response to a question from an analyst, Ms Laury did go into some detail about her attitude towards Bunnings. She said:

    First, before answering your question I just want to say something about some of the selective quotes that have been in the press about my position around Bunnings. I'm very respectful of every kind of competition and I've always been. And I know the CEO of Bunnings very well. I had the opportunity to meet him a few months ago in London and I think he's a really good CEO. So all my respect to Bunnings.

    Ms Laury added a comment that Kingfisher had sent some people to Australia to take a look at Bunnings operations so as to better understand them as a competitor. In other remarks she mentioned that the company's newly appointed heads of sales and retail operations, Jean-Paul Constant, was at the time of the results release in Australia.

    Transformation program

    Ms Laury took time at the beginning of the presentation to analysts to revisit the goals of the five-year transformation plan she clearly outlined in calendar 2015.

    Cut the tail plan

    In her original analysis of what was troubling Kingfisher, Ms Laury and her team identified the very wide range of SKUs that were being offered, and the consequent cost in stock. She has reported good progress in changing this situation:

    I'm really pleased with the results that we've achieved because we cut the number of SKUs by 50% and we cut the value of stock by 40%, which I think is a very big achievement.
    ...
    The important thing that I need to tell you as well is that we've now put in place what we call a product lifecycle, so we won't be recreating the problems that we had. And, of course, as we move to unified and unique we won't have that proliferation of SKU creation in every business.

    >http://hnn.bz/kf-sku-reduction.jpg}Reduction in SKUs}http://hnn.bz/kf-sku-reduction.jpg

    Developing big box best practice

    Ms Laury announced that there would be four big box best practice stores set to open over the coming six months. There is a store each in the UK, France, Russia and Poland. The goal of these stores is to experiment with ways of making big box retail work better. As Ms Laury explained it:

    What is this about? It's about really taking the best of what we do today in the Group and putting it together, and I will come back on what are the four key areas we have been working on. I think, again, this is a journey. This is not about the store of the future. As every retailer, we have to think about what do we need to do from a store perspective with the digital working together. Like every retailer, we have to do that but it is a step. I think it was -- this is a learning curve. We needed to work together as well and this has been a good exercise to make operational people working together.

    The four aspects of the stores that will be worked on are: Merchandising principles, which includes elements such as store layout; services; interaction between staff and customers; and efficiency.

    >http://hnn.bz/kf-bigbox-pilots.jpg}Big box pilots}http://hnn.bz/kf-bigbox-pilots.jpg

    People

    Ms Laury took some time to outline the roles and potential of the two most recent appointments to the leadership team, Pierre Woreczek as chief customer officer, and Jean-Paul Constant in sales and retail operations.

    [Mr Woreczek] will work on how we integrate all the customer knowledge that we are developing into all our thinking and how we do things, as well as working on the customer experience, of course, with his colleagues, especially with Steve, on how we implement the digital aspect of things.
    ...
    [Mr Constant] has worked for Decathlon for almost 30 years. And what is special about Decathlon is the fact that they are used to a unified and unique offer. They used to one store format and one platform of communication, as well as being able to generate high level of engagement in their store. And I think that combination is almost unique.

    >http://hnn.bz/kf-people.jpg}People at Kingfisher}http://hnn.bz/kf-people.jpg

    Conclusions

    At this stage in its transformation, it is very difficult to draw any concrete conclusions about Kingfisher, either in terms of its progress towards its goals, or whether those goals will repay the investment in time and Capex that will have gone into them. This is particularly the case given the global situation and local market situation in the EU and greater Europe at this time.

    That said, there are certainly some very positive signs emerging from Kingfisher. While Screwfix is only 10% of the entire business (by revenue), its success and growth show that something is working well within the company.

    At the same time, questions do arise as to whether Kingfisher is doing enough to fix its moribund markets in France, and its declining market in Spain. The externalities in both those markets are highly unlikely to improve by much over the next five years or so. That doesn't mean, however, that these markets lack potential. Is there a bit too much of a European acceptance of current conditions, and not enough attention to finding good sources of growth?

    If we were to point to what seemed particularly lacking in this results report, it was a sense of product development. What we are seeing at the moment is a lot of preparatory work, and while that is certainly necessary, there would seem little that would stop a focused approach to product development running in parallel to it.

    Again, all that development activity may be going on beneath the surface of Kingfisher, and we may find out more in another six months of so. But if there is an amber light flashing on the Kingfisher dashboard, it's about whether the company should be quite so complacent in accepting market downturns, and not more concerned with the core business of home improvement retail: discovering what people need for their homes, and finding a way to get it to them at an attractive price.

    Related:

    Kingfisher results 2015-16 first half - HNN Kingfisher conjures new transformation - HNN Kingfisher results for third quarter 2015-16 - HNN
    bigbox

    Big box update

    Bunnings' new Bonnyrigg store

    May 2 deadline for Masters sale and Bunnings' smaller-sized stores

    A "supersize" Bunnings store will be constructed at Bonnyrigg (NSW); Bunnings lodges plan for a store in Glynde (SA); Masters' property portfolio attracts additional attention; the future of Masters Mt Gravatt site under a cloud; Masters store at Parafield Airport (SA) remains empty; prospective buyers for the Masters business have been given until May 2 to lodge their bids; former Woolworths CEO Grant O'Brien resigns as Masters director; Bunnings' move into shopping centres is part of its continuous rollout of smaller format stores; Wesfarmers is expected rebrand up to nine British Homebase stores as Bunnings; and suppliers and competitors prepare for Bunnings' British "invasion".

    Bunnings building at Bonnyrigg

    Bunnings has announced the development of a new 15,000sqm store at 1-19 Bonnyrigg Avenue, Bonnyrigg (NSW). The retailer is investing more than $45 million into the construction, which was approved by Fairfield City Council.

    All current staff will transition to the new store, which will be built next to the existing store. The new warehouse is expected to open in mid-2017, with the current store remaining open throughout construction.

    Bunnings planning SA store

    Bunnings has lodged an application with Norwood, Payneham & St Peters Council to build a $26 million store on a 14,000sqm site in Glynde (SA). Its application followed the closure of a Home Timber & Hardware store on the corner of Magill and Glynburn Roads in July 2015.

    General manager - property Andrew Marks said it was too early to comment on when the company hoped to begin construction or when the store would open. He told Adelaide Now: "If approved, the new Bunnings Warehouse development would represent an investment of over $48 million for the land, construction, fitout and stock."

    Bunnings' proposal comes almost two years after Woolworths scrapped its plan to build a Masters store in the suburb on the corner of Glynburn and Davis Roads.

    The nearest Bunnings store is about 5km away from Glynde at Rundle St, Kent Town. There is also a Mitre 10 store on the corner of Glynburn and Montacute Roads.

    Related:

    Big box update: Masters no longer at Glynde - HNN

    More interest for Masters properties

    Dexus Property Group as emerged as the latest property group looking over Masters' portfolio, reports The Australian.

    According to Information Memorandum (IM) documents for the sale obtained by the newspaper, a sale of the actual Masters hardware business is seen as unlikely, given it was $324.6 million cash flow negative at the end of the first half.

    Some in the industry were shocked to learn of the extent of the losses but they believe once the business is divested, it would create a higher than expected earnings lift for the overall Woolworths business.

    While a large number of prospective suitors of the portfolio have taken IM documents recently, many are betting Charter Hall and Blackstone would probably be the frontrunners to secure the assets.

    Related:

    Big box update: Property play from Masters sale - HNN

    Masters Mt Gravatt in limbo

    The sale of Masters' assets leaves the future of the Central Fair Shopping Centre in Mt Gravatt East (QLD) in question.

    The 1.8ha shopping centre site has been empty for about two years since the last shop closed its doors. But after a 20-month process, Brisbane City Council has recently approved a development application for a Masters store to be built. But with Woolworths moving forward with selling off the hardware chain, the site's future remains uncertain.

    Local business owners are also demanding something be done about a derelict retail site which has become a hot spot for squatters and vandals.

    Councillor Krista Adams (Holland Park) said the application took 20 months to be approved because Brisbane City Council wanted Masters to adhere to the City Plan 2014. She told the Courier Mail: "I didn't want a blue (hardware store) box dropped on the site and so they amended the proposal to do things like put the cafe at the front of the store and extend awnings to weatherproof pathways.

    A Brisbane City Council spokesman said it received an application for a Masters Home Improvement store at 48 Creek Road, Mt Gravatt East, on June 26, 2014. He said: The original proposal did not have an adequate plan for traffic impacts and council had several concerns. Council forced Masters to make significant changes and the application was approved by council on April 1, 2016."

    A Masters spokeswoman told the Southern Star newspaper the company was concerned about reports of squatters at the Mt Gravatt East site. She said: "In recent months we enhanced our security on-site, with 24-hour teams now on patrol. We are committed to addressing these concerns and will work with our security teams to ensure the safety of local community members and business owners."

    The spokeswoman also confirmed the sale process for Masters and Home Timber and Hardware had commenced and was expected to continue over coming months.

    It is understood the site at 48 Creek Road will be sold during this process. It is not yet known when the sale of the site will begin.

    Masters Parafield Airport store unused

    The 13,500sqm Masters store located on Main North Road, Parafield (SA) was due to open within the next month. However it remains unoccupied since Woolworths announced it abandoned plans to open Masters stores around Australia including new stores under construction at Parafield and Noarlunga (SA).

    Developers had already laid the concrete foundation at the Parafield store, erected the walls and painted the building since construction began in June 2015.

    Salisbury councillors have previously suggested a gardening retailer, supermarket, department store or storage warehouse would be among the best options to replace the home improvement retailer. Mayor Gillian Aldridge was hopeful a new tenant would snap up the site in the coming months. She told Adelaide Now: "I would imagine that it would take no time at all for someone to move in there because it is in such a prime position with easy access in and out of the area. And I suspect that there would be more development happening right around that area, which would of course encourage more people to come in."

    Deadline for Masters sale

    Suitors for Masters, along with Home Timber & Hardware (HTH), have been given until May 2, 2016 to lodge their bids.

    As first reported by the DataRoom column in The Australian, Woolworths adviser Citi distributed an information memorandum recently to a number of potential investors including trade buyers, private equity firms, and a large number of listed and unlisted real estate players.

    The sales documents, seen by The Australian, underscore Masters was cashflow negative at the end of the first half, to the tune of $324.6 million, while its net assets are worth $2.5 billion.

    The dire straits of the big box retailer's balance sheet has deterred many prospective bidders and prompted predictions the chain will be flogged off as a property play. New York-based Blackstone, Charter Hall Group and Abacus Property Group were all widely touted as contenders for the portfolio.

    Trade buyers are also pursuing a handful of sites. The Australian reported that US giant Costco has at least four outlets in its sights and it is understood Melbourne-based Spotlight will attempt to prise off some stores, as will Bunnings.

    Yet while the Masters business looks doomed, HTH has lured in a string of enthusiastic suitors. Mitre 10, which is advised by Luminis Partners, is a well-known contender, although a number of private equity firms are also in the mix.

    Related:

    Big box update: The start of Masters' sell-off - HNN

    Masters loses director

    Ex-Woolworths CEO, Grant O'Brien, has stepped down as a director of Masters. Mr O'Brien, who officially departed Woolworths as chief executive in late February, has resigned as a director of the joint venture that houses the Masters hardware chain. It severs the final ties between the executive and the business he helped create.

    Three years before he was appointed the head of Woolworths in 2011, Mr O'Brien played a leading role in the development of the company's hardware strategy. He spearheaded the creation and design of Masters, later championing the loss-making venture when he replaced Michael Luscombe as Woolworths chief and arguing it would eventually emerge profitable.

