This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.
Annual events held by hardware retail buying groups often feel something like a mix between an exercise bootcamp and several hard days at the information dojo. That is to say, they are a combination of delight, and what feels somewhat like a mild but persistent percussive experience.
At least, that's when they "work". And the 2022 Conference for the Hardware & Building Traders (HBT), held in early May 2022 at the Gold Coast Conference & Exhibition Centre certainly did work.
HBT events can end up being like workshops that deal with many issues related to managing effectively as an independent retailer. As a result, what gets workshopped at them can, ultimately, effect the entire industry, spreading beyond HBT to other buying groups.
It is certainly the case that while other industry groups might have more revenue, more stores, more members (and, certainly, equivalent passion), there is nowhere else in the industry that generates quite as many ideas.
One consequence of this is that while the organisers of an HBT conference might have a particular direction for a conference in mind, in the end it is the community that attends the conference which really decides what happens, and what the conference is going to actually be about.
Inside the workshop
HNN will provide more comprehensive Conference coverage in our next edition of HI News. We wanted, however, to start by taking a closer look at that "about" - which at the 2022 Conference has proved to be complex.
Some of that complexity is due to purely external reasons. After going through a difficult two years of COVID-19, Australia has, for the moment, put aside much of its pandemic caution - though the infection rates remain high enough to still be of extreme concern.
Added to that is a high inflation environment, which is bringing on, as a direct result, higher interest rates - set to break through 2.0% in FY2022/23. The big question that looms over hardware retail is whether the next two years - as property markets contract - will see a retreat back to, say, 2018 levels of revenue, or if the 2021 levels of revenue will continue.
The reality is, at least for the rest of 2022, and likely much of 2023 as well, that the industry faces a period of real uncertainty. It's just impossible to forecast with any real accuracy what happens next.
The next normal
One way that retail analysts have of defining this current era is to refer to it as the "next normal" - a play on the earlier concept from 2020 that dealing with COVID-19 as a part of business processes was the "new normal".
Faced with that uncertainty, it's good to remember that one of the basic principles of retail is that when there is a lack of clear forecasts, the best thing to do is to go back to operational basics.
For hardware retailers that means reinvesting some of the gains over the past two years in better efficiencies. In management terms, it's all about deploying capital now to increase earnings potential later.
The beauty of using efficiency as a strategy is that the correct kind of capital investment will continue to increase earnings in both a down market and an up market. That's in sharp contrast to the alternatives, business expansion or business contraction, which depend on accurate forecasts for positive results.
Which brings up the next question: what does efficiency and best practices really mean in 2022? Because the answer today is likely to be quite different to the answer from 2018.
The next path
Outside of factors largely external to the hardware retail industry, there are also factors internal to it as well at work. The past decade for all hardware buying groups has largely been about catching up to the industry behemoth, Bunnings, in terms of both pricing and range.
Bunnings still does hold a distinct advantage, but that decade of hard work has brought independent hardware retailers close enough that they can bridge the gap through other means. The task has now shifted - partially, at least - to working out how to better utilise the unique features of independent retailers to not just resist the ongoing expansion of Bunnings, but to at least equal it. The prospect of real growth for independents is clearly within reach.
For HBT - and independents in general - FY2022/23 will see their retailers really coming to grips with what the next part of this struggle is going to look like.
The difficulty that buying groups now face is one of strategy. The problem in developing that strategy is familiar to many industries. It's often said that military generals tend to fight the current war with the strategies and tactics that won them the previous war - not always to good effect. Businesses often do the same thing, and use prior successful strategies for new tasks to which they are not suited.
Driven by HBT CEO Greg Benstead and buying group general manager Jody Vella, there were two core strategies that HBT employed to hold its own in the pricing struggle. The first was to regard the whole supply side of hardware retail as a holistic entity, one where it was possible for both retailers and suppliers to win, through new efficiencies, and concentrating on growing the available market.
The second was to understand that most "wins" were going to be small and incremental. It wasn't necessary to make broad, sweeping deals. If you could piece together just a dozen or 20 smaller "wins", the result would be almost as good.
