Amazon Australia launches online garden store

A challenge to Bunnings?

The online retail giant wants to capture a share of the gardening and outdoor market

The gardening and outdoor retail category has a new entrant with Amazon Australia now selling pool supplies, outdoor furniture, barbecues and gardening tools.

Since its arrival in late 2017, the online retailer has rolled out a number of different categories into the Australian market including baby goods, pets, and pantry food and drinks. Rocco Braeuniger, the out-going country manager of Amazon Australia said:

Our garden store adds to the over 125 million products already available on Amazon Australia, underscored by great value and fast delivery.

Amazon will inevitably compete with Bunnings and other hardware and garden retailers in the outdoor and garden market. According to a report in the Sydney Morning Herald (SMH), Bunnings claims it has over 20% of this category. The gardening segment has been valued at about $2.7 billion.

Bunnings is using click-and-collect as its primary logistics method, while Amazon will deliver products directly to its customers. Amazon Prime members will receive free shipping and a guaranteed two-business day delivery on eligible garden items. Customers who do not have Prime can access free delivery on orders above $39 when shipped by Amazon Australia. A one-day delivery service is available in select areas across the country.

Amazon also said it has new drones that will deliver packages to customers in 30 minutes or less in the coming months. However, items not fulfilled by Amazon and sold through third-party sellers will not be able to get free shipping and likely incur additional delivery charges and longer transport times.

In a statement to the SMH, Bunnings managing director Mike Schneider said he welcomed Amazon's competition but believed Bunnings in-store experience and expertise would win out.

Having our team of experts in-store means we are also able to offer great service to run alongside our online transaction capability. We typically find that many of our online customers like to head into store to pick their items up.

Trent Rigby, senior strategist at Retail Oasis, believes Amazon's garden store launch is well-timed and could potentially pose a challenge for Bunnings and other garden and outdoor retailers. He told the SMH:

With the scale and speed that Amazon operates at, they're a big threat in whatever category they choose to go into. Not only will they compete on price, but the direct delivery option is more appealing and convenient than click and collect.

To prepare for the launch, Amazon commissioned research to study the outdoors habits of Australians. It found younger people are the most enthusiastic gardeners, with 75% of millennials indicating they grow their own organic fruit, vegetables or herbs.

Veggie gardens (22%) are the number one most wanted item, followed by the outdoor barbie (21%), and various outdoor furniture (18%). Somewhat surprisingly, 15% of respondents said they would be keen to give beekeeping a try.

As part of the launch, Amazon Australia is attempting to bring back the garden gnome and giving the chance for five people to win a personalised, handmade gnome. Landscape designer and Selling Houses Australia co-host Charlie Albone is one of the judges. He said:

Working in the landscaping industry, I've seen many outdoor trends come and go over the years, but one thing is a certainty and that is that Australians love the great outdoors. The humble garden gnome is a classic feature of the Australian garden, and I'm thrilled that Amazon Australia is giving it a 21st century makeover.

New country manager

Amazon Australia will also have a new country manager when Matt Furlong replaces Mr Braeuniger who is leaving after two years in the job. Mr Furlong will officially take over the reigns on October 1.

A former Procter & Gamble executive, Mr Furlong has been at Amazon for seven years in a variety of roles including US category leader for home improvement, tools, major appliances and smart home. For the past 18 months, he has been technical advisor to Doug Herrington, who leads the North America consumer business.

Mr Braeuniger was appointed country manager for Australia in August 2017, four months before Amazon launched its new e-commerce business. He is moving on to take a senior international role in Europe.

The Financial Review reports that Amazon Australia's online retail sales reached $106 million in calendar 2018 and sales from related parties (including sales from the US website) rose to $158 million, taking total revenues to $292 million, based on accounts lodged with the corporate regulator.

Retail experts say Amazon's Australian launch has been underwhelming and sales and the number of sellers have fallen short of expectations. However, Mr Braeuniger dismissed suggestions the world's largest online retailer was struggling to gain traction in Australia, pointing to the rapid growth in its product range and services, including delivery service Prime, Fulfilment By Amazon, Global Store and, most recently, Launchpad, an incubator program for start-ups and entrepreneurs. He told The Financial Review:

The Prime launch has been successful, we are outperforming all the other countries on a relative scale ... and Prime Day was the most successful shopping event we have ever had in Australia.

Sources: Amazon Australia, Sydney Morning Herald and Australian Financial Review

Related: HNN covered Amazon's entry into the Australian market extensively.

Amazon is coming to town - HI News, page 50

Sources: Amazon Australia, Sydney Morning Herald and Australian Financial Review

retailers

Did independents outperform the big guys?

Results from IHG and Bunnings subdued

While both Bunnings and IHG claimed that the hardware retail market declined in the FY2019 H2, the stats show the decline was not dramatic

Looking back over the Australian Bureau of Statistics (ABS) report for retail sales in the hardware sector for FY2018/19, the slightly surprising conclusion is that non-corporate independents - those outside of Metcash's Independent Hardware Group (IHG) - have won back some marketshare.

Before we get to that, though, let's look at how the hardware retail market performed for FY2018/19. As shown in Chart 1, for Australia overall, hardware retail sales were $19480.8 million, an increase of 2.28% over the previous corresponding period (pcp), which was FY2017/18. This was also an improvement over the growth number for FY2017/18, which was just 1.11%.

By far the best performing state was Victoria (VIC), with revenues of $5564.3 million, an increase of 8.90% on the pcp. The Australian Capital Territory increased revenues by 5.36% on the pcp, to record revenues of $367.8 million. The worst result for the financial year was Western Australia (WA), which dropped by 8.25% on the pcp, with sales of $1958 million - its first drop below $2 billion in sales since FY2013/14. The rest of the states and territories recorded mildly positive results of around 1% growth over the pcp.

We've heard a number of companies in the industry claim that the last quarter of FY2018/19 saw some decline in their markets. Looking at Chart 3, which contrasts revenues in the Q4 of financial years, it would seem this is not entirely statistically supported. What is perhaps disheartening to corporate executives is that so many of the states and territories are contracting, but that contraction is, overall, around the 2% range, while VIC has growth figures of over 8%.

Charts 4,5 and 6 look contrast FY2017/18 with FY2018/19 for New South Wales (NSW), VIC and Queensland (QLD), which together make up over 76% of hardware retail revenues. The biggest surprise is probably how optimistic these sales numbers are, with big increases for VIC, and both NSW and QLD closely shadowing sales for the previous year.

Chart 7 shows the overall numbers for Australia over FY2016/17, FY2017/18 and FY2018/19. Growth from FY2016/17 to FY2017/18 is negative during the first half, becoming positive in the second half. Growth from FY2017/18 to FY2018/19 is positive throughout the year, though only mildly so.

What we would really have to conclude, looking at the results for both IHG and Bunnings is that they have not done a good job of capturing the potential of this market. (The Metcash/IHG financial year does close out in April, but the company remarked that trading through May and June had been in decline.)

It's likely, given this, that the real winner for FY2018/19 has been the non-corporate independents, many of whom are in buying groups such as National Builders (Natbuild) and Hardware & Building Traders (HBT). Partly that may be because Bunnings and IHG are overweight in NSW and underweight in VIC (in terms of growth prospects).

Metcash/IHG

Metcash's Hardware segment, which consists primarily of the Independent Hardware Group (IHG), recorded equally lacklustre results. Excluding charge-through sales, overall revenue for the reporting period was $1165.1, up 1.9% on the pcp. Including charge-through sales, sales were $2.10 billion, down by 0.9% on the pcp.

Hardware did show a steep rise in EBIT, reporting $81.2 million, up by $11.9 million on the pcp, a gain of 17.2%. However, the company states that around $10 million of that is the result of one-off "synergies" from the acquisition of the Home Timber & Hardware Group (HTH).

It appears much of those synergies originate from the closure of non-performing HTH stores, and subsequent asset sales. As a result estimated EBIT from continuing operations would be $71.2 million, a gain of 2.7% on the pcp (presuming that the pcp EBIT number relates to continuing operations as well).

Other EBIT gains resulted from efforts by the company to improve the efficiency of its operations.

Bunnings

Bunnings reported topline revenue of $13,166 million, up by 5.0% on the pcp. EBIT rose by 8.1% on the pcp, to hit $1626 million. In terms of total stores growth, this was 5.2%, down from 8.0% in the pcp. For store-on-store (comp) sales growth, this was 3.9%, down from 7.8% in the pcp. Return on capital improved slightly, coming in at 50.5%, up from 49.4% in the pcp.

In his prepared remarks, Bunnings managing director Michael Schneider reaffirmed the retailer's commitment to the DIY market, while also highlighting its growth in retail to trade customers.

While making DIY even stronger remains core. We continue to build solutions that connect our customers with local experts, making it easier and more affordable for them to have products in-store, particularly when it comes to a licensed tradesperson.
We have expanded our assembly and installation offer to help our customers who don't always have the time or skills to undertake some jobs and projects. 18 new services were introduced throughout the year with a total of 30 services now available. Uptake from customers continues to grow, with Dux hot water installation, toilet installation and barbecue assemblies being some of the most popular services we offer.

Mr Schneider also pointed to the retailer's growing focus on lifestyle based retailing.

We have also expanded our in-store events and activities, making it even easier for our customers to learn new skills and bring their home and lifestyle aspirations to life. Every store now has a mobile DIY unit, which is used to engage our customers in aisle with product demonstrations, displays and craft.

To read more, please download HI News:

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retailers

Bretts moves to Natbuild

Yenckens also leaves Mitre 10

Old alliances and wholesale relationships continue to change in the trade end of hardware retail

Queensland-based Bretts has switched its wholesale business from Independent Hardware Group (IHG) to Natbuild.

In Victoria, Yenckens has also decided to move on from its Mitre 10 banner. The retailer has moved most of its business to Hardware & Building Traders (HBT), and the rest over to Natbuild.

Both businesses will continue to do some purchases from IHG, however they will now conduct their buying of large bulky hardware goods, such as timber, from Natbuild,

Natbuild chief executive Peter Way told The Australian he was receiving a pick-up in interest and inquiries from independent hardware chains wishing to sign up to the buying group. He said:

There has been strong inquiries and interest, and I think our service or our value proposition is appealing because we are transparent. There's no 'you get this if you jump through this hoop'. It's probably the varying difference between us and other groups like Metcash.

The trade category is increasingly becoming a heated area of competition for both corporate retailers and buying groups as they attempt to outbid each other in appealing to the needs of tradesmen.

Source: The Australian

Related:

Bretts Timber sees steel in its future - HI News, page 22

To read more about the Independent Hardware Group results and stories in Indie Update, please download the latest issue here:

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retailers

Homewares, the next retail battleground?