    Mr O'Brien's departure comes as Woolworths and its joint venture partner in Masters, US hardware and home improvement giant Lowe's, have yet to agree on a valuation for Lowe's one-third stake in the Masters chain. Woolworths is seeking to gain 100% control of Masters so it can then sell or shut down the loss-making retailer completely.

    Under the terms of an agreement released earlier this year, the supermarket group and Lowe's are seeking to appoint a third independent expert to determine a valuation for the Lowe's stake. A Woolworths spokeswoman told The Australian: "We have not agreed on a valuation at this point and we are discussing the process for the third valuation."

    Related:

    Masters after O'Brien - HNN Big box update: Masters boss quits Woolworths - HNN

    Bunnings' foray into shopping centres

    Bunnings will open a store in a shopping centre on Brisbane's northside at Vicinity Toombul Shopping Centre in the middle of this year.

    About $8 million will be spent on the development, fitout and stock for the new smaller-format store, which spans about 3000sqm in a former Coles site. Bunnings general manager - property Andrew Marks said the new store would employ 50 staff. He told the Courier Mail: "It's an exciting opportunity as it's located within an existing subregional shopping centre and will allow Bunnings to breathe new life into the former supermarket and service the inner northern suburbs of Brisbane.

    :Bunnings smaller format stores, part two

    Several media outlets have picked up on the story that Bunnings is developing a growing number of smaller format stores, following its announcement that it will open a 3000sqm store at the Toombul Shopping Centre in Brisbane (QLD).

    The conversion of a former supermarket in a small shopping centre at Indoorooopilly in mid-2014 was a first for Queensland and received a positive response so Bunnings is now expanding even more.

    There are currently 69 smaller format Bunnings stores across Australia and New Zealand. The smaller stores are part of its DNA, according to Bunnings.

    CEO of Hardware Australia, Scott Wiseman, told the New Daily website that Bunnings is expanding into smaller format stores, mostly in more regional areas. He said: "It's quite an interesting model. They're sort of shifting focus or shifting tactic to try and capture what the independent hardware retailers have got, in terms of that personal service, that expertise or knowledge."

    He said while many independent retailers remain, it is difficult for them to compete with the huge marketing budgets of retailers like Bunnings. However, he believed more of the smaller players are changing tack and offering price matching to try to compete. He said: "The reality is there's not much of a price difference between the big boys and the little guys."

    Business futurist Morris Miselowski said many retailers around the globe are mixing it up when it comes to size. He said: "Many large box retailers across the planet are experimenting or moving to a small box size. It's not instead of -- it's generally as well as."

    Miselowski cited the example of Woolworths' "Metro" format stores. Under the "small box" model, a retailer would generally take 20 to 25% of its top-selling products, and place them in a convenient, smaller-sized store, he said.

    Related:

    Big box update: Small format Bunnings stores - HNN

    Bunnings opening smaller stores, part three

    Industry consultants have come on the side of Bunnings and believe its move into smaller format stores is "good" and a way of competing with other big box stores that could emerge in the future.

    Geoff Dart thinks the small retail business plan could mean Bunnings is tapping into a market of impulsive shoppers who are after convenience. He said McEwans, a hardware chain Bunnings took over in 1993, used to have stores in shopping centres. He told News Corp.: "The good thing about that smaller range is people just impulsively buy things they might need at home, like hooks to hang your pictures or tape for fixing things. It used to work really well for McEwans.

    "Someone needs to fill this need, supermarkets have a fairly pathetic hardware range and Kmart and Big W have little tool kits but they couldn't service somebody who wanted to fix their tap or wanted a new type of paint."

    Apartment dwellers and the larger number of people now living in cities could also help with the potential success of these small stores. Dart said: "There are a number of apartments being built and there are no hardware stores around them. People don't want to drive 20 or 30 minutes for a large warehouse and they don't need a lot of things for apartments, they just need paint and some power tools."

    Melbourne University business and economics expert Dr David Byrne said there was a similar move when petrol stations started to relocate closer to supermarkets. He said: "That's been a good move for companies, taking one line of their business and putting it near another business.

    "There's some rationale behind Bunnings' decision to open smaller scale stores. Time will tell if it's successful but you can see the economic rationale for doing it."

    Dr Byrne said people associated Bunnings with large, big box stores and he believed smaller shops would appeal to a new market. He said: "Depending on how they roll out these smaller scale stores, it may allow them to enter and profit from smaller markets around Australia."

    Dr Byrne does not believe the smaller retail shops will eventually take over big box stores. He thinks instead it will just expand Bunnings' customers. He said: "Opening smaller shops near other retail outlets and supermarkets is probably a way of picking up customers who are just out buying bread but also need paint.

    "They are going to try and get supermarket customers into their stores as well and I suspect we won't see them selling timber in these smaller retail stores but instead small scale things like super glue, insect repellent and other things you can get while at the shops.

    "I think with the construction industry we're always going to have a physical need for large warehouse stores but the question is whether there is an appetite for big box stores in smaller markets."

    Mini-Bunnings, "disastrous" for indies

    Bunnings' move to implement smaller format stores will be a win for shopper choice and convenience, but a disaster for smaller independent suburban hardware chains, according to Queensland University of Technology (QUT) retail expert Dr Gary Mortimer.

    After Bunnings announced a small-scale version of its store would open in Toombul (QLD), Dr Mortimer, from QUT's School of Advertising, Marketing and Public Relations, said: "This is a strategic move away from their warehouse style, big box formats which had become a destination shopping experience. It is an exceptionally smart move by the hardware retailer to capture a new customer base, once serviced by the discount department stores."

    Dr Mortimer said both Big W and Kmart once had large automotive and hardware departments, including paint and decorating items. However to reduce costs, both have moved away from offering this full service experience, he said.

    "A mini-Bunnings will attract the shopper looking for convenience and seeking a broader choice than what is currently offered by the discount department stores."

    Bunnings' European summer debut

    Bunnings' green and red logo will hit UK shoppers as a handful of Homebase stores are rebadged in time for the warm summer weather. It is understood Wesfarmers will rebrand up to nine Homebase stores as Bunnings, to capture the increase in demand for homewares, hardware and garden supplies during the northern hemisphere summer.

    The conglomerate would not comment on a launch date for Bunnings in the UK but suppliers suggest Wesfarmers is keen to test the brand in a number of outlets clustered around Homebase's British headquarters in Milton Keynes.

    A source close to Wesfarmers believes what they want to do is maximise the potential sales and increased customers traffic over summer. He told Fairfax Media: "The focus of the guys in the UK is to get the thing operational...They will use this European summer to test the market, they will use a number of stores and see how each of them trades, each with a slightly different model."

    There is also speculation Wesfarmers will alter the product mix at Homebase, with a stronger focus on gardening supplies and accessories, and a reduced range of soft homewares such as bedding and curtains.

    Wesfarmers will shake-up Homebase supply

    Suppliers are speculating there will be big changes to Homebase's buying now it is owned by Wesfarmers, according to UK-based Horticulture Week. One supplier told Horticulture Week: "We're seeing the first stage of what all the industry is expecting - Bunnings coming in and really challenging the market. They're going up against B&Q and Wickes and the wider DIY market.

    "When you check out Bunnings' Australian website, the message you see is 'We want to be cheapest in the market'. It's a bit of a scary message. It's concerning because the current Homebase model won't fit that. They will have to change to a discount-orientated model. As suppliers, we'd have to change our model to supply them.

    "At the moment, we go in over a period of 10 weeks so we have to manage that. With discounters, the start and finish date is set and they take it all at once so the supplier can cost according to that model. The retailer is saying they want to buy at discount price levels, but are not coming up with that model yet."

    Some growers have used that method to supply Aldi. With Homebase changing ownership, more potential suppliers are set to ask for business. Packing bedding and pot plants are likely to be what the firm concentrates on in the UK.

    Wesfarmers is expected to relaunch about six high performing UK Homebase stores by the end of the year with new Bunnings branding. The company is also believed to want to start expanding store numbers again after previous owner Home Retail Group (HRG) planned to cut store numbers by 80 to 240 by 2018.

    Retail consultant Andy Newman said using the discount model will mean a narrower range being available to the mass market. He said: "The new Homebase will be very seasonal, selling big obvious volume stuff. They will just look at what products have the biggest volume as opposed to niche stuff."

    Brits prepare for Bunnings

    Kingfisher, Britain's largest hardware operator and owner of the B&Q and Screwfix chains, recently unveiled a 20% decline in its full-year profit. CEO Veronique Laury, in her earnings presentation to analysts, conceded that Bunnings would be a tough competitor in the UK market. She said: "It is always good to have strong competition because it forces you to become stronger as well and there is no question Bunnings will be stronger competition than Homebase was in the UK."

    Ms Laury said she had even met Bunnings CEO John Gillam when he was in London earlier this year and in fact knew him very well and respected Bunnings' competitive and retail skills. She said: "I'm very respectful of every kind of competition and I've always been. And I know the CEO of Bunnings very well. I had the opportunity to meet him a few months ago in London and I think he's a really good CEO, so all my respect to Bunnings."

    But there was a sting in the compliment, as Ms Laury reminded analysts, and anyone from Bunnings listening in on the earnings call, that Homebase had many operational problems of its own that needed to be fixed. She said Bunnings would "have work to do because Homebase is today very different from what Bunnings is".

    She added: "The reality is that they will be a stronger competitor than Homebase but it's good and healthy to have competition."

    Bunnings took its first step to revitalise the Homebase business by offering under-25s a "living wage" as a general shift to improving working conditions at its 265 stores across Britain and Ireland. The new living wage, set by the British government at GBP7.20 an hour and rising to StlgGBP by 2020, had not been offered to under-25s at this stage.

    Wesfarmers also made an 11.5 million euro (AUD17 million) injection into Homebase's Irish arm.

    Related:

    Big box update: Kingfisher's "interest "in Bunnings - HNN
    bigbox

    Testing virtual home renovations

    Lowe's is teaming up with Microsoft

    Customers will be able to use a headset to visualise kitchen redesigns in the showroom

    Lowe's is partnering with Microsoft to provide customers with holographic representations of redecorating and renovation projects, starting with the kitchen. The home improvement retailer will first use Microsoft's HoloLens augmented reality visor in a few pilot stores in Seattle. After that, it will begin another pilot program in North Carolina, where Lowe's headquarters is based. Scott Erickson, general manager of HoloLens at Microsoft, said in a blog post:

    From within the nearly empty square frame of a showroom kitchen, customers can completely change the look and feel of that space...

    Using HoloLens' holograms, Lowe's customers will be able to select faucets, the size of their kitchen islands, and different design options for their remodels -- without having to actually assemble them. They can experience a holographic representation of a completely new kitchen.

    That way, if they don't like the look of a new black fridge, they can swap it out for stainless steel or something else. It takes the pain out of buying something they don't like and having to take it back to the store to return it.

    It's an interesting, introductory use case for augmented reality devices like the HoloLens that may resonate with the average customer and not just tech geeks.

    With HoloLens technology, shoppers can also check out kitchen cabinetry, countertops, appliances and features like backsplashes, in a visually rich and interactive way, according to Microsoft.

    They can view kitchen furnishings in size and scale with high-definition options and detailed finishes. Microsoft said the holographic details are rich enough to let users see the differences between shiny chrome appliances versus matte brushed aluminium options.

    The shopper uses a hand-held Surface tablet to manipulate the scene and share it with in-store designers, family or friends.

    According to Retail Dive, home improvement could be a natural application for virtual reality because remaking a room tends to be a big, expensive task consumers want to get right the first time. And beyond its practicality, there could be a "buzz" to virtual kitchen design that should get Lowe's shoppers talking.