As beneficial and smart as that strategy has been, it's possible that other techniques will work better in the next phase of development. In very broad terms, this is because the price breakthrough phase of development was about achieving strategy cohesion in a widely disparate group.
The coming phase is really about helping individual retailers achieve success by drawing on their unique talents, unique store locations, and unique market positions.
A different future
Reviewing everything we were told by both HBT members and the many suppliers at the 2022 Conference, HNN really did find there was a core to what people were discussing, a central issue that was getting workshopped. That central concern, HNN would suggest, is something that has come to be called in recent years the "path-to-purchase".
Not that path-to-purchase was directly mentioned by anyone, but putting together all the comments and opinions voiced at the conference, this was what emerged.
For hardware retailers, path-to-purchase has two components. The first is the connection that customers feel to a particular store. The second is the "journey" customers undertake in arriving at the decision to buy a product from a retailer through the utilisation of different information and transactional channels.
The advantage of thinking about path-to-purchase is that it delineates a really clear objective for independent retailers. That objective is, very simply, to be considered as a reasonable option for any hardware purchase being made - paint, a new deck, kitchen or bathroom renovation, or simply buying batteries for a flashlight.
Win or lose the sale, independents need to own a part of the path-to-purchase to just remain in contention.
Path-to-purchase has something of a harried history to it. Largely, there has been considerable confusion between what we might regard as over-arching conceptual models, and more specific models, which relate either to product categories or narrow cohorts of customers.
Virtually every management consultancy, from McKinsey to PwC, has its own path-to-purchase diagram - and most of these are, at best, inadequate.
For example, one of the most common conceptual models is represented by this diagram:
While this is convenient, and somewhat comforting, it's more of a "hoped-for" model than anything that relates to how consumers buy things today. At its basis, it relies on what marketers refer to as "AIDA", which refers to attention, interest, desire, action, a well-known framework for modelling customer behaviour. The primary problem with AIDA, as many commentators have pointed out, is that it is exceptionally linear - as is the diagrammed model.
A better conceptual model is provided by UK-based marketing strategist James Hankins, known as the "Hankins Hexagon".
Commenting on this model, Mr Hankins has this to say:
So, what does that mean? Well, simply put, a person can make their own way from A to Z any way they choose. In reality there are very few 'fixed' pathways and most are two-way (feedback loops and changes of mind). This model posits that an individual can start wherever and eventually make their own way to purchase, that is if they do buy in the end because not everyone always gets there.
The core mechanism that's identified is the formation of "long lists" of possibilities, followed by the formation of "short lists" through a process of comparisons. What has largely changed in the modern, information-rich environment is that where in the past short lists were focused on rankings by sets of requirements (price, longevity, suitability to particular purposes), today short lists are often based on sources of recommendations (friends, influencers, Amazon reviews, YouTube reviews, etc.).
Developing these initial short lists typically leads to the creation of a "meta short list", which doesn't list products, but rather the requirements the consumer has developed for the products. This is then reapplied to the "long list" of potential purchases, resulting in a final short list, and a final decision is made.
Abstract models are good, but they only fulfil their function when they are combined with less-abstract, research-based insights into consumer behaviour.
Some of the most outstanding work on path-to-purchase in the hardware-home improvement area was undertaken by Kingfisher in the UK and European Union during the 2010s. One of the areas studied by the retail conglomerate was bathroom renovation, resulting in the following diagram:
Of the 28 steps, the first eight would seem of primary importance to hardware retailers. However the other 20 steps are also important. That's not only because they contribute to customer satisfaction, and hence ongoing loyalty, but because in making a purchase, the DIY customer needs to be able to conceive of the next 20 steps. The imagined completion of the project is, in other words, a key part of any purchase made.
Why path-to-purchase is important now
The surge in hardware retail revenue for independent stores during the two pandemic years has triggered hopes that at least some of this will continue. What actually happened during the pandemic years was less - as many seem to hope - a relocation by consumers, as a "delocation". That is to say that consumers were dislodged from some of the major retailers - such as Bunnings and the supermarket chains - but this doesn't mean they were automatically "re-homed" to smaller, local retailers.