Bunnings, Kmart, Coles and Aldi compete in the category

Ecommerce homewares retailer, Temple & Webster said it generated a record $1 million in checkout revenue in one day in June

In a relentlessly competitive retail environment, the homewares category is increasingly popular among shoppers. Bunnings, Kmart, Coles and Aldi have all launched their latest homewares ranges. So has online retailer, Temple & Webster, a specialist in this sector. It recently posted its first profit result.

Bunnings' Smart Homes Products line features throws, rugs, cushions and chairs. There are also children's homewares as well as storage items.

Recent research from Roy Morgan showed Kmart is considered a major a homewares shopping location, with one in five Australians shopping there for home products. Its collection continues to take inspiration from Scandi minimalism and boho luxury. Young children and toddlers have also been included in the new range that features a night light.

Coles released a limited edition homewares range over a four-week period. Its Your Home Collection had 101 items including cushions, throw rugs, lamps, shelves and storage boxes.

Aldi has had significant success selling homewares as part of its popular weekly special buys range. Its homewares collections have included Scandinavian-style floor lamps and furniture, knit throws and French linen sheet sets.

Temple & Webster results

Online homewares retailer, Temple & Webster said the number of active customers on its site increased by 37% to 271,000 in 2018-19.

CEO Mark Coulter said much of the group's initiatives are about gaining marketshare of the number of millenials wanting to buy furniture and homewares online. He told the Sydney Morning Herald:

Our core demographic is 35 plus, and as more millennials become 35 to 38-year-olds they begin to enter our market.
They've grown up buying everything online, and furniture is something you start to spend more money on when you're in your late 30s and 40s. That trend is happening irrespective of what's happening with house prices and broader retail.

Customers are buying furniture and homewares online, but online sales in Australia was still low at around four per cent, according to Euromonitor, compared with 13.7% in the United States and 14.2% in Britain. The Australian furniture and homewares market is worth about $13.6 billion.

He said Temple & Webster's growth in July showed its customers hadn't been restrained by the broader softness in retail, and he intended to bolster spending on technology including a new mobile app and expanding the range of products available beyond the current 150,000 including its own private label range.

Mr Coulter said Temple & Webster's ''drop-shipping'' delivery model, where products purchased online are then sent to customers directly from suppliers, was enabling quicker delivery times.

Mr Coulter also said the group's major focus was on accelerating its Australian operations and capturing as much of the rebound in the housing market as possible, rather than any offshore expansion. He believes that ''now was the time to invest''.

Temple & Webster produced earnings before interest, tax, depreciation and amortisation of $1.1 million for 2018-19 to be in the black for a full year for the first time. It made a loss of $700,000 a year ago.

Sources: Australian Financial Review, Sydney Morning Herald and Daily Mail Australia

Related:

Big business in pet care - HNN

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retailers

Bathstore bought out by Homebase

The privately owned chain had 135 stores in the UK

Chief executive Damian McGloughlin said the group is delighted to welcome Bathstore into the Homebase family

UK home improvement retailer, Homebase has secured a deal to acquire the UK's largest specialist bathroom retailer, Bathstore. This will rescue the brand from administration.

The company will take over 44 branches and the Bathstore website, and plans to open a "significant" number of concessions within its own stores over the next 18 months. The DIY chain hopes to boost its own bathroom operations with the purchase.

The remaining 90 stores not being transferred to Homebase will continue to trade until remaining display stock is sold off.

Bathstore launched a fully adapted bathing suite in 2017, revealing plans to dominate the specialist space. Its Easy Bathing collection was part of a plan to claim a large stake of the specialist bathing market after deciding that it was an under-served sector.

Founded in 1990 by Patrick Riley and Nico de Beer, Bathstore has been hit by worsening trading conditions in recent times with a slowdown in housing transactions and ongoing consumer uncertainty in the UK.

To read more stories in Europe Update, please download the latest issue here:

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retailers

Ace earns top marks for customer satisfaction

Online engagement

It tied with True Value for highest customer satisfaction in the J.D. Power 2019 US Home Improvement Retailer Satisfaction Study

Ace Hardware and True Value managed to excel against their big box competitors - Lowe's, Menards, The Home Depot - as ranked by the 2,400 customers surveyed in the latest J.D. Power Home Improvement Retailer Satisfaction Study.

The survey rated the retailers across five key attributes. But in analysing the overall survey results, J.D. Power analyst Christina Cooley identified online engagement as critical to success in serving home improvement customers. In this area, Ace Hardware puts distance ahead of the competition. She said:

The better a retailer site performs online in meeting the customers' needs, the greater their overall experience. So the two go hand-in-hand.

Ms Cooley noted that 41% of the customers surveyed either researched or shopped online prior to visiting the store. Consumers who check out potential purchases online also spend more on home improvement products than those who do not conduct web-based research.

Yet, J.D. Power added, many home improvement retailer websites don't measure up to customer expectations. Overall satisfaction for home improvement retailer websites is 821 on a 1,000-point scale, a bit lower than the rating for manufacturer websites (832), image and video sharing websites (843) or social networking sites (869).

The Ace Hardware corporate website is filled with how-to information in its tips and advice section. The site also directs visitors to the local store's site which is personalised to the community and the needs that it serves. Ms Cooley said:

Over the last several years, Ace clearly has put a lot of resources, attention and investment into their website to be engaging for customers, whether they're looking to just purchase online or to find information at the local level.

A positive online experience researching local destinations where the right products and help can be found is directly correlated to a more positive shopping experience and more money spent. Ms Cooley adds:

Those that did research online prior to purchasing spent about USD600 more per year on home improvement products, than those who did not shop or research online.

In her consulting work with independent retailers, Ms Cooley emphasises that the website's primary role is to draw customers into the store where the real retail magic happens. Ace Hardware's corporate structure, as a co-operative of 5,200 locally-owned and operated hardware stores supported by a high performing head office operation, gives it the edge. Andy Enright, vice president retail development at Ace Hardware, told Ms Cooley:

While we do have significant national scale, our independent owners live in the communities they serve. This local mindset and entrepreneurial spirit, along with a nonstop focus on fulfilling our 'Helpful Place' promise is why Ace continues to be recognised for high customer satisfaction and has seen nine years in a row of same-store sales growth.

Besides Ace Hardware's support of local member companies' digital presence, the retailer gets the five key attributes in J.D. Power's home improvement index right as well.

Store facility

In addition to ranking home improvement retailers by cleanliness, convenient location, store layout and design, the survey found shoppers want to get in fast, find what they need fast and get out fast. Ms Cooley said:

Local hardware stores like Ace do that much better than the big boxes.

Ace's smaller size and scale, as well as its community-centric approach to merchandise selection, gives it the edge. Mr Enright said:

We are a high-touch, convenience hardware store that makes it easy to get in, find the product you are looking for, get help if needed and get out quickly so you can complete your project faster.

Product selection

Lowe's and Home Depot may have a lot more product selection, but they also present shoppers with a "paradox of choice" problem where too many choices make for confused and often dissatisfied shoppers. Rather than stocking everything, Ace Hardware aims to stock only the right things that its local customers want.

Merchandise is customised to each local market with the aim to present the best quality brands. Ace ranked highest in the "Quality of merchandise is above expected" question, and in "Staff thoroughly explained products and features".

Priced for value

In retail, price still matters and many consumers will drive a few extra miles to save a few cents. So while Ace Hardware may not be able to match the often lower prices that a big box retailer can offer, it also understands that the real value of choosing Ace hinges on many other factors besides who's got it cheapest. Mr Enright said:

We pay close attention to our CPI (competitive price index), and recently deployed CPI data down to the store and item level to better ensure we stay competitive in each local market.

Regarding customers' overall satisfaction, J.D. Power said the retailers that provide assistance to customers within two minutes of arriving in the store get a 67 point boost in overall customer satisfaction. Having the cheapest prices in no way matches the impact of superior service.

Promotions attract shoppers

In addition to supporting regular sales promotions, Ace Hardware provides extra incentives and exclusive discounts to its 48 million Ace Rewards members. The data collected about customers' preferences at both the national and local level helps the retailer further personalise product selections and services in the stores.

In addition, Ace Hardware members are increasing the number of special in-store events.

Staff and service

Ace Hardware doubles down on customer service as the key to being its tagline, "Helpful Place." To do that it also doubles down on training. Mr Enright said:

We put a lot of focus on employee training, development and engagement. Last year we launched a new training program combining both e-learning tools and hands-on training. The curriculum is based on an associate's role and experience level in the store in order to improve their knowledge and confidence. That way they are better prepared to provide exceptional service to our customers.
To have highly-engaged customers, you need highly-engaged employees.

Sources: Forbes and Homeworld Business

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retailers

Elders moves into wholesale

It is offering a deal to acquire AIRR

Taking on Australian Independent Rural Retailers allows Elders to have a presence in the wholesale market

The $187 million takeover bid by agribusiness Elders for Australian Independent Rural Retailers (AIRR) will give it an entry into the wholesale supply of farm products for the first time.

Elders managing director Mark Allison said wholesaling to independent retailers provided an attractive growth opportunity for the company. He told The Adelaide Advertiser:

We don't have any wholesale channel and AIRR is very strong in that area. About 100 of their members are in produce and hobby farming areas, so it's quite complementary to our business.
AIRR is also very strong in the pet supplies area. All the AIRR stores will continue to run independently, as they already are."

Lachlan Cox, owner of Cox Rural, said the acquisition would enhance his company's purchasing power when negotiating terms with key suppliers. He operates six AIRR member stores in South Australia, and told The Advertiser:

There's a great opportunity to leverage off both businesses, while still remaining independent.

Cox Rural has been running since 2002 and is a founding member of AIRR.

Mr Allison said the acquisition provided the opportunity for Elders to leverage AIRR's distribution and logistics coverage with benefits in improving the Elders supply chain. He told The Australian:

Helping us backward integrate through our supply chain can deliver a 10-15% margin gain.

The deal includes a purchase price of $157 million for the group and Elders will also pay out AIRR's existing $30 million in debt. While the Elders deal does not include ownership of the AIRR network of 340 independent rural supplies and pet produce outlets, it does provide a combined network of more than 550 stores.

Mr Allison said he hoped the deal would be completed by November. It is subject to approval by AIRR shareholders, the Australian Competition and Consumer Commission (ACCC) and the court.

Access to more independents

The acquisition should help position Elders to compete more strongly with Canadian fertiliser giant Nutrien as it moves to complete a $469 million takeover of Ruralco.

Mr Allison believes there is a significant opportunity to add independent retailers in the fallout from Nutrien acquiring Ruralco, which is a leading wholesaler to independents through its CRT (Combined Rural Traders) retail operations. He said:

Our view is there are another 300 independents out there who may decide to move across to an alternative wholesale network.

The Nutrien takeover of Ruralco, if it secures regulatory and shareholder approvals, could see a network of 654 Landmark and Ruralco stores across Australia. There would remain about 360 rural stores outside either network.