    The HoloLens tool brings Lowe's efficiencies, too. Stores can install a single HoloLens station to save on floorspace and still offer a full range of design services, even in smaller, urban locations. Microsoft sees the technology eventually allowing consumers to map entire renovations without ever visiting a store -- but a retail partner would still need to supply the physical goods.

    Lowe's, Microsoft team up on virtual home renovation tool - Retail Dive

    Related:

    Lowe's 3D room makes renovation a (virtual) reality - HNN
    bigbox

    The Home Depot sales high for FY 2015-16

    Results show continued growth

    Newly acquired Interline will take six months to integrate

    For FY 2015/16, US-based big box home improvement retailer The Home Depot reported record sales of USD88.5 billion. This is the highest sales figure ever for the company. This represents an increase of 6.4% over sales for the previous corresponding period (pcp), which was FY 2014/15. The result was achieved despite a USD1.4 billion cost due to unfavourable exchange rates.

    The company said that its net earnings, at over USD7 billion, were also the highest in its history. Earnings before interest and taxation (EBIT) were USD11.021 billion, an increase of 10.5% over the pcp. Diluted earnings per share grew 15.9% to USD5.46 during this period.

    Total same-store (comp) sales increased by 5.6% for FY 2015/16 over the pcp. Same-store sales for US stores increased by 7.1%. Sales per square foot for the year increased 5.2% over the pcp to reach USD370.55.

    Total sales floor space increased slightly for the year, reaching 237 million square feet.

    >http://hnn.bz/home-depot-2015-results.png}Home Depot results for full-year 2015/16}http://hnn.bz/home-depot-2015-results.png

    Q4 performance

    Sales in the fourth quarter of FY 2015/16 helped the company reach its record figure, coming in at USD21 billion, up by 9.5% from the quarterly pcp (qpcp), which was the fourth quarter of FY 2014/15. EBIT for the quarter rose by 10.5% to USD2.313 billion compared to the qpcp.

    Diluted earnings per share were USD1.17 in the fourth quarter, an increase of 11.4% from the qpcp.

    Comparable store sales for the quarter were up 7.1% from the qpcp, with US stores showing a strong increase of 8.9%.

    During the quarter, The Home Depot opened one new store in Mexico, bringing its total store count to 2,274 stores.

    Transactions

    The number of transactions reached a record for Home Depot during FY 2015/16, coming in at over 1.5 billion, up by 4.1% over the pcp. For Q4 2015/16, large tickets grew more than small tickets.

    Tickets with a total of over USD900 increased by 11.9% over the qpcp, while tickets under USD50 increased by just 3.8%.

    One of the factors driving the increase in big-ticket sales was growth in items purchased by the "Pro" (tradie) sector. According to Ted Decker, executive vice president - merchandising said:

    ...We saw double digit comps in siding, pneumatics, circuit protection, fencing, fasteners and exterior doors. Our recent assortment update in roofing continues to drive excellent results as we saw double-digit comps in roofing in the fourth quarter.
    And we continue to see strength in core maintenance and repair categories with double-digit comps in pumps, security lighting, water heaters, electrical tools, construction adhesives, ladders and caulks. Cleaning, bath fixtures, door locks and pipe and fittings also had comps above the company average.

    Mr Decker also pointed to some consumer items as contributing to the increase in big-ticket sales:

    The drivers behind the increase in big-ticket purchases were appliances, roofing and special order kitchens.

    However, as Home Depot's chief financial officer, Carol Tome, pointed out later in response to an analyst's question, the increase in sales of consumer items such as appliances did have some negative effect on the gross margin:

    The change in gross margin was driven primarily by the following factors: first, we experienced 15 basis points of gross margin expansion due to productivity within our supply chain and lower fuel costs; second, we had 26 basis points of gross margin contraction due to the impact of Interline Brands; and third, we had 13 basis points of gross margin contraction due to a change in the mix a product sold including a higher penetration of lower margin product categories like appliances.

    Marketing to the Pro

    In response to an analyst's question about the company's Pro business, Ms Tome went into more detail about its marketing efforts directed at Pros.

    So I will speak to the private label card perhaps. We just rolled out our new value prop in January so you really can't attribute the strength in Pro, which by the way grew faster than the consumer in the fourth quarter...to the new private label card.
    But we're really excited about what that new private label card is offering to our Pro customers. As you know 60 days to pay, fuel rewards, 365-day returns...
    Our new accounts are up over our target. Our Pros are enjoying on average USD25 off at the pump when they are using their fuel reward card. So we really like what we're seeing and we think that is going to bode well for 2016. So you can't attribute that but some of the other initiatives that we've introduced are really helping drive the business.

    However, Home Depot was quick to point out that it is no longer particularly privileging the Pro side of its business. When an analyst asked whether the Pro market will be a larger driver of comparable sales in 2016 and 2015, excluding Interline, Home Depot CEO Craig Menear replied:

    I think we're focused on actually growing all of our segments. We're focused on growing the Pro customer, the DIY customer, the do-it-for-me customer as well as our digital customer. So we haven't really thought about it as one being radically outsized versus the other. And we look at transactions and ticket as a balance of growth as well.

    Merchandising

    In the next quarter, Mr Decker and his team will be resetting its door lock range. He said:

    Using our assortment planning tools we were able to more effectively cluster our door lock assortment around styles, finishes and brands. Our reset will include...products such as the Schlage Connect and Kwikset 915 electronic locks.

    For its Pro customer, the retailer is introducing new and exclusive products from Milwaukee, DeWalt, Ryobi and Ridgid.

    As it prepares for the spring selling season in the US, The Home Depot will have exclusive grill offers from Weber, Nextgrill and KitchenAid as well as additional patio accessories. Its online offering will include numerous options from infrared gas grills to smokers.

    Online

    In FY 2015/16, the company's online sales grew by USD1 billion, up 25% over the pcp. For the year, total online sales were USD4.7 billion. This is 5.3% of total sales for Home Depot. Previous, for FY 2014/15, online sales accounted for 4.5% of total sales.

    Kevin Hofmann, senior vice president - online mentioned that mobile usability had become a key part of the online strategy.

    In response to an analyst's question, Mr Menear outlined how customers combined in-store purchases, online purchases, and buy online, pick-up in-store purchases. He said "customers are smart, they have a tendency to gravitate to the best business models."

    There's elements of things like concrete and soils and mulches that make sense and that's where the customer will find the best value to purchase the product [in the physical store]. There are other categories that are enhanced by the digital experience...where our customers actually start their shopping experience online but then finish in store.
    Then there's clearly categories that are...at risk to transfer online because whether it's breadth of assortment or ease of shipping. And candidly in those categories to date for the most part we actually see growth in both channels.

    Interline Brands

    In the third quarter, The Home Depot completed the acquisition of Interline Brands, a national distributor of maintenance, repair and operations (MRO) products. In the second quarter following the acquisition, the company will offer its exclusive paint brands to Interline's multifamily operators.

    Future opportunities

    Ms Tome remains optimistic about the potential for future growth in the housing market, despite an ongoing slowdown in the growth of national gross domestic product (GDP):

    On home prices we anticipate home prices to be up next year 3.5%. That's good. It's down from the growth that we experienced in 2015 of 5.4%, so that's another 30 basis points of growth coming off the top.
    . . .
    A few other housing numbers since you asked. I gave you the home price estimate that we are using but we anticipate housing turnover to be up 4.4% of units, household formation to be up considerably. We are forecasting 1.9 million households formed as a block, this year was about 1.3 million households.
    The other thing is that we're really spending time trying to get a better understanding is the impact of the age of the housing stock. As you know 65% of the homes in the United States are older than 30 years and there's external research that shows that spending on older homes is higher. John Burns would suggest it's something like 7.5% higher.
    Our own internal research suggests it's 8% higher. So this ageing housing stock bodes very well for us.
    And if we could take you back to the last mild recession, and I'm talking a lot here and I apologize, but if you take it back to the last mild recession of 2001 housing stock was a lot younger 15 years ago. So this is a good news story for us.

    The Home Depot expects 2016 comparable growth to be approximately 3.7% to 4.5% as a result of currency headwinds. It also expects corresponding diluted earnings per share of USD6.12 to USD6.18 in 2016.

    Related:

    Home Depot buys Interline Brands - HNN
    bigbox

    Big box update

    Masters sale without Home Timber & Hardware?

    Supplier fallout from Masters exit and private equity exploring hardware merger

    Home Timber & Hardware's profitability means it could be sold separately from Masters; Suppliers to Masters remain concerned over its exit; private equity is looking at a hardware merger between Mitre 10 and Home Timber & Hardware; Bunnings takes action in the UK; Masters in legal battle regarding interest charges from a court case; and property deals from Masters sale.

    Home Timber & Hardware sold separately

    A formal sales process has begun for Woolworths' Home Timber & Hardware (HTH) unit, according to a report in The Australian. The supermarket chain looks as though it will set HTH apart from the troubled Masters operation.

    The sales process has been given the code name "Project Miami" and is expected to start within a month even though there is an ongoing dispute over the valuation of Masters.

    Despite failing to reach an agreement on price, Woolworths is continuing with the selldown of Masters. The Australian reports that over two dozen parties are believed to have received sales documents for the assets and an equally large number are expected to sign confidentiality agreements ahead of the auction. Contenders are yet to receive a date to submit confidentiality agreements that enable access to detailed information on both Masters and HTH.

    In its sales flyer for Masters and HTH, seen by The Australian, the business is characterised as the "number two player in a large, growing and fragmented market". The document emphasises there is "room for a successful second major player (in the sector) if executed correctly".

    It also says there is a "potential to remodel sites to alternative uses" and highlights that the combination of Masters and HTH covers all segments of the home improvement market with "minimal commercial overlap".

    Yet few expect Woolworths to clinch a deal for the combined business. The HTH unit is profitable whereas the two entities together are loss-making. The sales documents state that earnings before interest and tax (EBIT) on the combined business lost $225 million.

    If HTH is separated from Masters the financials are far healthier. The division delivered revenue of $937 million. HTH's earnings rose 43% to $12.9 million in the December half-year, underpinned by wholesale and retail sales growth. Analysts believe HTH is worth between $160 million and $200 million, based on earnings of $21 million last fiscal year.

    The sale of Masters looks more complicated. Close to 40% of the chain's store network is leased and exiting these liabilities may be tricky.

    While Metcash's Mitre 10 has shown interest in HTH, it is understood a number of smaller private equity firms are considering entering the race. Sources claimed buyout fund Archer Growth may sign a confidentiality agreement, as will Anchorage Capital, the private equity firm that floated the Dick Smith chain.

    Speculation continues as to whether the DIY chain will be offloaded in a single deal or separated by rival bidders keen to snare a slice of the property. Another possibility is that US giant Blackstone will join forces with a local turnaround specialist like Allegro Funds.

    Woolies to carve up Masters - Business Spectator

    Woolworths tries to keep HTH stores

    Woolworths has offered member stores in its Home Timber & Hardware unit an extra 2% discount on all wholesale purchases to stay in the network, or at least until it is sold.

    HTH remains the only profitable business in Woolworths' $3 billion home improvement division, but its value risked being eroded as stores defected to Mitre 10.

    Woolworths' latest accounts indicate 31 HTH wholesale customers closed or quit the network in the six months ending December, taking the number of departures since 2012 to 97, or 19%. Over the same period, Woolworths has doubled the number of company-owned HTH stores to 43. A source told Fairfax media: "About 70% of what the stores sell is bought through [HTH]. If their turnover is $2.4 million, 2% of that is a nice number for not doing much."

    However, while the discount may prevent an exodus of store owners it will impact negatively on HTH's wholesale margins.

    Woolworths entices Home Timber & Hardware stores to stay - Fairfax Media

    Supplier concerns over Masters

    Payment problems at Masters may have contributed to the collapse of one of its suppliers, family-owned fasteners and fencing company Otter Group.