That is particularly the case as the majority of consumers today start their path-to-purchase by doing research online. The proportions of online-first research various studies have determined range from 53% (Google) up to 81% (MineWhat.com). Conservatively, though, for hardware, it's likely to be around 60% to 65%.
One really difficult fact to bear about this is that probably 80% of initial or secondary searches made by DIY customers will go through the Bunnings website. That's largely a matter of setting price expectations, as well as checking availability.
However - fortunately for independent retailers - the Bunnings website is somewhat lacking when it comes to the level of product information presented. This opens up opportunities for independent retailers.
Not only might independents attract consumer attention with their own information provision, but consumers will be motivated to continue their research in-store. It is possible for independents to participate in post-research path-to-purchase more effectively than in primary research. That does mean making an adjustment for dealing with more informed consumers, further along in making their choices.
Post pandemic path-to-purchase
In outlining how that might work, it's best to start with some of the efforts that suppliers are taking. In overview, what each of the suppliers we spoke to managed to do with their products was to really understand how customers approached their products, and how they put them to use in their trade work or DIY tasks.
These examples illustrate three different techniques: providing depth; convenience and informational diversion; and overcoming the assumed problems.
Klingspor wire brushes
When HNN spoke to him at the HBT Conference, managing director of Klingspor Australia, Paul Hoye, reported that the new line of wire brushes the company had released had been doing very well. In fact, Mr Hoye had played a part in encouraging Klingspor to develop the product line, and, as he expected, the Australian market had responded well to the new product.
This is an example of one of the really important parts of path-to-purchase, because it relates to having a deeper understanding of what customers need. Wire brushes might not seem that exciting as a category, but for metal workers in general, and especially welders, they are really essential. For example, this extract from The Welder magazine illustrates just how complex this product line really is:
When choosing a power brush, you have several knot styles, wire gauges, and trim length options. By changing one or more of these characteristics, you can fine-tune brush performance for a specific application. For example, stringer bead brushes have narrower knots twisted from base to tip, making them better suited to penetrate tighter spaces like corners, fillets, and root pass welds. Cable-twist brushes are also twisted to the tips but have a wider profile that can quickly cover more surface area for fill passes. Standard twist brushes flare at the end, providing an even wider footprint as well as additional conformability. The Welder magazine
It's not only about answering a direct need of a customer, it's also about providing real differentiation. It looks like such a simple category, but for the target customers it's deep.
Cowdroy insect screens
If there is one product on the market that deserves a lot of attention, it is the innovative insect screens released by Cowdroy. It's not only a great product, but it really illustrates the role of path-to-purchase.
That begins with Cowdroy realising that the "traditional" insect screens of the past were a disregarded, utility category that had a lot of potential to develop into a real feature for houses. As part of that, they also are a classic "upsell", a way to offer something pleasing and unexpected to customers.
The screens include products that are designed to have as little visual impact as possible, to resist the wear and tear that pets produce, and even to help block out pollen and dust.
Importantly, though, Cowdroy knew that it needed to "demonstrate" the screens effectively, and so developed a special mobile app to go along with the product line. That app enables customers to preview how the various screens on offer will alter the view through a window.
In path-to-purchase terms, that's a technique known as "information diversion". It invites a consumer to go down a quite shallow "rabbit hole" of information. After downloading the app, and playing around with the different options that are available, how can they possibly go back to just plain, old ordinary flyscreens?
The latest innovation that Cowdroy has brought to the line is to introduce packs of flyscreen in pre-cut lengths. HNN would guess that this development is based on customer research. Getting flyscreen cut from a roll can be one of those "difficult" moments in a hardware store - especially with staff shortages. Pre-cut lengths increase the likelihood a customer will complete the purchase immediately at the point of selection.
That helps the customer make a fast and convenient choice - but it also reduces the real cost of selling the product for retailers, as less staff time is needed. It's perfect.
Cement Australia Trade Mortar
In talking with Cement Australia, HNN sometimes imagines the theme from Mission Impossible playing in the background: "Your mission, should you choose to accept it, is to sell a commodified product as something unique, highly valued and reliable."