Elders, which turns 180 this year, already has more than 17% rural retail market share behind Landmark and Ruralco. Mr Allison said if both deals were approved, "it would make us clear one and two".

About AIRR

Established in 2006, AIRR was founded by long-time rural retailer Peter Law to support independent rural stores and pet and produce storeowners through group buying power but without franchise costs or obligations. The business supplies 240 independent stores and 100 Tuckers Pet & Produce stores with more than 6000 animal health, feed and general merchandise products. It is supported by a network of eight warehouses around Australia servicing over 1500 customers.

The group also owns and operates five retail locations in Victoria and is listed on the Primary Markets Exchange.

AIRR comes with some major intellectual property assets. It has 190 product registrations with the Australian Pesticides and Veterinary Medicines Authority under its own brands: a number of crop protection chemicals under the Apparent brand, along with other animal health and general merchandise products under the Independents Own label.

Elders' acquisition would give it much greater exposure to the higher margin pet and animal health market.

AIRR has annual revenue of about $500 million and forecast earnings of $22 million for the 12 months to September 30, according to a report in The Australian Financial Review.

As AIRR managing director, Mr Law will remain in his role and replace Mr Allison as Elders' biggest individual shareholder with about 1.8% of the company. Mr Allison will become AIRR chairman.

ACCC inquiries

The Elders takeover of rural wholesaler AIRR has attracted the attention of the competition watchdog as it holds a public inquiry into the consolidation of the rural services industry.

Nutrien's earlier bid for Ruralco in a $470m deal is also being investigated by the ACCC and due to be decided on August 15. Ruralco has about 73 wholly owned stores as well as a host of independents, who are the focus of both ACCC inquiries into the sector.

The Elders-AIRR deal is expected to be decided on September 12. But Mr Allison said it had been talking to the competition regulator about the AIRR deal and was confident it would have no objections.

More acquisitions?

Sources have told the DataRoom column in The Australian that Elders may still be looking at the PGG Wrightson farm supplies business in New Zealand as an acquisition target.

PGG Wrightson offers Elders another entry into the wholesale rural services market. However the company falls outside the tax umbrella for Elders, resulting in higher payments of tax for the company. This could be seen as an argument against the acquisition.

PGG Wrightson, which is listed in New Zealand, sold its seeds operations to Danish company DLF Seeds for NZD421 million (AUD401 million) and has a market value of about NZD415 million. Analysts say PGG Wrightson is a good business and would be the right fit for Elders.

However Mr Allison has publicly rejected suggestions Elders might be looking at another acquisition.

Sources: The Australian, The Australian Financial Review, Tasmanian Country, and The Adelaide Advertiser.

retailers

TradeTools opens Cairns outlet

Rival tool firms embark on expansion

The Cairns store is the Gold Coast company's 19th retail location and the first in Far North Queensland

Tradies and weekend warriors have a new destination for their tools in Cairns now that TradeTools has opened a retail outlet on Mulgrave Road.

Managing director Jeremy Stewart said the business had been looking for a suitable site in Cairns since 2017 before settling on the old Cheeky Monkeys Play House site. He told The Cairns Post:

The showroom alone in our new store is over 1100sqm, so it's big enough to showcase our massive range of the best tools from the best brands. And we have about another 1000sqm of warehouse on top of that.
We've shipped tools to customers in Cairns for a long time and Cairns tradies, businesses and the public have been asking us for a TradeTools store.

The new store has opened with six staff including a qualified repair technician.

Retail competition

TradeTools has plans to expand its offering to other parts of Queensland and is facing fresh competition from New South Wales-based Sydney Tools which opened its first Queensland store in Archerfield last month. Sydney Tools wants to roll out 15 more stores across the state over the next three years. Director Jason Bey told The Courier Mail:

Sydney Tools has seen record breaking sales this year which is the rationale for our national expansion strategy.

While seeing the NSW company as a "direct competitor", TradeTools chairman Greg Ford is sceptical about his rival's plan for expansion in an already saturated market. He also told The Courier Mail:

I'll believe it when I see it. I don't think the market is big enough to warrant another 15 industrial tool stores. If I thought there was room for another 15 stores I would have opened another 15 stores.

Mr Ford has been working in the industrial tool trade sector since 1980 and said the new entrant has not "disrupted" sales and believes Sydney Tools is taking away customers from Bunnings. Founded in 1987, TradeTools has remained privately owned and Mr Ford said the business has "expanded when Queensland has expanded".

A sluggish retail environment and a cooling of the construction market has not caused TradeTools to put the brakes on its expansion plans. After Cairns, it will open stores in Rockhampton and Mackay. The industrial tool company will only acquire new locations when cash flows allow for the company to buy a site in full. Mr Ford said:

We only expand when we can afford the premise outright. Our aim in the next 10 years is to double our turnover.

After the company expands north, Mr Ford is looking to open his first NSW store in Lismore.

Sources: The Cairns Post and The Courier Mail

retailers

Sunshine Mitre 10 Gympie wins QLD Store of Year

Award for independent stores over 2500sqm

The Sunshine Mitre 10 group in Queensland has picked up yet another award, this time from Hardware Australia

Hardware Australia has awarded the Sunshine Mitre 10 store located in Gympie, QLD, the prize for Queensland's Store of the Year, in the category for independent stores over 2500sqm.

The prize was handed out at the 2019 Hardware Australia awards in Brisbane recently. According to a company spokesperson:

Sunshine Mitre 10 Gympie Superstore is the largest supplier of timber in the Sunshine & Cooloola Coasts, Darling Downs, South Burnett and Wide Bay regions. We take pride in the fact that we can provide all the building supplies our customers need, under the one roof, whether they are a builder, renovator or dedicated DIYer.

The Gympie store is no stranger to prizes - in 2016 it also was voted as having the best cafe in town via a Facebook survey of locals.

HNN is traveling to Queensland to visit a number of Sunshine Mitre 10 stores in July, and we'll be providing a full report in the near future.

Other awards

Aside from the top retailer awards, Hardware Australia also offered the following at its 2019 prize giving ceremony:

  • Store of the Year under 2500sqm - CNW Electrical Gladstone
  • Trade Store of the Year - BMS Mitre 10
  • Garden Department of the Year - Porters Mitre 10 Mackay
  • Employee of the Year - Katy Draper from Sunshine Mitre 10 Roma
  • Sales Representative of the Year - Nick Sommerfelt from Makita
  • Industry Rising Star - Katy Nicholls-Hurley from Jeays Hardware Mitre 10
  • Brian Lee Hardware Industry Legend - Clint Spence from Beaudesert Mitre 10
  • Overall Supplier of the Year - Makita
  • Queensland Building Products Supplier of the Year - Cement Australia
  • Queensland Hardware Supplier of the Year - Bremick
  • Queensland Timber Supplier of the Year - ITI
  • Queensland Paint & Paint Products Supplier of the Year - Dulux
  • Queensland Tool Supplier of the Year - Makita
  • Queensland Electrical & Lighting Supplier of the Year - HPM Legrand
  • Queensland Bathroom & Bathroom Products Supplier of the Year - FIX-A-TAP Australia
  • Queensland Garden & Outdoor Products Supplier of the Year - Searles
  • retailers

    A career looking after locals

    Co-owner Tim Kessler has competed a 30-year apprenticeship

    After three decades at the store, he believes there are not too many other things he would rather be doing

    As part owner of the Home Timber and Hardware in Biloela (QLD), Tim Kessler recently told the Central Telegraph newspaper that he understands the importance of looking after your customers, supporting the economy of his rural town, and gradually building a trusted rapport with his community.

    Mr Kessler said he began working at the store in 1987, but left quite soon after in 1988. He started at the store as a glazier while the store was being constructed. Mr Kessler explains:

    ...After about 12 months I moved on but things didn't work out where I was, so I came back. The bloke that owned the business happened to be in here at the time and said, 'Do you want your job back?' So I started back and I have been here ever since. I guess I am lucky the owner at the time must have seen some potential in me.

    He was soon offered the trade manager's position, and in 1996 became the general manager, before becoming a business partner in 1998. In 2016 he became part owner with a new business partner. He said:

    So, now I've been here officially since February 1989. I've done my 30-year apprenticeship so I should be right!

    During that time, Mr Kessler has witnessed the store undergo many major milestones. In a previous interview, he said:

    Probably one of the biggest things that has changed was the expansion of the business in 2008. But even getting the electronic cash registers and the progression to completely computerised email invoices and statements has been a big change.

    Getting to know customers is a major reason why he enjoys his job so much. He said:

    ...You get to know your customers because it's a small town. We get to see them down the street and people know my name. There's the regulars and then there's new people who come to town and you get to know them too.
    We have fun with our trade customers and there's just that good rapport going. We have good staff here, and a regular comment we get is that the staff seem to be having fun.

    He understands that a younger generation want to move away from small country towns but he believes it is a matter of "making your own fun". He has also said:

    I think it is a really good career for those that want a challenge in this industry. As long as they are willing to have a go, they will go a long way in this business.

    Mr Kessler, who has 15 staff at the store, said business was currently "a struggle" for many.

    But I think that's a lot to do with the current dry weather conditions. We seem to be doing okay.

    He said it was important for locals to support local, and newcomers were often surprised by the extent of his stock range.

    A customer said recently, 'It's amazing how much stuff you keep here'.

    Mr Kessler said it was easy to underestimate what was on offer in a rural town, and many new customers worried that if a town didn't have more than one option they might be getting "ripped off". With a second hardware shop in Biloela, he believes it is important to work together sometimes.

    When we run short of something, we can easily ring up the other hardware shop and we help each other out. Or we can point the customer in that direction or to other businesses in town that we think could help. It's all about getting people to spend money in the town and helping people out.
    retailers

    Metcash-IHG results flat for FY2019

    Sales declined by 0.9%

    Metcash has succeeded in merging HTH with Mitre 10 - now it has to make the merged company profitable

    Australian retail conglomerate Metcash has released its results for its FY2018/19, ending 30 April 2019.

    Results overall were positive, but mildly disappointing. The company recorded revenue of $12,669.3 million, which represented an increase of 1.8% over the previous corresponding period (pcp), which was FY2017/18.

    Earnings before interest and taxation (EBIT) fell by 1.4% on the pcp, reaching $330.0 million. Excluding corporate EBIT, Metcash's food, liquor and hardware segments lifted EBIT by 2.2%.

    Metcash's hardware division, which includes the Independent Hardware Group (IHG), recorded the only decline across the business's three segments. Revenues for IHG were $2102.0 million, falling by 0.9% on the pcp. EBIT was more robust, with the company reporting the number of $81.2 million, up by 17.1% on the pcp. However, that number does include around $10 million of merger synergies; absent that boost, EBIT rose by around 2.9%.

    In notes to the release of the results, the company stated that:

    Sales were negatively impacted by the slowdown in construction activity, the closure of unprofitable company-owned stores, and the loss of a large HTH wholesale customer in Queensland in 1H19. Excluding the loss of this customer, sales increased 0.3%.