    A source close to the company told Fairfax Media it had struggled to receive payment for goods supplied to Masters, one of its biggest customers.

    Other suppliers have also voiced concerns about Masters, saying payments are frequently delayed well beyond trading terms and invoices are lost or queried. However, another source played down Masters' contribution to Otter's collapse, saying Masters accounted for only a portion of its sales and it should have been able to manage cashflows.

    Suppliers have also expressed concerns about who will pay their invoices if Masters is sold or wound up. One supplier said: "Woolworths will wash their hands and sell these debts to whoever buys them and we'll have to take it up with the new owners."

    Woolworths defended its treatment of Otter. A spokeswoman said: "Masters continues to support Otter Group during this time. We are maintaining our relationship with the business, including regular payments and stock ordering... Masters is committed to doing the right thing by its suppliers."

    Masters suppliers raise payment concerns - Fairfax Media

    Otter is up for sale

    Otter Group has appointed external managers David McEvoy and Stephen Longley from PPB Advisory after falling into receivership. PPB Advisory is calling for urgent expressions of interest to acquire the company and its assets, with the group continuing to trade through the receivership.

    Otter Group's parent, Otter Holdings, had annual sales of $30.5 million in 2013, according to the most recent accounts lodged with the Australian Securities and Investments Commission.

    The group owns the intellectual property of a number of brands, including showerhead manufacturer Interbath, which it bought in 2007.

    Receivers are also seeking urgent expressions of interest for Otter Fencing, a subsidiary of Otter Group that has been manufacturing, supplying and installing security fencing and gates for close to 50 years.

    PPB Advisory partner told SmartComany in a statement there has been a "strong level of interest" in Otter Group as well as its subsidiaries.

    Nails and fencing business for sale after collapsing into receivership

    A second force in hardware retail?

    Fairfax Media reports that private equity firm, Anchorage Capital Partners has taken a merger proposal to Metcash that will involve combining its Mitre 10 stores network with Woolworths' Home Timber & Hardware business to create a new player that can compete with Bunnings.

    According to Fairfax, Metcash has been talking to Woolworths about HTH from as far back as the middle of last year. It is understood a number of major shareholders support its push to buy the chain and have indicated they would back a capital raising to fund the purchase.

    One retail insider told Fairfax the listed wholesaler would not be able to fund the acquisition without a capital raising and there had been a lot of speculation Metcash would spin its hardware business off into a separate vehicle, splitting it from its grocery wholesale operation.

    2016 will challenge independents - HNN

    The collapse of Dick Smith put Anchorage in the hot seat over its role in the demise of the electronics retailer. Anchorage had bought Dick Smith from Woolworths for $20 million and made $500 million after listing it on the stock exchange nine months later, prompting finger-pointing when the electronics retailer subsequently went into administration.

    Anchorage hatches plan for new force in hardware - Fairfax Media

    Respected industry figure and former Woolworths chairman John Dahlsen from Dahlsens, told Daily Mail Australia that Bunnings needs a major competitor in the market place to drive down prices.

    International business senior lecturer Gary Mortimer, from the Queensland University of Technology, said the possible merger could increase both businesses' buying power and improve price points for customers.

    Parallels can be seen in relation to the supermarket price war over the last five years. He said: "We've seen a price deflation of 3-5%. You would see similar deflation in the hardware price wars.

    Bunnings to face new mega competitor - Daily Mail Australia

    Bunnings moves quickly in the UK

    Shortly after its ownership of UK DIY retailer Homebase was completed, Bunnings has installed its own management team. This has led to a significant number of Homebase directors leaving including managing director Echo Lu, who joined the business last April.

    Finance director Don Davis is set to leave the business, along with commercial director Paul Emslie, retail operations director Ewan McMahon and marketing director Chris McDonough - who only joined Homebase in December - sources told UK publication Retail Week. It is thought those senior roles are to be filled by Wesfarmers personnel.

    When Bunnings' chief operating officer Peter Davis was appointed managing director of its UK and Ireland division, the future of Lu's position at Homebase remained unclear. At that time Rodney Boys, Bunnings' logistics and improvement general manager, was also unveiled as the new finance director.

    Homebase leadership team culled as new owner Wesfarmers swings the axe - Retail Week

    However Bunnings is also facing criticism in the UK following its decision to cull the UK retailer's entire executive board in favour of its own people, barely a week after gaining control. The managing director of influential UK retail research agency Conlumino, Neil Saunders, told UK's Retail Week that Bunnings' decision to clear the decks at Homebase was "not really very sensible" and could alienate Homebase's 15,000 staff.

    Saunders questioned Bunnings' wisdom in sacking the entire executive board before gaining a full understanding of the GPB38 billion ($73 billion) UK home improvement market. He tweeted: "On the surface retail in a foreign country can seem obvious and easy. In reality it never is. There are nuances and hidden traps."

    The speedy management changes reflect Bunnings' desire to turn around the struggling home improvement chain as quickly as possible and remove any doubts among Australian investors that it has bitten off more than it can chew.

    After outlaying an initial $649 million, Bunnings is aiming to reverse a decade-long decline in sales and earnings at Homebase by spending $955 million over the next three to five years refurbishing stores, improving service, overhauling the product range and reducing prices.

    Bunnings sees scope to improve Homebase's sales per square metre, which are among the lowest of any retailer in Britain, by boosting the amount of stock in stores and widening product ranges, focusing on DIY and light-commercial markets, rather than home furnishings and decorator products.

    Analysts say Bunnings' strategy to stock more hardware products and fewer home furnishings means it will compete more directly with UK market leader B&Q and fear its decision to rebrand Homebase could alienate customers.

    Bunnings takes chainsaw to Homebase management - Fairfax Media

    Former B&Q boss Jim Hodkinson also told Retail Week the UK DIY market was ripe for a shake-up, especially as Homebase and B&Q had failed to modernise. He said: "Both Homebase and B&Q have not done themselves any favours, their offer has not moved on. They were quite right to clear out the management. That sort of unclear thinking they don't want around the business." Hodkinson was B&Q's boss between 1995 and 1998.

    Ex-B&Q boss accuses Kingfisher of arrogance - Insight DIY

    James Greenhalgh from Intelligent Investor is generally positive about Bunnings' move into the UK. He believes it paid a relatively low price to purchase Homebase and says there is a precedent to Bunnings recent actions. He writes: "After Wesfarmers look control of Coles in 2007, it sacked the vast majority of senior managers there too. Such a ruthless approach clearly has risks but Bunnings is buying a store network rather than an ongoing business. Homebase is underperforming, so why retain the existing management team? Cultural change matters and the management cleanout sends a signal to junior staff: Fail to perform, and you're out. There are no guarantees of course."

    Will Bunnings be successful in the UK? - Intelligent Investor

    Greg Cullen from Marketing Magazine says Bunnings could learn some lessons regarding big data from UK builders merchant Travis Perkins. He writes: "Travis Perkins is already leveraging Big Data software to help boost online sales, streamline its product data depositories, warehouses and e-commerce functions. The new data solution enables Travis Perkins employees to easily identify and address duplicates in the inventory system, so that staff have the correct view of what is being sold and the company can accurately display its products online."

    Is Bunnings sharp enough for the UK market? - Marketing Magazine

    Masters' court costs

    Lawyers acting for Masters have been arguing in a Melbourne courtroom over a $4.3 million interest bill from a lost battle against a Masters store developer.

    In January, the Supreme Court of Victoria handed property developer Brendan Blake and his lawyers at Tisher Liner FC Law a victory over Woolworths. The court awarded $10.875 million in damages plus interest to Blake.

    For Blake, founder of Maxi Foods, it was a successful end to a four-year legal fight linked to abandoned plans to build one of the first Masters stores in the regional Victorian centre of Bendigo.

    Judge Clyde Croft of the Supreme Court found that Woolworths failed to act in good faith with Blake's North East Solution after it dumped its deal with the property developer in 2010 to build and lease a Masters store, walking away from the contract to chase another nearby site.

    Lawyers have been back in court on to argue over the interest bill that would accompany the $10.875 million damages, with Blake's counsel arguing for $4.2 million in interest to cover the four years he had locked horns with Woolworths.

    Woolworths is asking the court for the interest component of the damages bill to be divided between past and future losses that in effect push down the interest payment to only $256,441. It also wants the opposing QCs costs to be capped at $8094 per day or $810 per hour, down from the typical rate of $9900 per day or $990 per hour charged by Blake's barrister Peter Bick QC.

    It is believed Blake and Woolworths each spent more than $2 million fighting the case between 2012 and 2016. Blake's damages were initially calculated at $14.5 million but were discounted by 25% to reflect the risks of property development.

    Justice Croft has reserved his decision over the quantum of the interest bill owed to Blake. Woolworths will appeal the January ruling that awarded damages and interest to Blake.

    Masters interest bill over failed case - The Australian

    The court case highlighted the lengths that Woolworths management would go to compete with Bunnings. On learning of Bunnings' interest in the CBD site, Woolworths CEO Grant O'Brien told its head of hardware property Richard Champion that the company must beat Bunnings to the alternative site. O'Brien said to Champion by email: "I will provide whatever is needed to make this happen. Even if we expose ourselves to the cost of the unknowns, I don't want us waiting."

    The court also heard the other landowner in the Bendigo CBD being courted by Bunnings, Stephen Iser from Hume & Iser, had corresponded with O'Brien using the secret email name of "Harrywild" after his family dog, who could be a bit wild.

    Woolworths slugged with 11m interest bill - Fairfax Media

    Property play from Masters sale

    The looming sale of the Woolworths hardware chain Masters is increasingly looking as though it will play out as a $1 billion-plus real estate deal.

    During the early stages of rolling out the hardware operation, Woolworths is believed to have paid as much as $25 million per site, of which there were about 100. Around a quarter of them are believed to be leased.

    Apparently a number of companies are keeping close to the situation in addition to property developer and funds manager Charter Hall and real estate fund Abacus. Of particular interest would be sites where buildings have been constructed or are close to completion.

    Masters sale hot property - Business Spectator

    A big box retailer such as Ikea, Costco or a large hardware store would be ideal for the spaces currently occupied by Masters Home Improvements at Richlands and Springfield, according to Queensland business leaders.

    Centenary and Districts Chamber of Commerce president Steve Pollard said news of the closure of the Richlands store was a blow for the community. He said Ikea or Bunnings would be a welcome addition to the area. In fact, another hardware store would also be ideal. He said: "The closest (Bunnings) is (at) Oxley and it is so hard to get in and out of. It can take 10 to 15 minutes getting in to the carpark. We're interested in getting something like that for the area."

    Masters' Springfield store was among the state's first when it opened in 2011. Springfield Land Corporation commercial development director Naren Sinnathamby said something that made "good business sense" and attracted people to the area would work best.

    Ikea, Costco & Bunnings top list to replace Masters sites - Courier Mail
    bigbox

    How Lowe's robot serves customers in-store

    Futuristic retail in the present world

    In addition to serving, the robot provides real-time inventory and tracking data

    Fast Company magazine recently sent one of its writers, Jessica Hullinger to experience the Lowe's robot in a realistic store situation. The Lowe's-owned Orchard Supply Hardware store in San Jose, California set the scene for this encounter.

    The 5-foot-tall autonomous robot is called OSHbot and just celebrated his one-year anniversary at the store. His job is twofold: to help customers find items they need, and help store managers with inventory tracking.

    When Hullinger approached OSHbot, his facial-recognition technology identified her as a human customer and he cordially introduced himself. He said in a robot-like monotone voice:

    Hi, I'm OSHbot. I can help you find things in the store. What are you looking for?