Yet the company does keep delivering on that tough task, and its Trade Mortar product is testament to this. Log onto any decent trade site, and you will find a lot of arguments about pre-mix versus self-mix when it comes to mortar. Surprisingly, though, most of those arguments aren't about cost, they are instead about the quality of the pre-mix. The complaints range from pre-mix being poor quality with too much sand, to just the "trowel feel" being wrong - not sticking well.
Cement Australia targeted those precise complaints, and produced a product that is designed to help really busy tradies "smash out" their walls quickly and conveniently. It's easy to mix, which means apprentices can manage the process, and it provides the kind of consistency needed with colour contrasts.
What is most significant about the hints of path-to-purchase thinking we see in the product innovations mentioned above is that the suppliers have considered the entire context of the purchase. Klingspor knows how important wire brushes are to welders. Cement Australia knows the problems tradies have experienced with pre-mix because they understand how their products are used to achieve an end result. Similarly, Cowdroy understands the frustrations of homeowners working on a project to refit flyscreens in spring. They've changed a utility purchase into genuine home improvement.
Path-to-purchase for retailers
Suppliers can, however, only solve a part of the path-to-purchase puzzle. In general, when it comes to path-to-purchase, suppliers concentrate on removing certain frustrations from the purchasing experience - a lack of different types of wire brushes, a pre-mix you can really rely on, flyscreen you don't have to find a sales associate to cut for you.
Retailers can go further. That means having a good understanding of where customers are in their journey towards completing a project. And that, of course, means being able to conceive of what that project might be.
This brings up one of the most long-running tensions in retail, which is how much stores should focus on project-orientation (bathroom/kitchen renovation for example) as opposed to displaying goods purely as categories (flooring and plumbing, etc.).
For the majority of independent retailers, of course, there really is no option, as their stores are not large enough to support any kind of project display. One way around that, of course, is by providing a "virtual" project space on a website. In the US, this is what The Home Depot does. For example, it presents a range of different room designs, with a "Shop this room" button, which pulls up a list of products needed to achieve the "look" of the interior design photograph.
While that gets around the problem of space limitations, it introduces other difficulties in terms of online capabilities.
The virtual path-to-purchase
When it comes to path-to-purchase for independent hardware retailers, the ultimate goal is to get included in the initial lists that are derived from online research. The best way to do that is to provide an information resource that will deliver a high score in terms of its search ranking through Google and other services.
It's here that the nature of the next challenge really does come into focus. The difficulty is that no individual store has the resources (let alone the finances) to develop an online presence that could attract the attention needed - plus, of course, as they service a confined geographic area, achieving success across the broader internet is not really efficient.
What is needed is a central source of information that is detailed and well-designed, and does provide a high level of exposure. That site could then offload site visitors to local independent hardware stores for the transactional part of the interaction.
At the moment, however, there does not seem to be much possibility of that being achieved in the industry. Yet there are some suppliers who are working hard to step into that gap. Matt Haymes of Haymes Paints was kind enough to take some time during the busy tradeshow at the Conference to chat with HNN. He described how Haymes is working hard to develop an online presence to help consumers choose paints.
It's clearly directed, he said, at boosting the sales of the independent retailers who stock Haymes. That's what independents have come to expect from Haymes, but it is also exceptionally generous.
The task ahead
Twelve years ago the task of catching up to Bunnings on price seemed almost unachievable. That led to some pretty desperate measures in the industry - most notably by Mitre 10, and its launch of the Mega stores in Australia.
Despite the difficulties, that job did get done. Today we're facing the next very difficult tasks. They also look virtually impossible to achieve. But there is something of a track record there, that can serve to give one a sense of hope.
What is most required, however, is an additional point of focus, and an understanding that it is time to develop and adopt a new winning approach to the Australian hardware retail market. We know that, as a resource, independent retailers can get to the point where they equal the growth rate of Bunnings. It really is a question of how best to access this pool of talent and potential. This article can be read as a HNN Briefing PDF. To read the PDF, please download by clicking the image/link below.