    The company stated that like-for-like (comp) sale across its wholesale business rose by 2.3% over the pcp. It also claimed that the retail comp number showed an increase of 3.0% over the pcp in its bannered stores.

    The results announcement also included this statement as one source of the mildly disappointing numbers:

    An increase in the proportion of Trade sales in the sales mix to ~65% (FY18: ~63%) had an adverse impact on wholesale margins.

    In comments made the Metcash CEO Jeff Adams during the presentation, he stated:

    We've accelerated our Sapphire upgrade program this year. This has led to a further 30 stores being upgraded, increasing the total stores through the program by the end of the year to 60. We continued to see strong sales growth from our Sapphire stores, and these stores have delivered an average sales improvement of over 15%. We've targeted a further 140 stores to go through the Sapphire program by 2022.
    In trade focus we have added a further 7 stores; and now have 11 low-cost trade-only stores; and continue to target 40 stores by 2022. And we've also made good progress on our digital initiatives supporting our strong trade business such as truck tracker and Trade Plus.
    On our Hardings' plumbing business, we are excited about the growth opportunities with the Hardings business and are making good progress with the rollout of Hardings in New South Wales and Tasmania. The new store-in-store Hardings at our Tooronga Mitre 10 store in Victoria is almost complete. And customer awareness and sales through the balance of the IHG network of the Hardings range are growing and in line with our expectations.
    And then finally, we've again made good - we've had good success in rolling out our core ranging programs across all key categories.

    Analysis

    The results for IHG are somewhat mixed. In a historical sense, we could say that the company has come to the end of what has been a very positive and successful chapter, with the acquisition of the Home Timber & Hardware Group (HTH) completed.

    Many companies have stumbled over such acquisitions, but IHG CEO Mark Laidlaw and his team have handled the transition well. Far fewer members of HTH have left the group than were initially expected, and IHG has managed to continue to drive forward its Sapphire program of store enhancement - which underpins its efforts to move more stores to stocking its "core range" of warehouse-stocked goods.

    That said, IHG has also shown how vulnerable it can be to store losses, with the departure of Bretts Timber in Queensland. According to the financial results:

    Excluding the loss of this customer, sales increased 0.3%.

    Which means, effectively, that Bretts accounted for 1.2% of sales for IHG.

    The next stage

    IHG is now entering into the next stage of its development. The transition is over, and it is now facing questions as to how the company that has resulted will fare into the future.

    The results from FY2018/19 are not encouraging. If we take ABS retail sales numbers, and weight sales growth for hardware retail according to IHG store locations, we get a baseline growth figure for the company's FY2018/19 compared to FY2017/18 of 3.3%.

    Yet IHG is claiming only a 3.0% comp number at the retail level - and those numbers are taken, according to the results from "sales growth based on a sample of 171 network stores that provide scan data", which are likely to be the better stores in the network, including all the Sapphire stores.

    In simple terms, IHG has not kept up with the market. As HNN has suggested elsewhere, we suspect that IHG had counted on gaining more sales not so much from competition with Bunnings - which was the substance of its "headline" statements at the time of the HTH acquisition. Rather, it expected to gain market share from the rest of the independent market.

    As we've also suggested, that perhaps did not happen because far from establishing a clear price advantage with suppliers, IHG's market activities actually led to other buying groups also achieving advantageous deals with suppliers.

    Conclusion

    At this stage it seems likely that IHG really needs to reconsider some of the strategies it initially formulated in late 2016, during the acquisition of HTH. While it will obtain some advantage from its main strategy - low prices through volume supplier deals driven by warehouse capabilities - it is looking as though that will not prove quite the growth strategy it had hoped.

    That and other issues will be taken up by HNN in the next edition of HI News, 5-03.

    retailers

    Big boxes no problem for HBT store

    Slower growth for big box retailers?

    Most big box retailers are seeing sales growth on a per-square-metre basis lag increases in operating costs. Smaller retailers emphasising service are performing better than larger players while online sales are leading to many big box retailers to cannibalise their sales, according to research from investment bank Morgan Stanley.

    HBT member, Eastern Suburbs Hardware located in the suburb of Raceview (QLD) was featured recently in the Queensland Times. Owner Gerry Galligam said he has been in the industry since he was 16 years old, and has owned the business for the past 12 years. He told the newspaper:

    I worked in sales. I managed Benchmark which later became BBC Hardware. I ended up working for myself as a concreter. I could see that many of the local businesses were losing out to the big-box stores.

    Independent stores like Eastern Suburbs Hardware have found niches where consumers seek local products, services, advice and experience.

    According to Mr Galligam, his store focuses on industry knowledge, customer service and quality products.

    Eastern Suburbs Hardware was founded by Henry and Adele Christie in 1965. Mr Christie introduced the first hire service in the area for building and associated products. He sold almost anything from cement mixers to lawn mowers and tools.

    Mr Christie sold the store when he became an SES co-ordinator and Arthur Kathage bought it and operated it from 1978 to 2007, before Mr Galligam took it over. He said:

    We work hard at offering personalised and prompt service. We have a delivery truck so we can meet demands.
    The concrete services are our growth area. We are doing a lot of steel reinforcement ...and have gone from two to three tonnes a month to now 90 tonnes a month.
    Most people think we are not competitive on price. The reality is we don't have the overheads. We have lower overheads and belong to a buying group of independent hardware stores that is 700-strong.

    As a result of his membership to HBT, Eastern Suburbs Hardware gains competitive prices for many of its products.

    Mr Galligam said the store bases it success around service in addition to reasonable pricing, and being able to give customers what they need. He believes supermarket hardware stores can still be beaten on price and Eastern Suburbs Hardware holds its own in a tough retail environment.

    Big box performance

    Other independent stores can find themselves competing more effectively as sales growth at big box retailers are lagging behind rent and wage increases, according to analysis by Morgan Stanley.

    In a research note to clients earlier this year, Morgan Stanley's retail analyst Thomas Kierath wrote that Australian big box retailers, in their current form, could be slowly becoming extinct, based on trends from the financial reporting season in February 2019. (This Morgan Stanley data is based on retail across all categories, not just hardware or home improvement.) He wrote:

    We think that consumers are shifting away from big box retail formats as they increasingly prefer convenience and experiences that are better cultivated in a small box environment.

    Based on Morgan Stanley's figures, only three of 22 big box retailers reported sales-per-square-metre growing faster than operational costs.

    The Morgan Stanley analysis used sales-per-square-metre for benchmarking growth. Sales growth per square metre (sqm) was then lined up against retail's two biggest operating costs - rent and wages over the same six-month period.

    Rental growth was calculated at 2.5% - a value derived from one of Australia's biggest retail landlords, the Scentre Group, owner of 43 shopping centres formerly housed in the Westfield empire.

    Morgan Stanley chose wages growth of 3.5%, as per the Fair Work Commission's minimum wage determination for retail workers. Mr Kierath wrote:

    Soft sales-per-sqm growth for large box retailers will likely bite soon given 70-90% of operating costs inflate at between 2.5% [rent] and 3.5% [labour]. We think very few retailers are delivering sales-per-sqm growth ahead of in-built cost growth at the moment.

    The following graph shows big box retailers' sales-per-square-metre growth.

    That operational inflation is in many ways unavoidable as there are inherent costs in cost-cutting. Mr Kierath wrote:

    Should retailers cut back on staffing, opening hours or marketing we think that this likely accelerates the slowdown in sales-per-sqm growth.

    Size does appear to matter in the big box world, with "small" outperforming "large", in the previous six months, prior to the February 2019 reporting season. Morgan Stanley puts the divergence in performance down to three key factors that continue to evolve.

    The convenience shift: There is a structural trend of consumers becoming even more short on time, so they prefer to shop at stores that are convenient to them, rather than at retailers that operate stand-alone destination-type stores.

    Online sales: It appears as consumers shift to online they are purchasing less from big box format retailers, perhaps because click-and-collect is so popular and consumers are preferring do to this at locations that are convenient to them.

    Experience matters: Smaller retailers tend to pay higher rents compared with big box retailers, so are inherently more invested in providing an enriching experience. This means stores are presented in a more customer-friendly way.

    That's a worry for the big box owners if their strategy continues to involve building ever-expanding boxes.

    Digital dilemma

    Online selling - with its vast range and wafer-thin margins - is already casting a large shadow over big box retailing. Morgan Stanley believes that "online is taking a disproportionate bite out of the big box retailers".

    For the likes of Coles and Woolworths, investing in online sales is a form of corporate cannibalism.

    The Morgan Stanley report found Coles and Woolworths generated 26% of sales growth from online. It noted:

    Sales growth from existing stores ex-online is just 1.3% for the majors.
    Interestingly, [the] Nielsen [retail survey] indicates that [greater than] 50% of online sales growth is cannibalised from stores and a further [greater than] 40% from competitor stores, which points to low sales incrementality.

    The Morgan Stanley report on big box retailers first appeared on the ABC news site:

    Big box retail struggling as shoppers shift to online sales - ABC News
    retailers

    HBT: Market leading strategy

    HBT CEO Greg Benstead helps HBT go pro

    The competitive edge that HBT seeks to give its members combines low prices and high rebates from suppliers, combined with "just enough" services at a low administration fee

    In early May 2019 the Australian hardware retail buying group, Hardware & Building Traders (HBT), hosted what turned out to be a complex (even ground-breaking) National Conference, echoing the complex situation not just in hardware retail, but in the Australian economy as well.

    Melbourne contributed its usual decently-grey weather, and the Melbourne Convention and Exhibition Centre (MCEC) contributed its somewhat challenged aesthetics, and equally challenging logistical systems.

    In the absence of HBT's much-beloved doyen of its administrative team, Ashlin Fisher (happily on maternity leave after giving birth to a gorgeous baby girl, Finn), the conference had to rely on the ministrations of a third-party organiser for its day-to-day functioning. The result was an efficient conference, but one which lacked a little when it came to conviviality - even if the HBT members and staff worked hard to overcome that.

    Though, on reflection, the mood of the conference likely had less to do with its administration, and more to do with its own nature. This was by far the most serious conference HBT has hosted for the past five or six years. In fact, in HNN's opinion, this conference will come to be seen as marking the second major inflection in the group's history since its founding in 1997, with the first marked by Tim Starkey taking over as group manager back in the late 1990s.

    If anything really proves that HBT's current CEO, Greg Benstead, has throughly and swiftly absorbed the group's culture since joining it in early 2018, it was the way in which he oversaw the release of what is effectively a new strategy for the group. While other large buying groups tend to release new strategies with a degree of flashiness, the HBT way is to more or less back your way into anything new.

    That introductory dialogue goes something like:

    We're going to do this new thing - except, of course, it's not really new, as it's a lot like this thing we used to do, some time ago, only, well, yes, I suppose it is also new, a bit. OK more than a bit. But it's a good idea.