    For the sake of research, Hullinger replied, "LED lights."

    On a screen, a list of LED bulbs appeared. She scanned and picked one at random. A map of the store appeared on the screen, with a green dot indicating their current location, and a red dot suggesting the lightbulb Hullinger chosen was across the store. The robot asked:

    Would you like me to take you to the LED?

    After pressing "yes", the robot said, "Sure, follow me", before rolling away with Hullinger in tow.

    The robot uses the same navigational technology found in driverless cars to look for obstacles. It swerved around product displays and customers on its quest to find the item. After about a minute, the robot came to an abrupt stop in front of a wall of LED lights and declared: "We are here".

    Kyle Nel is the executive director of Lowe's Innovation Labs and the brains behind OSHbot. He has a background in applied neuroscience and has been tasked with transforming the world's second-largest hardware chain from the traditional place dads go to buy power tools, to a hotbed for retail innovation that brings science fiction to life. He told Fast Company:

    People ask me, 'Why do you work for Lowe's?' One of my metrics of success is how often people go, 'Robots at Lowe's? What?' We're really good at retail and understanding home improvement, which means we understand how people live in their homes. Why can't we also continue to iterate and innovate in uncharted ways?

    At Lowe's, Nel basically gets to experiment and play however he wants. For example, a few years ago, he invited a group of science fiction writers to create stories about the future of retail based on Lowe's research and trend data. OSHbot was one idea they came up with.

    Nel is a self-proclaimed comic nerd and had the stories turned into comic books, which he gave to his team members along with a mission: Get this built. Within eight months, OSHbot was on the floor of the Orchard Supply store. He said:

    On the outside, the whole thing might seem like a gimmick. But we didn't build robots for the sake of building robots.

    The robot actually does things human employees can't. For example, it is multilingual. So far, OSHbot is fluent in English, Spanish, and five different Asian languages. Nel explains:

    Our research showed language was a huge pain point for customers. Knowing you can walk up to a robot and communicate with it and you know it's going to speak Japanese or Mandarin is a big deal.

    The robot also tracks inventory in real time and can tell employees when an item is out of stock, misplaced, or has possibly been stolen. Nel said:

    The real-time inventory thing in retail is like the holy grail. Right now, inventory tracking at all retailers is a very tedious and very time consuming and inaccurate process, so we're trying to attack that.

    Soon, OSHbot will be able to scan items customers bring in and tell them what it is and whether the store stocks it. The robot can also spot previously unnoticed trends that could shed light on new revenue opportunities. Nel said:

    People always come in asking for mailboxes. Who would have thought? So, are we missing an opportunity to do more with mailboxes?

    Nel is also overseeing other innovations such as using eye-tracking gear to see how people navigate a Lowe's store and then identify confusing areas. In one test, they wanted to see if people could find the holoroom - a 3D room - in the store, but realised quickly that shoppers were confused by a set of recently installed ads that were obscuring the aisle signs. Nel said:

    We were like, we gotta take those signs down. It's very simple things that have big ramifications and make the overarching experience intuitive and better.

    According to Hullinger, customers seem to like OSHbot. Sometimes they stoped to take pictures of him. One frequent shopper named Don Kahrs professed his love for OSHbot after using it to find carpenter glue.

    Nel said the review ratings have been very positive, and not just among the tech savvy. The data shows non-millennial adults love the robot. He said:

    So it isn't just a tech thing, or that the robot is cool, but this solves a problem, it helps me find a thing.

    Employees are so used to OSHbot's presence that they basically ignore him. The idea is to roll the robot out in actual Lowe's stores soon, though Nel did not give an exact date. He said:

    All these projects might seem disparate, but they're all so interconnected. The holoroom helped us develop a proprietary way to create 3-D assets, which allowed us to do things with robots. It's all tied together. We really are focused on trying to make a real omnichannel where you can just get whatever you want, whenever you want.

    Related:

    Lowe's 3D room makes renovation a (virtual) reality - HNN Lowe's is going galactic - HNN
    bigbox

    Big box update

    Masters CEO steps down

    BWP Trust considers Masters sites and valuation on Masters is underway

    Matt Tyson resigns as managing director of Masters Home Improvement; BWP Trust, the listed company that owns Bunnings Warehouse properties, is looking at acquisition opportunities on Masters sites; and placing a value on Masters.

    Masters boss quits Woolworths

    Matt Tyson, who became managing director of Woolworths' home improvement division in January 2014, will leave the business by the end of February, This will leave former finance manager, David Walker to take over. But Tyson will continue to work as a consultant for Woolworths after his departure to "advise on the home improvement exit process", according to Fairfax Media. Woolworths said Walker would report to outgoing chief executive Grant O'Brien.

    Tyson's imminent departure comes as Woolworths and its Masters joint venture partner Lowe's try to reach agreement over a price for Masters. One analyst suggested that Tyson's departure could play a strategic part in Woolworths' negotiations over the value of Masters, but he said the real issue was the performance of Woolworths' supermarkets. He told Fairfax: "The core business, the supermarkets, is the problem here; I think that's the monster issue for Woolworths not Masters."

    The appointment of Walker is also being interpreted as significant by some market watchers, who suggest he will apply his number skills to the huge inventory in Woolworths home improvement.

    Suppliers claim Masters has not altered its stock ordering since Woolworths announced its plans to quit home improvement in January and draw a line under the $600 million it has burnt trying to make Masters work over the past four years.

    Tyson plans to return to the UK and Woolworths said he would not receive any exit payment.

    To read more, go to:

    Woolworths loses Masters hardware boss - HNN

    Related:

    Masters-Woolworths results - can they get going in time? - HNN

    BWP Trust monitors Masters sites

    BWP Trust owns almost $2.2 billion worth of Bunnings stores - which are leased to Wesfarmers -- as well as other industrial properties. Managing director Michael Wedgwood recently told the Financial Review: "We're monitoring the Masters sales process in terms of opportunities that comes out of that...The location of stores and access to the right demographic are more important to us than store size."

    Wedgwood also told analysts at its results briefing recently that making new acquisitions had become "increasingly more challenging" with Bunnings stores trading at very tight capitalisation rates. He said: "Yields hit a new low in the last calendar year and I expect they will remain tight as a function of the low interest rate environment."

    BWP Trust made no acquisitions during the reporting period. It last added to its portfolio in February last year, when it bought a Bunnings site in Maribyrnong, Melbourne for $39 million.

    Instead, the trust has taken advantage of the more favourable seller's market to offload property. A Bunnings in Cairns is in due diligence and a Bunnings in Lake Macquarie will be offered for sale this year, alongside an industrial property in Blacktown.

    Independent valuation on Masters

    Woolworths is expected to announce details of an independent expert's valuation of its Masters hardware chain and, potentially, the name of its new chief executive, when it reports its half-year results.

    There has been market speculation that both Woolworths and Lowes are firing up their legal teams ahead of what could be a tough battle over the value of the business.

    Both companies have had their valuers determine the worth of the business, which they have opted to exit. But it is understood that with the pair unable to agree, they are already putting in place an independent valuation firm, which will determine a value within 10 days of its appointment.

    Woolworths recently revealed that both parties had agreed to a "short" extension to the time set out for completing their independent valuations. However details of a new deadline were not provided.

    bigbox

    Big box update

    Bunnings expands Ballina store

    Bunnings Bathurst's $17m expansion and Aldi in, Masters unsure in regional Victoria

    Bunnings has acquired land following its plans to expand its Ballina (NSW) footprint; a $17 million expansion of the Bunnings Bathurst store has been completed; the homemaker complex in Wendouree (VIC) will still have an Aldi despite the problems with a Masters store in the same centre; and Bunnings Berri in SA is on schedule to open in mid-2016 with earthworks, structural steel and building cladding work now completed.

    Bunnings' land purchase in Ballina

    Bunnings has confirmed it bought the 6500sqm parcel of land adjacent to its Ballina store on Bruxner Highway back in June 2015 for $1.8million. The land remains vacant at the moment. Andrew Marks, Bunnings' general manager - property told the Northern Star: "Bunnings can confirm it purchased a small parcel of land to facilitate the future expansion of Bunnings Warehouse Ballina."

    The Wesfarmers-owned retail giant has been pursuing a shift from smaller "home centres" (under 5000sqm) to larger-format warehouse stores (anywhere from 5000 to 21,000sqm) -- driven by population growth and changing consumer preferences.

    Displays of architectural and LED lighting, kitchens, playground equipment and home automation goods were taking significant floorspace in the bigger, upgraded stores.

    Extension at Bunnings Bathurst

    Bunnings Bathurst manager Paul Cottam is very satisfied with the $17 million expansion of the store. Cottam told the Western Advocate the expanded store is now more than 60% larger and has a new cafe and DIY workshop area, after the upgrade. The additional room has allowed them to hold 40% more stock.

    Cottam said most of the $17 million was spent on extending the building and putting in comfort cooling. He said the Bathurst store is the first Bunnings Warehouse to have it.

    There is also a new tool shop, which is double the size of the old one and project items are now available in bulk.

    Aldi going ahead, Masters not sure

    The Aldi store being built in Wendouree (VIC) will continue to go ahead despite the problems surrounding the Masters Home Improvement store in the same homemaker complex. If the Masters was to close, it would leave the Aldi store as the only building in the major complex.

    An Aldi spokesperson said the store was still on track to open in late 2016. A spokesperson told The Courier: "When establishing a new store, Aldi considers the long term potential of the area and population numbers. We work closely with local planning bodies like council, other businesses and community groups to ensure Adi will positively impact the community."

    bigbox

    Lowe's to buy Rona in Canada

    Persistence pays off with C$3.2 billion bid

    The home improvement retailer has already expanded its footprint in Canada last year

    Lowe's has won a C$3.2 billion (all cash) deal to acquire Quebec-based Rona. The US home improvement firm is paying a big premium of more than twice the retailer's share price to win over Rona's board, key investors and others.

    The merged company will be almost tied with Home Depot as Canada's biggest home improvement retailer, with C$5.6 billion in annual revenue, according to estimates from the industry publication Hardlines.

    Rona currently has 236 corporate locations and 260 retailer-owned stores and Lowe's has 42 big box locations in Canada, a number that will grow to closer to 70 stores over the next three years due to the acquisition of former Target locations and planned new stores.

    To win the deal, Lowe's made some pledges to soothe concerns in Quebec about letting the company fall into foreign hands. It said it will preserve most of Rona's employees and key leaders, and made other commitments to ensure its operations respond to the needs of local customers.

    Other concessions that Rona secured from Lowe's include keeping the head office in Boucherville, Quebec and maintaining its various store banners. Lowe's also pledged to continue Rona's local and ethical buying strategy and "potentially expand relationships" with Canadian suppliers.

    The deal already has the critical approval of the Caisse de depot et placement du Quebec, Rona's largest shareholder, as well as Dominique Anglade, the new Quebec Minister of the Economy, Sciences and Innovation.

    Still, it will require approval from Canada's antitrust authority, known as the Competition Bureau, and Lowe's needs to show that the deal would generate economic benefit for Canada under the country's foreign takeover rules.

    Strategy for growth

    Lowe's sees more than C$1 billion in opportunities to increase revenue and operating profit with a potential to double operating profit during the next five years. It plans to achieve these goals through measures such as leveraging existing supplier relationships and scale, adding appliances and its own private label products to Rona stores.

    Lowe's said it expects the combined Canadian operations to represent about 7% of its total annual revenue.

    Canada's home improvement industry is worth more than C$45 billion a year and is growing at an estimated compound annual rate of 3.9% a year, according to Lowe's CEO Robert Niblock.

    Acquiring Rona will give it the scale it has long sought in the Canada and it will gain a significant foothold in Quebec, which accounts for 25% of Canada's home improvement market. None of Lowe's Canadian stores are currently located in Quebec, where Rona is most dominant.

    Another advantage of the acquisition is Rona's vast network of small stores in neighbourhood and rural markets - something Home Depot lacks, with the exception of a handful of smaller-footprint urban locations in Canada. Mark Satov, business advisor and founder of Toronto-based Satov Consultants told the National Post:

    A consumer does not always want to navigate a large box store, in any category. When you want a lightbulb or a wrench, you don't want to go to Home Depot, you want to go to Home Hardware or Canadian Tire.
    Lowe's is buying the small format stores that Rona has, but they are also buying the capability to manage that, and that is a key part of this because they do not really have that in the US, either.

    Lowe's in Canada

    Robert Sawyer, CEO of Rona, said Lowe's might have moved into Quebec in a big way on its own and put enormous pressure on the Canadian retailer if it hadn't done the deal. Rona officials said they expected the company's profits would have been hurt if its deep-pocketed US rival had opened 20 to 30 stores in Quebec, which accounts for half of Rona's revenues. Robert Chevrier, Rona's chairman said:

    It would have been extremely challenging for the next five years in the competitive environment that exists in Canada and more so with the aggressive approach of Lowe's opening more stores.

    While Lowe's made progress under Sylvain Prud'homme -- posting 10 consecutive quarters of same-store sales gains -- Rona also enjoyed a turnaround under Sawyer. Rona has closed unprofitable stores in Ontario and Western Canada, divested non-core business lines, streamlined and re-merchandised its assortment, reduced costs and bought up 20 of its franchised stores.

    Rona turnaround efforts paying off - HNN Rona ready to build again - HNN Rona buys back stores - HNN

    Rona itself is at somewhat of a crossroads, with management having largely executed on its plan and without a clear plan for an encore, according to a report by retail analyst Perry Caicco at CIBC World Market.

    Lowe's, for its part, is on a better footing in Canada, Caicco said. Ed Strapagiel, a Toronto-based retail consultant added:

    Lowe's (business) is much improved over four years ago, and so is Rona's.

    Local leadership

    The decision to put a seasoned Canadian merchant who speaks French at the head of its Canadian division three years ago probably helped the home improvement chain to secure the deal. Lowe's had previously put executives from its US operations in charge of its Canadian subsidiary.

    In another assist to the takeover deal, the political landscape in Quebec appears to be more conducive to a transaction. In 2012, Lowe's was unsuccessful in its first attempt to buy Rona with a hostile offer in 2012 that was rejected. The US retail giant failed to understand the political and public sensitivity in Quebec to a foreign takeover, and found itself faced with strong opposition to the deal from Rona shareholders and the Quebec government.

    By 2013, Lowe's moved strategically in naming Prud'homme, a former executive at Loblaw (Canada's largest food retailer) as president of Lowe's Canada. Prud'homme said in an interview:

    I personally worked in that market, for sure. It was really important to get the expertise to fulfill the customer expectation in that market, which is very specific.

    Stephen Beck, managing partner of CG42, a competitive strategy consulting firm in New York, told the Globe and Mail the decision to keep Prud'homme as president of the expanded Lowe's Canada, after the acquisition is expected to close later this year, bodes well for the chain.

    Appliances and online

    As leader of the combined entities, Prud'homme is tasked with stocking major appliances at Rona to capitalise on Lowe's strength in that category. Market leader Home Depot Canada put a bigger push on appliances when Lowe's arrived in late 2007.

    As well, Prud'homme is looking to use Lowe's e-commerce know-how to bolster online shopping at Rona while taking advantage of the big box retailer's significant size to gain savings in its merchandise buying and other operations. He said:

    We're much stronger together because now we have access to a lot of different things we did not have access to before.

    In a fragmented market that feels the growing presence of cybershopping powerhouse Amazon Canada, Lowe's takeover of Rona will put more heat on rivals such as Home Depot, threatening to steal business in already competitive segments, including appliances. Michael Knell, editor of trade publication Home Goods Online said:

    They're getting into an already crowded marketplace against tough competitors.

    Sears Canada is still the leading retailer in appliances with 23.3% of the market, but the number of merchants selling those products, such as stoves and refrigerators, has "exploded exponentially" over the past few years, Knell said.

    Still, Prud'homme said Lowe's has surpassed Sears in the southern regions as the top appliance seller. He said:

    There's no reason for us to think we can't be as successful with appliances with the rest of the network.

    He believes appliances are a natural fit with home renovation products. Prud'homme said:

    You're not going to invest in your kitchen most of the time without changing or updating or upgrading your appliances. It's just a very natural category that ties up really well with home improvement.

    As for Amazon Canada, it continues to build its home improvement business, said spokeswoman Katie McFadzean. It has operated a home improvement and tools store since the fall of 2011 and sales are "going great," she said.

    Over the years, we've continued to expand our selection and add brands to the store.

    Rest of the industry

    The deal is likely to shake up the home improvement industry in Canada. But after the announcement that Lowe's is set to acquire Rona, another Canadian retailer Home Hardware is letting everyone know it is staying put.

    CEO Terry Davis told Bloomberg TV Canada it won't be falling in line with the growing number of Canadian companies being scooped up by American companies. He said:

    Rona wanted to buy us. They have a different culture than we do. They used to have the very same culture we did, before they went public. It's just a whole different business model, different culture, culture change, and no, we're not for sale.

    With just 20% of their products coming from Asia, Davis said Home Hardware constantly has to adapt to the growing retail landscape in the country.

    We've got great competitors in Canada that keep us on our toes. Last year we launched our e-commerce platform. Right now, we're working at the next iteration of that, which is to ship directly to the consumer.

    Home Hardware was started 51 years ago in St. Jacobs, where it still has its main office and distribution centre.

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    Lowe's partnership with Google

    New mapping technology

    Customers can map the rooms of their homes and visualise how products will look

    Google parent company Alphabet Inc. has partnered with US home improvement retailer Lowe's to debut a new mapping technology that will make home makeovers faster and easier.

    The two companies say the technology will be ready and available by mid-2016, the same time that Lenovo Group has said it will put the first 3D smartphone on the shelves.

    Google has developed a 3D mapping technology, dubbed Project Tango, that uses depth sensors in order to recreate indoor spaces, and Lowe's is the first firm to take advantage of the tech giant's efforts.

    Lowe's customers will be able to use the 3D map to see whether specific items from Lowe's would fit within a particular space or room before ordering them online or having them delivered. The companies say it will do away with the hassle of having to input a room's dimensions and measuring out whether furniture and appliances will fit.

    The mapping capabilities will also give consumers a good idea of how the item will look within the room without much effort.

    According to the Wall Street Journal, Lowe's has already been working for months on its app with Google that would render the 3D mapping technology. It is an extension of the retailer's earlier efforts with virtual and augmented reality at its innovation labs.

    It has a home improvement simulator called the Lowe's Holoroom that lets shoppers essentially build 3D models of rooms. Lowe's work with holorooms attracted Google's attention for Project Tango, said Kyle Nel, executive director of Lowe's Innovation Labs.

    There are currently about half a dozen Lowe's stores in the US where customers can use holoroom capabilities using a variety of technologies including Facebook's Oculus Rift and Google Cardboard.

    Related

    Lowe's 3D room makes renovation a (virtual) reality - HNN
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    Woolworths' Masters folds

    Chairman Gordon Cairns calls time

    As Lowe's exits with its option, Woolworths lets go of all its home improvement retail operations

    The announcement that Woolworths will be exiting all of its home improvement businesses (both Masters and the Home Timber and Hardware Group) has been both unexpected -- and not surprising. While Masters managing director Matt Tyson did improve the performance of the big box stores, it was not enough to deliver solid results. His efforts did, however, indicate the direction in which development needed to go.

    It does seem important to identify what is likely behind this exit decision by the recently appointed Chairman of the Board for Woolworths, Gordon Cairns. There is little doubt that the home improvement industry remains one of the most vibrant and vital areas of retail in Australia. There is also no doubt that the "big box" approach does work in this sector.

    The reality is, however, that Woolworths as a business organisation was simply not suited to this type of endeavour. This was true right from the start, when the company grossly underestimated the risks and difficulties of the new business. It is even more true now, as Woolworths limps along with "lame duck" CEO Grant O'Brien, declining margins in its main supermarket business, and trouble in other retail divisions as well.

    The source of the problem

    While mainstream journalists and writers have concentrated primarily on specific actions that Woolworths made in managing Masters, it seems more profitable to dive down beneath that layer.

    When you really examine how Woolworths managed Masters, one particular fault becomes evident. This is the ability to make retail business decisions in areas where there is only a limited amount of data available.

    At an industry event, the CEO of Australia's trade-focused hardware supply/marketing service company Mitre 10, Mark Laidlaw, noted just how difficult he found it to make decisions without the detailed data he could access in his former executive roles in the supermarket industry. Where he could easily call up customer surveys and sales data for the past 10 years on a range of supermarket categories, nothing like that was really available in home improvement.

    Absent that kind of detailed information, companies tend to go in one of two directions. Some take the path of "gut instinct". Someone who sees him/herself as a "leader" takes decisions based on a kind of personal narrative, with only a cursory glance at the facts. That's pretty much the path Woolworths took with Masters.

    The other pathway is to realise that making decisions with only limited data is always going to be tough, and to set out finding ways to obtain better data. Usually this is done with various forms of trial and A/B testing -- running two alternatives and seeing which one works best.

    This was the path that Mr Tyson had started to lead Masters down. This is evident in his caution in trying out new store formats through a limited number of store formats, fine-tuning these, and then rolling them out gradually through the store network.

    The difficulty is that following this path requires different forms of expertise in a business. Where companies like Woolworths are good at applying scale to solve some business problems, A/B testing requires a significant descaling instead. Companies have to evolve the nimbleness to source limited amounts of products, test them in the market, then refine their selections based on the responses and data obtained.

    Woolworths has not been especially good at these nimble processes. Thus Mr Cairns' decision is not really based on market forces, but rather a hard-nosed and realistic assessment of the company's business capabilities. He has recognised that, for Woolworths, the home improvement industry was not just an extension of its retail expertise into a different area, but instead required the development of new capabilities.

    Woolworths' failure has less to do with specific business decisions and practices -- poorly planned store locations and development, poor choices in store stocking, ineffective marketing, simply bad cost tracking -- and more to do with its inability to find the best way in which to execute.

    Future consequences

    The above is likely to be one of the last analyses of Woolworths that HNN publishes. With its announcement of an exit from the home improvement retail sector, the company will simply cease to be all that relevant.

    Matters such as how much money Woolworths might make from the sale of the Masters assets, or what the "strike price" will be for the buyout of the Lowe's share of the hardware businesses will be only of passing interest. They simply will not really affect the home improvement industry.

    Of much more interest are the consequences for other businesses caused by the breaking up of these hardware businesses. It is a rarity to have what is a fairly major business, with around $1.2 billion in retail sales, just blink out and vanish from a retail sector. That, however, is the most likely scenario for Masters.

    The HTH Group is a different matter, as it is a highly viable business with a long history (through its past as Danks) and stable, forward-looking management.

    Real estate

    While Woolworths would likely rather see Masters sold intact, the possibility of this happening is very small. It would take a major overseas buyer to make such a move, and while the dollar exchange rate might make such an investment attractive, the projected slow growth of the economy and ongoing instability in the real estate sector are more dissuasive.

    That leaves the direct disposal of the actual Masters store sites. Bunnings has already indicated that it has a strong interest in buying a number of these sites, but there would be more than 45 left over.

    At the moment, suggesting any buyers would just be wild speculation. It is a story HNN will follow closely.