    In other circumstances, that might seem wishy-washy, or just indefinite, but in the context of HBT, it's a form of courtesy. It clearly acknowledges that the members of HBT really are independent, that change can be hard, and brings a mixture of gains and losses - though hopefully more gains. It is also represents a deserved trust in the HBT members, that they will consider such changes, and, once they have understood what is happening, often wholeheartedly embrace that change.

    The change

    So, what is the nature of the change in HBT? To begin with, it's a change that is responding to a range of forces. These are forces within HBT itself, as well as forces within the hardware supplier market created by all its participants: HBT, the Metcash-owned Independent Hardware Group (IHG), the National Building Suppliers Group (Natbuild), and a half-dozen smaller - but significant - niche hardware buying groups.

    On top of that are significant changes underway at the overall "market maker", the Wesfarmers-owned Bunnings. And beyond all of this are strong macro-economic forces in the Australian - and even global - economy coming into play.

    What is most extraordinary - and, indeed difficult to grasp - is how fortuitous the combination of these various forces will likely turn out to be for HBT as a buying group.

    Partly by chance, partly by a form of determined, long-term evolution over the years, as well as some interesting choices made by its current management, HBT has placed itself in a very healthy position. It is not a position from which it will dominate the industry, but it is strong enough to resist efforts by other groups to have influence beyond their membership.

    Most importantly, it's a position from which it will be able to deliver to its own membership its promised benefits: a chance to be competitive, to retain flexibility, and to deliver a measure of real security in one of Australia's toughest forms of retail.

    But what really marks this change, more than anything else, is its simple maturity. In his opening remarks to the conference, and at other moments, Mr Benstead was at pains to declare that HBT is not becoming "corporate", nor does it have any intention to go down that path. HNN is sure this is quite sincere. However, what Mr Benstead and others have delivered is something that is actually close to the corporate (though different): sheer professionalism.

    The mark of this professionalism is that HBT has singled out the activity it needs to pursue to deliver maximum value to its members for the next 10 years. This puts it in a place where it can maximise value creation, for all participants in the independent hardware market.

    That specific activity is unlikely to be at the centre of the sustained future development in retail at large, and specifically hardware retail. What HBT has done, very wisely, is to chose a prime secondary function, one which it is uniquely suited to deliver.

    To put that in terms of a musical analogy, HBT has realised that in the marketplace set to develop in the near future, its role is not to play the saxophone and trumpet solos, but rather to establish a core rhythm through the bass and drums.

    Origins of the change

    The first clue that HBT was about to go down a different path came when the buying group began to evolve its operations out of its long-time office in the outer Melbourne suburb of Rowville. That started with the hiring of ex-Coles, Foodworks and Philips Lighting buyer/sales executive Jody Vella as leader of the buying group in August 2018. That was followed a couple months later by Mr Vella's hiring of three additional members of the buying team, Mark Sampson, Kevin Marshall, and Pete Hurley. Their numbers were rounded out by Val Skyba in a support role. And, of course, there is the ever-reliable Gavin Keane, who has brought his experience and deep knowledge of both suppliers and members to this new team. Fundamental change, without the support of "the Gav" (as many of us call him), would probably not be possible.

    What this buying group set out to do, led by Mr Vella, under the guidance of Mr Benstead, was to refine, redefine, and re-envision how HBT handles its relationships with suppliers. That has meant delving into the essentials of how a hardware buying group should go about creating value for its members, while also looking after suppliers that agree to closely align with it.

    This means taking into account the competitive situation of members' stores, the competitive situation of the suppliers in their marketplace, and also HBT's position in relation to other buying groups. Once these factors are determined and understood, the various parties can work out how to maximise value under current market conditions and, finally, how to divide that value up, in a sustainable manner, between these participants.

    In business strategy terms, what HBT is doing is taking the buying group function, its relationship to its customers (the members) and to its suppliers towards a position that is beyond what we sometimes refer to as "game theory".

    Game theory is based on situations where there is incomplete information available, with each participant in a market manipulating what is known and what is concealed to develop some kind of advantage for their own side. The insight that Mr Benstead and others in HBT have had is that, due to size and scale constraints, if they follow the game theory path, HBT will nearly always lose.

    To use an analogy, it's a bit like HBT is playing poker with IHG and Bunnings. HBT gets dealt five cards, but IHG is always dealt six, and Bunnings probably about nine. The others start out with better odds, and will win most hands.

    The alternative is for HBT to go beyond the game by releasing more information, and forming bonds of trust with suppliers and others in the market. Stretching the above analogy, HBT and the suppliers can show each other their cards, and agree to split their winnings (at least to some extent).

    This strategy will, from time to time, not succeed. However, HNN believes that what Mr Benstead and others on the HBT executive team have worked out is that the hardware market is, at the moment in a very unique situation, one where this strategy has a good chance of delivering strong benefits to HBT members most of the time.

    In HNN's opinion, this is a very strong strategy, and unique not only to hardware retail, but to retail in general in Australia. It's not just professional: it's truly market-leading.

    Click to download

    To read the full article, please download the latest issue: HI News 5.2: HBT: Market leading strategy

    retailers

    Retailers shift investment to SG&A

    With costs unlikely to decrease, more productivity is key to growth

    Over the past three years, independent hardware retailers have price matched against Bunnings with increasing success. Now they need to invest in productivity -- as Bunnings is doing

    Independent hardware retailers, aided by buying groups, have done a great job over the past three years in closing the price/margin gap with the market's major competitor, the Wesfarmers-owned Bunnings. They have managed to narrow the gap to the extent that price has become less relevant to customer choice. At the same time they have highlighted the advantages they offer, introducing a new competitiveness into the market.

    However, in the wake of these developments, and just as most hardware retailers are feeling somewhat confident about price/margin, a new competitive challenge is developing. It's one that, while its effects may be delayed by a couple of years, will prove to be just as significant as the price/margin struggle that began 15 years ago.

    Resetting strategy

    It's understandable - given the drive and effort involved in answering the price/margin challenge - that much of independent hardware retail strategy has focused on what, in managerial accounting terms, we refer to as gross profit and gross profit margin (GPM).

    Gross profit is gross revenue minus the cost of goods sold (COGS). GPM is that gross profit divided by gross revenue, usually shown as a percentage. For most hardware retailers, COGS is simply the cost of buying stock, plus in-shipping costs (delivery to the store) and, in a few cases, out-shipping costs (delivery to the customer) as well.

    GPM for retailers is thus really about the effectiveness of the wholesale supply chain, and how that measures up to current market conditions. Most retailers have a good sense of what the minimum GPM they need is, and it's a convenient "score card" for tracking overall progress.

    Given the current market situation, GPM has also been used as a measure of competitiveness. It helps retailers to determine what their baseline profitability is, given the current wholesale cost of goods, in the context of market price constraints. For most hardware retailers, "market price constraints" comes down to "what does Bunnings charge?".

    Retailers will often determine their prices by thinking about the customer value chain (CVC) for a product in the context of the Bunnings price. That goes something like: "Bunnings is charging $X, but my store is less of a drive for them, we have better store amenity, plus knowledgeable, personalised service, are community involved, and offer payment terms on accounts, so I can charge $X plus Y%". Keeping an eye on GPM makes sure that $X plus Y% remains clearly profitable.

    There are good reasons why this has become a dominant approach, but it does lead to strategies that are purely cost-focused. The difficulty with cost-focused strategies is that they typically do not promote much in the way of either growth or productivity improvements.

    Bunnings and other large retailers are very aware of this limitation. They are also aware that, when it comes to squeezing more value out of the supplychain, future gains are likely to be small and incremental. That's especially the case as, with analysts expecting the RBA to cut Australia's baseline interest rates eventually down to 1.0%, we could be looking at an AUD that is worth around USD0.61 to USD0.64. That makes imports from China more expensive than they have been in the past. This is a condition likely to continue for the next two years, at least. Such currency depreciation will wipe out most supplychain efficiency and competitive gains.

    This is of acute importance to Bunnings, because the company's pricing focus remains on consumers, not competition. That means that relative pricing advantage, while welcome, is not the endgame. As former Bunnings managing director John Gillam famously told analysts at one Strategy Day briefing, "the margin is the outcome". In cases where that margin begins to become thin, Bunnings usually responds by influencing the outcome, rather than simply raising prices.

    The realisation that the supplychain will yield low levels of growth is what has led many major retailers to adopt the next wave of competitive strategies. These were initiated over two years ago, but reached peak development during the past year.

    It's easy to get a little distracted by the specific technologies and techniques that are being used to implement these strategies (such as data analytics), but it's the core strategic intent that needs to be acknowledged. That strategic intent can be represented by saying Bunnings (and other retailers) are taking a closer look at performance measures outside of GPM.

    In particular, they are placing more strategic focus in the area of operating profit, which is derived by subtracting operating expenses (OPEX) and COGS from the company's net sales. OPEX is made up mostly of sales, general and administrative (SG&A) costs, along with costs such as those for research and development (R&D). The performance number that gets derived from this is operating profit margin (OPM), which is the operating profit divided by the net sales, usually represented as a percentage.

    Where does CAPEX get spent?

    If we look a little deeper, however, the situation is just a bit more complex than this. Some analysts see most company strategies as coming down in the end to the interactions between three, fundamental core components of large businesses: COGS, OPEX and capital expenditure (CAPEX). In retail you can pretty much split companies up into those that use CAPEX to boost COGS and those that use CAPEX to boost OPEX. US big-box retailer Wal-Mart is a classic example of the first category, and The Home Depot exemplifies the second.

    Wesfarmers as a whole - and Bunnings in particular - is a company that is switching from the first category to the second. This explains - at least in part - why the company de-merged Coles into a separate entity. The supermarket business, as it exists today, will remain all about COGS, which means, given the supplychain constraints, it will continue to be low-growth.

    While this may be a large change for Wesfarmers and Bunnings, many independent hardware retailers may wonder why it should be of concern to them - how much worse, after all, could competition from Bunnings get? But in reality, whether it is intentional, or a matter of "collateral damage", this shift in strategy by Wesfarmers is likely going to have a great effect directly on independent hardware retailers.

    That effect is going to be sharp because, at least as things currently stand, the independents don't have a mechanism which will help them to catch up with Bunnings, as they did during its COGS-oriented strategy, where they were ably assisted by buying groups.

    One major reason why the OPEX strategy is harder to counter than the COGS strategy, is that every COGS strategy is, at heart, based on the utilisation of scale. Bunnings' pricing helped it establish and retain scale, and that scale further enabled pricing. Independent hardware retailers fought back through increased discipline in their buying groups, a narrowed focus onto a limited range of suppliers, which resulted in increased volumes in strategic products from those preferred suppliers. They created scale, in other words.