    Revenue

    Another interesting question is what happens to the revenue that was formerly captured by Masters? In its last reported quarter, the big box retailer made $294 million in pure sales. The winding down of its operations will likely take around another five to six months. During that period all that revenue will have to find new retailers.

    Bunnings is the obvious choice for much of the revenue. To guess at the numbers, it is probably that something like 60% of the revenue will go directly to the other big box retailer in the market. Another 30%, however, could return to independent retailers, including those operating in the Mitre 10 and HTH Group networks. The remaining 10% will be lost to the home improvement industry, finding its way to adjacent retail sectors.

    HTH Group

    There has already been some speculation about the potential future of the HTH Group. Late in 2015 it was suggested that the HTH Group and Mitre 10 could join forces, forming a combined company that would be spun out from Mitre 10 owner Metcash and Woolworths, listing on the Australian Stock Exchange.

    As HNN mentioned at the time, one flaw with this is that, while it certainly solves ownership and capital realisation issues for Woolworths and Metcash, it is hard to see how this gives the business itself any real advantages. There may be some cost savings generated through scale, but breaking away from the supply chains of Metcash and Woolworths would wipe out any such lift.

    Another significant flaw in this plan is simply that both Mitre 10 and the HTH Group have suffered from underinvestment over the past two to three years. Metcash has spent most of its funds bolstering its IGA grocery business, and Woolworths has underinvested in HTH Group while propping up Masters. Due to this underinvestment, any ASX listing during 2016 would reflect a reduced value for what are some quite decent assets.

    The alternative is for the two groups to consolidate, and to be acquired in part or whole by private equity interests. It would take two years or so to rebuild the brands to a market price closer to their true value.

    Again, though, this would mean that both Woolworths and Metcash would not get a reduced cashflow from the sale of these businesses, as the sale price would be shared.

    That said, both Mitre 10 and HTH Group do have much more potential for growth than is being currently utilised. One key to unlocking that growth is to concentrate on understanding the Bunnings business model. As we all know in retail, there are very seldom any entirely dominating market positions that can be held. Every position that is adopted that provides an advantage also exposes some weaknesses.

    A further outside chance would be overseas investment. About the only large group that has a similar operating model to HTH Group and Mitre 10 would be Ace Hardware in the US. Ace does have a substantial international presence, but it seems unlikely that it would be interested in investing in a relatively small market that is so completely dominated by one retailer.

    The long term

    Looking at the longer term, what will be the effect of Woolworths' exit from home improvement retail?

    Given not only the current strength of Bunnings, but also the likely consolidation of its gains over the next two to three years, it seems unlikely that any direct challengers will emerge, at least not before 2020.

    Online

    That said, Bunnings -- like every other retailer -- does remain vulnerable in some areas. The main area is in its online business, which it has steadfastly refused to invest much capital into, so far. With its recent move to acquire the UK home improvement retailer HomeBase, that could begin to change, as along with that acquisition it will also bring on board staff with considerable online expertise, in a market where online shopping rates are one of the highest in the world.

    The threat in this area is likely to come from a non-specific home improvement retail operation, such as the US-based Amazon. It seems a good bet that over the next ten years or so -- before 2025 -- Amazon will make a more serious play for the Australian market.

    That would mean building distribution warehouses and other operations in Australia. It is likely that will come, in part, as a consequence of the company developing further efficiencies in areas such as home delivery.

    Specialists

    The other possible avenue of challenge would use one of Bunnings' greatest strengths against it. The retailer manages to stock a very wide range of items, and is in many ways the ultimate generalist in home improvement retail. A competitor might look at this wide range, and pick out specific areas where both sales and margins are high, then specialise strictly in those areas.

    For example, the three most common and highest margin home renovation projects focus on kitchens, bathrooms and outdoor entertaining areas. A retailer could choose to become the foremost specialist in those three areas, offering great showrooms, and complete kit purchases to achieve specific "looks". This would be backed up help in managing these projects -- providing, for example, a site inspection to assess the task, a range of services such as plumbers and electricians, and so forth.

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    Home Depot Investor & Analyst Conference

    How The Home Depot does it

    The company has moved strongly to becoming as much an integrated technology company as a retailer

    [no description]

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    Lowe's Santa tracker

    Santa can be found via its smart home app

    Lowe's is spreading holiday cheer and bringing a seasonal twist to smart home solutions

    The home improvement retailer is boosting awareness of its Iris by Lowe's smart home app by integrating new features including "Santa sensors" and a "Santa camera" to excite holiday enthusiasts. Mick Koster, vice president and general manager of Iris Home Systems said:

    Iris' Santa Tracker offers a simple, fun way for families to bring the holidays to life. Smart homes shouldn't just be smart - they should be fun and make life more enjoyable.

    Lowe's is encouraging believers and sceptics alike to use the brand's Santa Tracker tool, located within the Iris by Lowe's mobile app. This latest version of Iris is designed to help families prove Santa's whereabouts in their homes on Christmas, as well as track his exact movements throughout the residence.

    Consumers who sign up for the Santa Tracker will be prompted to answer a slew of questions that will enable Iris smart home devices to sync with the app feature. On the morning of December 25, users will be able to see when, where and how Santa visited their homes.

    They may also view Mr Claus dropping presents underneath the tree or sneaking some milk and cookies. The "Santa sensors" will be able to tell if Santa is tiptoeing through the living room, enjoying a snack in the kitchen or dropping off gifts in Christmas stockings.

    >https://farm1.staticflickr.com/626/23510900369_083ee61123_n.jpg}Lowe's Santa Tracker from its Iris smart home app}http://www.mobilemarketer.com/cms/news/software-technology/21842.html

    Lowe's creative approach to its smart home marketing strategy allows existing customers can open the revamped Iris by Lowe's app and select the Santa Tracker button on the homepage to take advantage of the holiday-themed tool.

    And Lowe's is also making the tracker available to non-Iris customers, a move which could convert some individuals into future fans. Mobile users can download the complimentary Iris by Lowe's Santa Tracker app for their iOS or Android smartphones and follow the setup instructions.

    Afterwards, users will be able to choose where Santa's reindeer are most likely to land, where Mr Claus will enter and exit the home and indicate what he might do once he is inside. They can later snap a photo of the area in which Santa is expected to arrive, and check the app on Christmas morning to confirm his trail and see proof of his visit.

    Ultimately, Lowe's is poised to excite holiday fans with the release of its Santa Tracker feature, which also functions as a prime advertising method for the Iris products. Koster said:

    Within Lowe's, our Iris team is committed to helping customers create a deeper relationship with their home through smart home technology. By dedicating a little of our after-hours time to integrate Iris' real and virtual technologies this season, we're hoping to enhance each family's holiday experience and play a magical part in creating lasting memories.
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    Big box update

    Masters proposed for Chirnside Park

    Three Bunnings stores for North East Victoria and Yeppoon store re-opens as Bunnings

    Yarra Ranges Council will vote on building a Masters store in Chirnside Park (VIC); Bunnings Yarrawonga will be the third store in North East Victoria; Bunnings Yeppoon opens its doors with familiar faces; and Bunnings state office is moving to new premises in WA.

    Decision on Masters Chirnside Park

    A Masters store could be built in the Melbourne suburb of Chirnside Park before next Christmas if the local council approves a planning application at a special meeting. Councillors will meet under to vote on the application after deputy mayor Andrew Witlox requested the project be heard before the end of 2015.

    Cr Witlox told the Herald Sun: "The applicant has had a long hard slog with our planning department to get this through and hopefully this will go through and we'll have some competition for Bunnings." He said the project could have significant benefit for Chirnside Park by providing jobs and stimulating economic activity.

    Bunnings in regional Victoria

    The 6900sqm Bunnings store in Yarrawonga (VIC) will be built on the Murray Valley Highway on land that has been earmarked for redevelopment for almost a decade. It recently gained planning approval from Moira Shire with developers poised to announce a builder just before Christmas.

    Bunnings Yarrawonga is expected to open in August next year and will join others in Wodonga and Wangaratta with another store located at Shepparton. Bunnings has committed to a 10-year pre-lease that represents an investment of $10 million. The development will include a main store, indoor timber trade sales area, building materials and landscape supply yard, outdoor nursery and parking for more than 140 cars. The total Bunnings' site will occupy 14,500sqm.

    Bunnings' general manager of property Andrew Marks said the company was committed to supporting regional communities. He told the Border Mail: "Bunnings' investment in the Yarrawonga area will provide great job opportunities for the local community, with over 60 new positions expected to be available in the Bunnings team..."

    Related:

    Big box update - HNN

    Bunnings Yeppoon officially opens

    Bunnings latest store in Yeppoon (QLD) is staffed from the former Capricorn Coast Hardware. The business was recently sold to Bunnings and the rebadged store has now opened.

    Bunnings Yeppoon store manager Nathan Ridley told the Morning Bulletin: "Our team members have worked hard to prepare the store for opening and are looking forward to welcoming the local community. The seven existing members from the former Capricorn Coast Hardware store have joined the Bunnings team in addition to four new team members..."

    Related:

    Big box update - HNN

    Bunnings WA office move

    The Bunnings WA support office will relocate to the Springs Rivervale complex that is under construction. The tower will be the new home for Bunnings' store support office and core information technology functions for its Australian and New Zealand operations. Staff will move from Welshpool into three levels of the Rivervale building. The offices will occupy 4321sqm of the nine-level office building.

    The office tower is part of a mixed-use development being built by BGC Development that will also include a 41/2 star Aloft Hotel, which is due to open in early 2017. Bunnings plans to relocate in February 2017.

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    The impact of Aldi appliances on Masters

    A move to branded products is tipped

    However challenges remain as the home improvement chain takes on more branded appliances

    According to ChannelNews, house brand appliance sales at Masters are said to be slow with the home improvement retailer now looking at expanding into more "branded" appliances in an effort to increase sales.

    Sources have told ChannelNews that Aldi house brand sales of ovens, microwaves and washing machines are impacting house brand appliance sales at Masters.

    But the expected move to branded products could face a stumbling block with several big brands telling ChannelNews that they would not supply Masters.

    The Aldi Stirling house brands are primarily supplied by Tempo Australia who also supply both large white goods and small appliances to the discount supermarket and general merchandise retailer.

    Insiders claim the success of Aldi appliances is said to be the main reason that Bunnings has decided not to expand its range of appliance products.

    Aldi having an impact on appliance sales - HNN
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    Big box update

    Capricorn Coast Hardware sold to Bunnings

    Bunnings Springfield store sold and chicken coops are strong sellers at Bunnings

    Bunnings has purchased Capricorn Coast Hardware in Yeppoon (QLD); a Melbourne-based private investor has purchased the Bunnings Springfield store; and chicken coops are one of the fastest-growing categories at Bunnings.

    Bunnings secures Yeppoon site

    Bunnings has reached a "conditional agreement" to purchase Capricorn Coast Hardware in Yeppoon (QLD), according to The Morning Bulletin. It said all current employees would be offered employment with the company.

    The store is expected to be "re-branded" and "transformed" into a smaller format Bunnings warehouse in the coming months. The store will be added to the 50 already in operation across the state.

    Capricorn Coast Hardware owner Theron Bond said the sale was a "relief" and was excited for what it meant for the region. He said: "Things are going bigger and bigger. It is hard when they are trying to enforce buy local, but people don't support it."

    Bond has owned the hardware store for the past 21 years, and the offer from Bunnings came at just the right time. He said: "I was willing to go, it has given me an exit strategy to get out; Bunnings was coming here regardless. They offered (the staff retention) up front, and it made the decision a lot easier...they have been pretty good with the way they have gone about it."

    $40m gains for Springfield store

    Bunnings has sold its Springfield Central warehouse in outer Brisbane for over $40 million. The 15,972sqm store opened in August and was sold with a new 12-year lease with further options available. The store is developed on a prominent 37,110sqm site situated opposite the Orion Springfield Central shopping centre.

    Springfield is one of Australia's largest master planned communities and is located within 30kms south west of the Brisbane CBD and is part of Greater Brisbane's booming south-west corridor.

    Demand for single-hen coops

    Sales of chicken coops at Bunnings are being driven by a desire by many Australians to have fresh eggs and feathery pets, according to the big box retailer.

    Bunnings general manager Clive Duncan said with the growth of urban chook-keepers, it had to expand its product range to meet demand for smaller coops. He told the Financial Review: "Some people might have only one chicken to lay a few eggs a week. Our product range has certainly grown and developed. We now make smaller, compact ones that is just big enough to house one chook."

    Ingrid Dimock, owner of chook selling and renting business City Chicks, said in the past seven years the business experienced double-digit growth. The business started out as a farm and a shop in the outer Brisbane suburb of Anstead and now it has franchises in Sydney, Brisbane and Sunshine Coast.

    She said the rise of online retail platforms like Gumtree and eBay means it is a lot cheaper for city residents to set up a chicken coop.

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    B&Q showcases new IT system

    Ireland was the chosen location

    Kingfisher flew analysts and investors into Dublin to see the IT platform being tested

    According to Kingfisher CEO Veronique Laury, the visit to Dublin to see the retail group's company-wide unified SAP IT platform will include a series of presentations. It is being rolled out at B&Q before its implementation across the entire business which includes Screwfix, Brico Depot and Castorama.

    The IT pilot programme began at B&Q Ireland in July this year. The company will also give investors and analysts a number of in-store demonstrations highlighting some of the improved functionality for staff and customers.

    Kingfisher has been pursuing its "One" strategy which aims to realign and reorganise the group. The revamped IT system is part of that strategy.

    Staff at B&Q stores in Ireland claim that the system has transformed how staff interact with customers in its outlets here. They say it now provides real-time stock visibility and other benefits. Staff use new portable handsets to carry out a number of functions in-store that were previously time-consuming and laborious.

    The B&Q DIY chain has had mixed fortunes in Ireland, having placed the chain into examinership back in January 2013 as the downturn gripped the country. Turnover at its Irish arm hit a high of 124 million euros in 2009, but had fallen 24% to 94 million euros in the financial year that ended in January 2012.

    It initially planned to close outlets in Athone and Waterford, but ultimately decided to keep the Athlone premises open.

    Kingfisher had set aside GBP 21 million (then 25 million euros) to cover the restructuring of its Irish business. It included a 2.4 million euros equity investment in the unit.

    The latest set of publicly available accounts for the Irish division, which cover the 12 months to February 2014, show that it made a 1.4 million euros loss that period compared to a 26 million euros loss in the prior financial year. Turnover fell to 76.8 million euros from 83.9 million euros.

    Kingfisher's group turnover was just under GBP 11 billion in its last financial year, when it made a GBP 675 million pre-tax profit.

    Kingfisher results 2015-16 first half - HNN
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    Big box update

    First two-storey Bunnings in WA

    Buyer for Bunnings Trade Centre property and Masters gains another $105 million

    The new Bunnings Claremont store will be Western Australia's first two-storey Bunnings warehouse; an industrial property occupied by a Bunnings Trade Centre in Hervey Bay (QLD) has been sold; and Woolworths and Lowe's have invested $3.3 billion into Masters so far.

    Two levels of Bunnings

    The $13 million Bunnings Claremont redevelopment is next door to its former location on Leura Avenue. WA operations manager Shelley Begley said she was proud of the 5000sqm store. She told Community News: "Claremont is the gateway to the western suburbs. The old store was there for 20 years, but we always wanted to a get a bigger opportunity for a wider range - we were hampered by size."

    Up to 70 staff from the previous store and 27 new staff will work at the warehouse. Store manager Paul Marshall said Bunnings tried to involve local businesses during its opening weekend on November 6, 7 and 8.

    Long-time Bunnings administrator Fiona Sermon said she had worked at the original Claremont store for 22 years. She said the old store was "homely" but she looked forward to a "fresh new beginning".

    Bunnings Hervey Bay property sold

    A private investor has purchased the property occupied by a Bunnings Trade Centre in Hervey Bay for $2 million. It was sold post-auction by Savills at an initial yield of 8.85%. The 4,574sqm site is positioned close to major arterial road networks and a few minutes from the Hervey Bay CBD.

    A 1,891sqm Bunnings Trade Centre has occupied the site since 2009 and has taken a new five-year lease option from August 2015, with four further options remaining. The building features five high-clearance electric roller shutters, three-phase power, high bay lighting, and front and rear all weather awning.

    Alex Smith from Savills said the Bunnings Trade Centre is strategically located in one of the fastest growing residential and tourism areas on the Queensland coastline, and provides prominent positioning in the region's industrial and commercial precinct. With the Bunnings Trade Centre only occupying 41.3% site coverage, the property can accommodate a range of future users, he said.

    Additional investment in Masters

    Sue Mitchell wrote in Fairfax Media that Woolworths and Lowe's invested another $105 million into Masters. According to documents lodged with the Australian Securities and Investments Commission last month, Woolworths injected another $70 million and Lowe's another $35 million into their joint venture vehicle, Hydrox Holdings.

    The capital injection, the fifth this year, took the total value of their investment to $3.32 billion. Analysts said Lowe's willingness to inject another $35 million into the joint venture, taking its total investment over the past six years to $1.11 billion, was not necessarily a sign that the US retailer remained committed to Masters in the long term. "They're willing to put it in knowing that they can get it back," one analyst told Fairfax Media.

    To read more, please go to the following link:

    Woolworths, Lowe's tip $105 million into Masters as deadline looms - Fairfax Media
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    Home Depot colour app

    Matches paint colour in different lighting conditions

    It allows consumers try out paint colours on the walls of their own home

    The Home Depot has launched a new app that lets consumers to see how a paint colour looks on walls in their house.

    Shoppers can download the iOS or Android Project Color app, which is separate to the Home Depot app, and take a picture of a room in their house. In the app, consumers can select any colour in Home Depot's colour catalogue and tap a wall to paint it on. Samara Tuchband, Home Depot's general manager of online said:

    One of the biggest pain points when attempting a paint project is helping the customer to imagine the colours in their 'own' space.

    The app can adjust the colour in the room to reflect different lighting conditions, such as daylight, incandescent or LED lighting. This means shoppers can see how the colour looks at different times of day or in various kinds of lighting. Tuchband said:

    One of the biggest wins in this experience is that the technology can retain the integrity of all room shadows to give an accurate reflection of how the colour will look in a space.

    Consumers can also tap any item in the picture, such as a decorative pillow or a couch, and the app will recommended two colours that best match that item.

    However consumers cannot purchase paint directly in the Project Colour app. Once a consumer selects a colour she will be redirected to Home Depot's mobile site where she can specify her brand preference, sheen and container size, and then check out.

    Home Depot decided to build the app to give customers more confidence when they are choosing their paint colour, according to Tuchband. Home Depot's in-house team led development on the Project Colour app while working with a technology vendor that Home Depot has not discloses. The teams delivered the app in less than six months, said Tuchband

    Home Depot was named the 2015 Internet Retailer of the Year in June, the top honour among the Internet Retailer Excellence Awards presented at the Internet Retailer Conference & Exhibition.

    Home Depot tops Internet Retailer awards - HNN
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    Big box update

    Bunnings confirmed for regional Victoria

    Bunnings Keperra store for early 2016 and a change in WA store hours for Masters

    Bunnings is expected to be open in Yarrawonga (VIC) next year; a Bunnings store will be built in Keperra (QLD); and Masters will be able to open from 7am in Western Australia. Initial ground works have also started at a Bunnings site in Berri (SA), with construction of the warehouse expected to take place in coming weeks.

    Bunnings in Yarrawonga

    Developer Matt Judd said a Bunnings store will be built as part of Kaiela Business Park in Yarrawonga (VIC) in 2016. He told the Yarrawonga Chronicle: "Planning permits are now in with council and we are also in the middle of the tendering process."

    Judd said the new Bunnings site will include 115 car parks and a 6,800sqm building. He said: "It will be a warehouse site bigger than Wangaratta's but similar in size to the Echuca Bunnings Warehouse."

    The Kaiela Business Park is being developed by Judd & Sons and the Pellicano Group. It is is zoned B2 and B4 offering potential use for bulky goods, display yards, car dealerships and showrooms.

    Work on Bunnings Keperra site

    A Bunnings store will be part of a homemaker centre in Keperra (QLD) that is set to start construction in the new year.

    Bunnings Warehouse general manager - property, Andrew Marks said the company had invested $40 million into the retail project, which was expected to generate more than 140 jobs. He told the Courier Mail: "Bunnings has received planning approval. We are working with authorities to obtain final technical approvals to commence construction..."

    Reflecting the mood of many retailers, Ray White Keperra agent Adrian Thompson said the development would be positive for the area. He said: "It's very good for Keperra. It should help prices in the area and with the nearest (homemaker stores) in Everton Park, which is hard to get to, it should be pretty good." Plans allow for 800 carparks as well as restaurants.

    7am opening for Masters in WA

    Under changes to trading laws that were put to the State Liberal party room recently, Masters will be able to open from 7am, Monday to Saturday.

    According to The West Australian newspaper, Liberal MPs were asked to support a Bill that would allow general retail stores - those defined by WA's trading laws as having more than 25 staff, six owners or four locations - to open one hour earlier. The changes would also see general retail hours extended one hour on Saturdays to 6pm.

    It is understood the changes are in part aimed at levelling the playing field in the hardware retail market, where Bunnings, which is classified as a special retail shop, is allowed to open from 6am.

    Masters tends to stock a broader range of products, including whitegoods, so it falls foul of the special retail shop category and can open at 8am at the earliest under the existing law.

    A Government source told The West Australian that, under the proposed changes, Masters would be able to open its doors at 7am six days a week, allowing it to compete with Bunnings for early morning business from tradespeople.

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    IKEA CEO admits online tardiness

    But expects growth ahead

    The group is working on a new website and the logistics of getting its products to customers

    IKEA's CEO recently admitted in a television interview that the retailer was late to the proliferation of online retail. However there are plans to grow the e-commerce business significantly over the next five years.

    The privately-owned firm, which records annual revenues in excess of 30 billion euros (US$22.4 billion) and operates stores in 42 countries, currently has an online offering in 13 of its markets. Some 80% of the group's total sales are generated in Europe and it's aiming for 50 billion euros in revenue by 2020.

    This represents an average growth rate of about 10% a year, partly through growing its online business. CEO Peter Agnefjall said:

    Today our e-commerce business is 1 billion euros. It will probably be 5 billion euros in 5-6 years from now.

    Online retail has boomed in recent years, but IKEA's business is still mainly conducted in its vast warehouse stores. Agnefjall said:

    We could have been faster, I could agree to that. But by being late we can skip a step in the technology development, straight to mobile and tablet.

    Although the firm is not immune to the current economic climate, the economic downturn, resulting in a greater demand for value for money, has benefited it, Agnefjall said.

    Overall, from a market perspective it (the downturn) fits us quite well.

    Agnefjall said the fact that the group had never been listed on a stock market allowed it to think more long term. He said:

    For us it has served us very well to be privately held...In our model the money never goes away. It can either be handed out to charity or reinvested in the business.

    That enables the group to invest year after year, even if markets are volatile, he argued.

    Growth in emerging markets

    Although IKEA's biggest market is Germany and its footprint is significant in Europe, it is seeing growth in eastern Europe too as well as China. He said:

    We see that the underlying (Chinese) economy is growing strong