    OPEX strategy is, by contrast, not based on scale in a business, but on its size instead. Though they seem to be almost the same thing, they really aren't. There are businesses with large scale, but small size, and large businesses with small scale. Wesfarmers, of course, has both.

    One question that independent retailers often have is, what are the practical uses of something like data analytics? One answer that surfaced during The Home Depot's May 2019 investor presentation came from the company's head of merchandising, Ted Decker, when he described new processes for changing up product ranges as they aged.

    Previously, we would wait for a category to degrade, then we would launch a comprehensive line review, which takes months to implement changes. We're now establishing the process and tools to continuously review our assortments, line structure and space requirements so our merchants can better sustain category performance.
    Our aim is to ride the crest of the wave rather than degrade and have to reset. To accomplish this at scale, we're building out the technology to support an automated end-to-end process that incorporates our assortment, planogram, fulfilment, project planning and execution applications. Going forward, we'll be even more agile and will update our assortments or change space assignments more frequently and with better accuracy.

    Instead of tracking falling results for a product over two or three months, then taking another two to three months to bring in a solution, The Home Depot will be able to compress all that into less than two months. The company can do that because it's relying on a wide dataset drawn from a number of stores in a specific region. The impact on customer relevancy and satisfaction, as well as profits, will be considerable.

    The size of Wesfarmers - at this point fully cashed-up from the Coles de-merger - enables it to invest considerable sums (likely over $800 million for data analytics) in developing new technologies, new connectivities, and integrating these into its businesses. On the cost side, that expenditure is amortised over its market reach. On the gains side, given this market reach, even a fractional gain will enhance its position across those markets, and bring significant returns.

    Size has always been an advantage, but there are strong indications that it has become more advantageous since the global financial crisis (GFC). There have been increasing concerns expressed by global economists over the past five years, as they have noticed a growing disparity between the ability of two types of firms to grow in terms of productivity at a much higher rate than the overall slow productivity growth at the majority of firms. Those two types of firms are large firms that have a dominant market position, and those that are on the "cutting edge" of technological development in a market - frequently new entrants.

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    To read the full article, please download the latest issue: HI News 5.2: Retailers shift investment to SG&A

    retailers

    Indie store update

    Warehouse for tradies

    Coventry Group has finalised its $36 million acquisition of hardware and industrial supplier Nubco

    Mitre 10 in Kilmore (VIC) has trade hub ambitions; and Nubco will continue to be operated as a stand-alone business with no store closures and a focus on procurement synergies, following its acquisition by Coventry.

    Kilmore gets Mitre 10 trade warehouse

    Kilmore Mitre 10 has opened a trade-focused warehouse that offers quick pickups or deliveries for tradies. Director Simon Meyer said he had gradually been building the business into a more trade-focused business over the past four years. He told The North Central Review:

    We've really focused on having the materials that builders need to have in stock and undercover so they're protected and ready to go.

    The warehouse runs as a pick and pack or dispatch-only site, which means customers can't shop there but can collect goods. Orders are placed in-store and stock can either be picked up or delivered. It measures 2500sqm, and is one and a half times the size of the store site nearby, and currently holds enough timber to build 100 houses. Mr Meyer said:

    We're really just reacting to what our customers demanded. We needed to have more available and to be able to react faster so that we're not constantly trying to get things in for people, we've got the majority of it available at all times.

    Planning for the warehouse began two years ago, but the site only became available in October 2018. After stock, racking and equipment was put in place, it became operational in April this year. Mr Meyer explains:

    The few builders who have been lucky enough to go down there to pick up stock, that we're been able to supply directly onto their vehicles, have been very impressed with what they've seen and the volume and stock quality we have on hand.
    We're expanding on what we have had but making sure we have the fast-moving lines in volume so we're never caught short. We really want to be able to give the public here in Kilmore more than what they think we can give them.
    We try to pack a lot in and try to make sure that our value is as close as we can get it to the biggest competitors in hardware...

    Coventry Group buys Nubco

    Coventry Group has completed its $36 million, 100% acquisition of Nubco, a hardware and industrial supplier with seven locations across Tasmania.

    Coventry delivers industrial solutions to the mining, construction and manufacturing sectors, supplying a range of fastening systems, cabinet hardware systems and hydraulics, lubrication, fire suppression, refuelling systems and related products. The company, led by executives Robert James Bulluss, Rod Jackson and Ken Lam, in recorded $168 million revenues in 2018.

    The Nubco acquisition offers synergies that will benefit Coventry's Australia-based business by delivering procurement cost savings and knowledge transfer. It is expected to also provide earnings and cash generation to Coventry.

    Law firm HWL Ebsworth advised Coventry Group on the deal.

    Click to download

    To read the full article, please download the latest issue: HI News 5.2: HBT: Indie Store Update

    retailers

    Europe update

    Turnaround progress at Homebase

    Kingfisher-owned B&Q is testing a smaller-store format before committing to a wider roll out

    Homebase has revealed the extent of its restructure to date in its first earnings release since Wesfarmers sold it; and Kingfisher opens its GoodHome by B&Q store that it believes offers a simpler way of shopping for home improvement projects.

    Homebase returns to design roots

    DIY and garden centre retailer, Homebase said it has limited its losses in the second half of 2018 as a turnaround plan under new owners begins to show signs of progress.

    During the half-year, the retailer reintroduced popular ranges such as furniture, brought back in-store concessions and laid the foundations to rebuild its digital offer. It also plans to reintroduce kitchen showrooms to its portfolio, Chief executive, Damian McGloughlin, said:

    The benefits of the changes we have made are starting to come through ... Clearly, we are only 10 months into a three-year turnaround plan.
    Homebase remains one of the most recognisable retailers in the UK and Ireland, and the progress we have made in reinvigorating our customer experience means we are very optimistic about the future.

    Reporting financial results for the six months to end of December last year, with exceptional items, including the profit from the sale of a freehold store and other property-related provisions, losses narrowed by almost 96% to GBP8.2 million, while improved margins helped gross profit jump by a fifth during the period. However, sales slipped 3.5% to GBP497.8 million, from GBP515.6 million in the same period last year.

    The company also cut costs by GBP100 million. Homebase said closing 47 loss-making stores and two of its six distribution centres, reducing headcount from head office by almost 40%, and removing complexity from processes, has helped it to achieve strong financial and operational performance.

    A Company Voluntary Arrangement (CVA) allowed Homebase to close its loss-making stores and secure rent-reductions for another 70 sites. The firm credited the GBP95 million asset-based lending facility from Wells Fargo Capital Finance for supporting it with working capital.

    Hilco purchased the company in June 2018 for GBP1 from Australia's Wesfarmers that had bought the chain for GBP340 million in 2016. Prior to its Hilco takeover, Homebase had 250 stores at its peak and 12,000 staff.

    Home improvement made convenient

    At its recent Innovation Day, home improvement retail group Kingfisher revealed its GoodHome concept that will provide a simpler way of helping renovators and professionals with their projects.

    GoodHome is a way that Kingfisher's innovation becomes visible to customers for the first time, with a pilot store opening in the town of Wallington (UK). This store is an express format focusing on convenience and focusing on the most common DIY projects such as painting walls, fixing taps or installing new sockets.

    The company describes the store as modern and a local outlet that offers more than just home improvement products. It has a team of skilled staff offering expert help in-store; an effortless digital shopping experience designed to make improving homes easier; and inspiration and information to help plan projects. It will also have a dedicated counter for professional tradespeople. There are plans to have more express store trials in the UK and France later this year.

    GoodHome is part of the B&Q network and marks a departure from the DIY chain's larger sheds and its only other smaller shop, on London's Holloway Road. The 5,400sqft site has a sales area of just 1,615sqft and offers around 6,000 products. A typical B&Q store is around 100,000sqft and stocks 40,000 SKUs.

    This core range will be available for same day delivery, with an extended range of over 20,000 products for bigger projects, available for next day Click and Collect in-store or home delivery.

    Products in GoodHome are not stocked on the shop floor in the traditional way. Instead, customers either purchase items by using in-store digital screens, or by clicking and collecting through the B&Q app. Kingfisher chief trading officer, John Colley said:

    We know that customers are shopping differently. They want convenience and access to products and services, however and whenever they want. This trial store is about offering them just that - a new kind of home improvement store that is simple, modern and convenient. It's just one of the ways in which we are making home improvement accessible for everyone.

    As an international brand, Kingfisher said GoodHome aims to shake up the home improvement market by offering products and solutions that are design-led, high quality and affordably priced. Speaking at the Innovation Day launch, outgoing CEO Veronique Laury, said of GoodHome:

    We started three years ago, and we have undertaken in-depth research to get knowledge on home improvement and customer needs. By doing this, we found that people are improving their homes with the same purpose - they want a home that is good to live in. However, this study also revealed that most improvement projects are abandoned either before they begin or before they are finished. It may be lack of inspiration, too much complexity, not enough skill, time or money. Whatever the problem is, there are often too many barriers to create a good home.
    Our customers tell us 'home improvement can be a nightmare' and the heart of our purpose, everything that we have been doing for the last few years, and we continue to do, is about fixing the nightmare. The biggest change [in the home improvement market] has been the arrival of new players like Amazon and ManoMano. But so far, no market player is offering an end-to-end seamless home improvement experience. No one has solved the nightmare. And this is our potential.
    GoodHome is our new international home improvement customer proposition, based on deep customer understanding. It stands for simple, sustainable, unique and innovative solutions that last and which are affordable. GoodHome is the name we put on everything we are doing to make home improvement accessible to the many, not the few: our new product offer, new services, new store concepts, our training centre and our new charitable foundation.

    GoodHome products and services will be available online and in B&Q, Castorama and Brico Depot stores throughout the UK, France, Poland and Romania.

    To read more in Big Box Update, download the latest issue:

    HI News 5.2: Europe Update
    retailers

    USA update

    Retail analytics platform at Lowe's

    True Value said it is "putting the power back into members' hands" in terms of being able to market locally

    Lowe's is strengthening its technology focus by taking on a retail analytics business; and True Value Company is moving into the next phase of hyper-local advertising.

    Lowe's gets into retail analytics

    Home improvement retailer Lowe's has acquired the retail analytics platform of e-commerce software company Boomerang Commerce.

    Lowe's will integrate the platform's technology into its retail business as it looks to bolster strategic and data-driven pricing and merchandise assortment decisions across the business. The platform processes product and pricing datasets and converts them to insights and actions.

    In addition to the technology and tools for the platform, some staff from Boomerang's retail analytics teams in Bangalore and the US will join Lowe's.

    The acquisition includes tools and technology for the retail analytics platform, which is proprietary, but doesn't include customer contracts or related confidential information.

    Following the transaction, Boomerang's Commerce IQ service will operate as an independent business under the CommerceIQ.ai name. In a statement, Lowe's chief information officer Seemantini Godbole said:

    ...Pricing and assortment planning have been identified as strategic areas in need of modernisation [at Lowe's]...Adding this team and technology to our existing capabilities helps us leverage the right data quickly, effectively and successfully.

    Profits in Q1

    Soon after it announced this acquisition, Lowe's reported a first quarter 2019 sales increase of 2.2% to USD17.7 billion from first quarter 2018 sales of USD17.4 billion.

    Comparable store sales for the company's US business rose 4.2% while overall comps rose 3.2%. Profits rose 13.6% to USD1 billion in the quarter.

    The company currently operates 2,002 home improvement and hardware stores in the US and Canada representing 208.8 million square feet of retail selling space.

    Hyper-local True Value campaigns

    To increase relevancy and reduce wastage hardware retailer True Value is working to redefine the concept of "location" in location-based advertising.

    After the retailer made the decision to shift ownership from its shareholders and sell a majority stake to a private equity firm, it paved the way for the new True Value to embrace a "marketing-as-a-service" model, offering hyper-local and highly targeted marketing to stores. Company president and CEO, John Hartmann, told Forbes magazine:

    Our goal is to drive profitable retail sales by offering these independent retailers the programs and campaigns that enable their stores to compete in an omnichannel world.

    To this end, True Value has invested in the capabilities to offer retailers á la carte marketing and advertising programs that help promote their business locally. Mr Hartmann explains:

    We stopped charging a national advertising fee so that our local store owners could optimize their approach to traditional and digital advertising. It all boils down into one word: customisable.

    For consumers, highly customised marketing that is geo-targeted and supported by opt-in relevant messaging on their mobile devices delivers a better advertising experience-on their terms. For store owners, access to a digital marketing program tailored to their needs ensures shoppers come in the door-and keep coming back.

    Dave Elliott, senior vice president Marketing, said in an interview with Hardware Retailing magazine:

    In 2019, each store will have its own individual marketing program, and they will be able to adjust it as the dollars go up and down, right on the screen. We're putting that power in their hands because True Value marketing is about customisation, so we are relevant locally.

    Rather than investing in advertising to reach consumers in the vicinity of a particular store, True Value is working with agencies and marketing tech partners to better understand and address audiences in the trade areas around physical shops. Sue Smolenski, divisional vice president, marketing strategy, told Forbes that it is part of a company-wide strategy to help retailers optimise their ad budgets, not waste them.

    Marketing programs are a big part of the package that has allowed True Value to welcome more than 400 new retailers in the last year, according to Mr Hartmann. Since the restructuring, he said, True Value has also made a USD150 million investment to "modernize supply chain capacity and ensure True Value continues to offer the most competitive product fill rates for our customers in the industry".

    At one level, Mr Hartmann said it's about serving and supporting independent retail. Store owners, equipped with marketing packages and services customised to their needs, are locally relevant and ultimately successful in driving in-store traffic and increasing sales.

    True Value data suggests digital marketing drives sales "34% higher for advertised items in stores that participate in the True Value Rewards loyalty program". It follows that successful retailers have to restock their shelves more often-and they rely on one of the 13 True Value distributions centres to replenish the supply.

    Boosting sales serves everyone in the ecosystem. But Mr Hartmann said the prize is understanding new and better ways to capitalise on the differentiating strengths of local retail.

    Physical stores are in business today because there's something unique about being independent and local. Our own observations indicate that millennial consumers, particularly first-time homeowners, prefer local to the web-based trader.

    It's a huge customer segment - 84 million millennials in the US alone - that will be the highest spending consumer segment in the home improvement market by 2020.

    Fortunately for True Value's independent retailers, it's also a segment new to DIY jobs and eager to go to local stores for advice and supplies. Mr Harmann said:

    Our retail stores provide a high level of expertise and highly personalised service that young consumers crave. That's something you can't get from a drone.

    To read more in USA Update, download the latest issue:

    HI News 5.2: USA Update
    retailers

    Getting together: consolidating indie retailers

    Start with strategy

    If Australia's indie hardware retailers are to consolidate, they need to start by forming workable strategies

    Australia's independent hardware retail sector continues to contract, even as overall hardware retail revenue numbers grow.

    The graph above illustrates the decline in the numbers of hardware retail businesses in Australia, categorised by revenue tranche.

    The second datapoint is just this: overall retail revenue for hardware, according to the ABS, increased from $12.3 billion in FY2007/08 to $19.1 billion in FY2017/18, growth of 55.6%. Allowing for inflation, the increase would be from $15.2 billion in today's dollars, to $19.1 billion, a market size increase of 26.0%.

    To summarise, despite strong growth in overall revenues, the number of stores is declining, except for those with revenues of over $2 million a year.

    For most independents, the reason why this has happened is easy to determine: Bunnings. While the independents have found themselves increasingly hemmed in by declining gross profit margins, Bunnings has continued to grow, expanding in terms of both revenue and earnings before interest and taxation (EBIT).

    The independent sector has had over 15 years now to develop a significant response to Bunnings. What it has developed, so far, is largely a series of survival strategies. Some of these have worked, but, as the stats show, they've worked better for larger stores.

    What we've seen recently is a growing trend for independents to consider viewing their entire sector as more of a unified group. There is certainly a lot of healthy competition between independents, and between competing buying groups, but there is a growing sense that there may be areas where increased cooperation could produce benefits for all participants.

    The only way for this kind of strategy to work at all is if it is strongly focused on growth. This could mean an increase in topline revenues, an increase in profit margin, or both.

    If the strategy is not about the overall growth of the independent sector, then all it would do is redistribute existing marketshare differently between participants.

    That growth could come from any of three areas: reclaiming marketshare in some areas; taking a larger share of new and emerging markets; and by increasing the role of service provision in areas currently dominated by products.

    Another important value is that any strategy of cooperation has to mean that all participants have at least a chance to benefit, and those benefits should be, as much as possible, distributed evenly between stores of all sizes, in all regions of Australia.

    A strategy

    It's not enough to say "let's all get together", and hope that some kind of coherent strategy will emerge from that. If leaders at the various buying groups, and key, influential retailers in the industry want to see broader cooperation, then these strategies need to be developed first.

    We can think about this as being achieved through something like a two-step process. The first step would be to find some common, agreed purpose that everyone in the independent sector would benefit from. Once that coherency is established, it can form a platform on which future, more developmental strategies are built.

    First stage

    In particular, HNN would caution against what might seem the "easiest" strategy to begin with, which is to use such consolidation to concentrate market power on fewer brands and suppliers, thus driving down wholesale supply prices to lower levels. While pursuing that strategy to some extent is necessary and good for the market, taking it beyond a certain point results in diminishing returns.

    From HNN's perspective, the best clue as to how consolidation could be started is something that was suggested to us by Andrew Graham when we were profiling the Traralgon H Hardware store. In discussing the difficulties of the power tool market, Mr Graham said that, beyond pricing problems, one of the major obstacles was that most purchasers began their research on the internet, which meant that their initial searches brought back results from retailers such as Bunnings and Sydney Tools. Smaller hardware retailers simply can't achieve a high ranking in Google searches.

    What is really needed by the independent sector is a well-designed, highly informative web presence that is all about hardware, home improvement and building. It needs to be a website that can become the foremost hub for all this type of information. Its purpose would be to draw in people starting down their path to purchase, and make it clear the independents represent a great alternative to the large and online-based retailers.

    One of the best things about this concept is that, if it received broad industry support from the main buying groups, it could be mostly self-funded, primarily through the sponsorship of selected brands which would receive support.

    In effect, such a project, while being very useful and making a real difference to all independent retailers, would also serve as both a "test" of industry resolve, and an opportunity to consider and further develop exactly how such a consolidation might work.

    Second stage

    Below we've listed three such possible second stage developments, which range from borrowing some techniques from Bunnings and others, through to radical new service offerings. These are really just examples, as HNN is certain retailers themselves would have very good ideas for future developments.

    Captive brands

    One of the big advantages that Bunnings has developed is its "captive brands", which are brands where it has exclusive rights of sale for Australia, including some in which it exerts a degree of input.

    Ryobi, for example, provides Bunnings with a big share of the intermediate to high end of the DIY market, as well as some of the light trade market. Ozito is a more complex brand, as Bunnings seems to have a degree of input into the products produced, with many of these custom-tailored to the needs of the Australian market.

    Even massed together, it's unlikely the independent sector could easily make these kinds of commercial arrangements. What it could do, however, is to find some brands that have become established overseas, particularly those for market sectors which need more of a boost, and bring them to Australia.

    A good case in point would be the 24-volt cordless power tools made for the US-based big box retailer Lowe's under the Kobalt brand. These have been out for around four years now, in a line of tools that includes a drill, impact driver, grinder, reciprocating saw, circular saw, and even a jigsaw.

    The general reviews of these tools are quite positive, reflecting high-quality. They are heavier than most 18-volt tools, but they do pack a punch when it comes to power. Most importantly, they sit at a very good price/performance point in the market.

    In particular, they are ideal for the builder market, which often needs that extra grunt, and whose trades are used to dealing with heavier machinery. As a cordless tool, much of the local certification process is relatively easy, with the exception, of course, of the battery charger, which would have to be re-engineered for Australian current (converting it from 110-120 volt US current).

    There would be many hurdles to overcome, of course, but such a tool would really hit the market in a place where Bunnings and online tool retailers are not well-protected.

    Weekend rentals

    Retailers such as Bunnings do make money through their volume of sales of DIY consumer power tools. So it makes sense that Bunnings might not want to consider expanding the rentals the company does offer, in everything from utes and trailers to floor sanding equipment, to more everyday tools such as drills and impact drivers.

    In general, though, most hardware retailers in the independent sector don't make very much from power tools sales to DIY consumers. So why would they not consider some form of "weekend rental"? According to statistics Roy Morgan developed in 2015, only something like 54% of household actually own power tools, so it is certainly a viable market.

    What has held retailers back is that developing this kind of rental business is far more complex than it might seem at first glance. You need some kind of software that tracks inventory, reserves tools, rents tools, and accounts for returns. You need a transactional website to arrange the rental itself. You probably need retrieval and return lockers, where renters can pickup and return rented goods. You'll have to track tool condition, ensure tools are safe for rental after return, and possibly provide some kind of basic safety information for tool operation.

    That's too much, and too expensive for a single retailer to put in action — but it is something the entire independent sector could get behind and make possible. Of course, the main goal behind this isn't just to earn extra revenue from rentals, it's also to enable many more people to do DIY work, and thus increase sales of goods and materials they need.

    3D printing of construction components

    While this might seem like something that won't mature for anther 10 years or so, it's a field that continues to advance, and will probably enter the mainstream in two to three years. When we think about house construction, we know that one of the limiting factors is often that there is a defined set of (for example) joist hangers, with set angles and configurations. Architects and often builders on the ground "making it work" can find themselves having to make expensive alterations to plans when an unusual situation is encountered, and they need to stay within the constraints of these components.

    The alternative, which many of us have seen on too many construction sites, is "altering" the joist hanger with a couple of whacks from a hammer. This creates a weaker joist hanger, and a potential hot spot for future failure.

    It's possible to 3D print in metal, and there is also a developing practice using ABS plastic combined with carbon fibre, which creates very strong elements. The metal used in many of these printers is maraging steel, which is a special, low-carbon steel with around four times the strength of standard construction steel. It is supplied to the printer in the form of a powder, then fused in 40-micron thick layers to form the desired shape.

    As with most of these developments in construction, there is an ongoing problem of adoption, as it requires acceptance by architects, builders, tradespeople, and regulators. That said, this kind of technology can solve so many problems for the actual builder, that we would expect it to get a substantial boost in acceptance once it clears the basic hurdles.

    This would be well-suited to a sector-wide introduction because it requires not only an expensive (leased) infrastructure, but also training of store staff and education of the intended market. As a service-heavy element of the business, it would be insulated as regards competition from retailers such as Bunnings.

    Analysis

    It's important to acknowledge that the current dispersed nature of the independent hardware retail sector is not an "accident" of any sort. There are powerful reasons why creating any kind of consolidation is going to be difficult.

    HNN also does not think, as some have suggested, that such a change is a direct response from anything like a "growing threat" from Bunnings. We do expect Bunnings to continue to grow over the next five years, but we also think much of that growth is going to come in areas that are outside of "traditional" hardware retail.

    A good example of that would be a move into the area adjacent to its current flat-pack kitchen range, and into semi-custom kitchens. This is — in a phrase popular at the moment — a "highly-fragmented" market, where consolidation could see major benefits emerge. Given the minor role that kitchens play for most independents, the impact would be limited, with the main effect on suppliers such as IKEA, Freedom and The Good Guys.

    We think, rather, that the change is in direct relation to the way the market itself is changing, driven in part by the wider acceptance of digital-based enterprise. We expect to see these kinds of affiliations growing in several retail sectors.

    retailers

    IHG FY2018/19 first half results

    EBIT surges, but revenue cools off

    IHG presented mixed results, with EBIT continuing to benefit from the HTH acquisition and revenue growth slowed

    Metcash released its results for the first half of its FY2018/19 in December 2018. The company reported group revenue of $6.2 billion, an increase of 2.2% on the previous corresponding period (pcp), which was the first half of FY2017/18. Group earnings before interest and taxation (EBIT), also increased, up by 1.2% to reach $158.1 million.

    For the company's hardware division, the Independent Hardware Group (IHG), EBIT and revenues also increased. EBIT grew by a reported 34.0% on the pcp to reach $37.8 million. This included organic growth, as well as an accounting for continued cost synergies from Metcash's acquisition of the Home Timber & Hardware Group (HTH). Revenue increased by 1.25% on the pcp, to reach $1.09 billion. Overall like-for-like (comp) sales increased by 3.3%, while comp sales for bannered stores went up by 4.2% on the pcp.

    The CEO of Metcash, Jeff Adams, put the small increase in revenues down to outperformance during the pcp. In his prepared remarks, he stated:

    Our IHG hardware business led by Mark [Laidlaw] and his team has performed well, but was comping against some very strong construction activity in the corresponding half.

    Mr Adams detailed the makeup of the EBIT earnings as well:

    Looking now at hardware's EBIT performance. Hardware has again delivered a very good earnings result. EBIT increased $9.6 million. And pre-AASB, the improvement was $10.2 million or 37.6%. The stronger result was due to additional synergies from the HTH acquisition of about $7.5 million and further cost efficiencies and earnings growth from the increased sales. This was partly offset by an increase in the weighting of trade sales in our mix. We expect total synergies for the year to be approximately $10 million, bringing the cumulative synergies from the HTH acquisition to be approximately $34 million.

    Trade-only

    Mr Adams also mentioned IHG's venture into trade-only stores, some of which are being brought to market under the IHG's higher-amenity Sapphire program.

    Our pilot trade store-focused stores are continuing to perform well. And we expect to have 12 low-cost, trade-only stores operating by the end of financial year 2019, growing to 40 by 2022.

    At a Strategy Update for investment analysts held in early March 2019, Mr Laidlaw went into further detail about this venture:

    We are also setting up a trade only concept. We've done 11 of them. They're in the cheaper rental areas, low rents. They're certainly to be set up for the tradies to get in get out. And you'll notice the branding has changed. So Mitre 10, it is there but it's not prominent ... Our aim is to roll out 40 of these stores and overlay a digital program across these stores. No one's done this properly yet. Screwfix have. We can't see anyone else that's actually done this properly and we see a great opportunity for us to deliver that.

    Hardware performance

    Perhaps the most unexpected part of the announcement was that IHG stated that its revenue split between trade and DIY/consumer had changed from the 40/60 split forecast at the time of its acquisition of HTH, to a higher trade weighting of 35/65.

    In response to an analyst's question regarding the negative impacts of a declining construction market, the CEO of IHG, Mark Laidlaw, played down the longer term effects:

    What does it all mean going forward? I don't know. I'm going for the correction rather than the crash theory. I talk to our big stores very often and they're saying, there's going to be a tightening in the next two years, but it's not panic for us. And we believe there's enough opportunities and initiatives to cover that.

    Mr Laidlaw expanded further on this outlook in response to another analyst's question.

    We now have company stores, so we can see the pipeline. So of our big company stores, strong pipelines for about middle of next year. And then it's going to get tougher. So what do we have to do? We have to start to get a bigger share of the wallet. We have to get the whole of the house. At the moment, we are big on timber and not a lot more. So there's great opportunities for us to extend the Hardings part of our business which is plumbing. There's other areas which we're looking to move into frame and truss. So I'd agree with you, it is coming off. I can't tell you what percentage is coming off, but it is coming off. But we believe there are great opportunities to offset that with other initiatives that we've got in place.

    In his prepared remarks, Mr Adams had also touched on the potential for growth through the company's Hardings plumbing business:

    Our Hardings business has very strong market position in Victoria. In addition to opening a new store there at Tauranga, we have started the rollout of Hardings in New South Wales and Tasmania as well as starting to sell the Hardings products through the balance of the IHG network. The Hardings business is a very successful one, and we are quite excited about leveraging its growth opportunities across the whole IHG network of stores.

    Mr Laidlaw also answered an analyst's question regarding the overall margins for the business, admitting that margins had not increased.

    So the margin is flat. And I think it's fair to say because our trade mix has moved up to that from, say, 60% to 65%, we're seeing some margins come off, which are flat because there's been other synergies that have offset it, but the mix has changed.

    Mitre 10/HTH mix

    While Metcash did not go into further details about the tension in IHG between long-term Mitre 10 stores and the more recently acquired HTH stores, Mr Laidlaw did speak to this matter at the Strategy Update. He said in part:

    The other big challenge through the integration has been the branding strategy that we talked about. So that has been a very emotional argument and we thought we would lose more stores than we actually have because they would think it's a takeover of Mitre 10 over the Home brand ... The two brands will stay. I mean it would have been very unwise even though we might have wanted to do it to move everything to Mitre 10, we would have lost stores.
    I think that's really settled down. We had a conference last week, week before, and it's coming together. The members are far more united. There's a few non-believers there still that's true, but we're getting a sense that the Home stores are really feeling part of the family and now focusing the effort on the true enemy for us which is the big box.

    Mr Laidlaw took up this theme later in the analyst briefing:

    Something you'll notice on this chart: Mitre 10 now has 22 stores in Tasmania. It used to be about 11 on both brands. We have made that a blue and white state. The four Home Timber & Hardware stores there are predominantly little Thrifty-Links.
    We have used this as an absolute test bed where we've made it a blue and white state. And think of the synergies we're going to get there because instead of running two catalogue programs, you now run one catalogue program, instead of running two television commercials, we'll be running one television commercial radio etc. So we really believe that's the test bed to see what other synergies we can drive out of the business.

    Analysis

    Metcash is a company that has become very adept at spin (some will recall its peculiar treatment of underlying profit after tax as an example), and one example of that skill has been its handling of the increased threat to its trade business from Bunnings.

    According to most of what IHG has to say about this, Bunnings is failing at expansion into trade, while IHG continues to expand. One reason, it seems likely, that IHG is expanding into trade, is that it has lost considerable marketshare in DIY/consumer to Bunnings. As is well known, DIY/consumer carries far higher margins, which means IHG's EBIT numbers will be negatively affected in the long term.

    There is a poor tendency in many commentators to dismiss the efforts of large businesses in new or expanding fields when these do not yield immediate results. A good case in point, and what HNN believes will eventually become an object lesson, is commentary on Amazon in Australia.

    Some of that is happening in regards to Bunnings and trade. As HNN has pointed out since the amalgamation of HTH with Mitre 10 into IHG, that move has removed some of the unstated restrictions placed on Bunnings in terms of expansion versus market control. We do believe that Bunnings will continue to develop its trade business, and this is likely to heavily impact on future earnings by IHG.

    Further, while IHG has done a good job of retaining HTH stores in its network, that has largely been due to a wise decision to hold back on pressuring more of these to switch to Mitre 10 branding. As cost pressures exert more pressure due to falling sales, we could see IHG effectively transplant its Tasmanian strategy to areas such as South Australia. The results in terms of store retention should be interesting.

    An additional pressure on group cohesion could be its continued rollout of its Trade centres, with, as Mr Laidlaw intimated, an "internet overlay". It's difficult to see how such an overlay would be anything other than corporate, which could see a scenario develop where a Screwfix-like digital offer begins to erode sales by independent store owners.

    Of course, IHG may escape many of the consequences of these actions as well – it's certainly proven itself adept at survival in its recent history. But these are very real risks, and they should not be underestimated. The IHG we see over the next two years in the down market could prove not to be a cyclical aberration, but instead the shape of the company's future.

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

    retailers

    Bretts Timber sees steel in its future

    Bretts' slogan is "Let's Talk Timber and Hardware"

    Bretts opened a steel fabrication facility at its Geebung (QLD) manufacturing plant in 2018

    Brisbane-based hardware and building products company, Bretts opened a steel frame and truss fabrication facility at its Geebung (QLD) manufacturing plant in 2018. It is looking beyond its long-standing timber reputation as rising timber costs and shortages mean builders are increasingly incorporating steel into new homes.

    Bretts manufacturing business development manager Darren Harris conceded the decision by a company that started operations in 1912 from a sawmill, raised a few eyebrows. Its slogan is "Let's Talk Timber and Hardware".

    However Mr Harris said the move was already paying dividends with 15% of the company's housing frames and trusses now made of steel.

    Each year, the company produces enough frames and trusses, both wood and steel, to make more than 1500 homes. While steel frame houses have been in Australia for half a century, a shortage of timber and price increases following a wave of mill closures has meant more builders are shifting into steel.

    Mr Harris said Bretts' largest customer for timber frames informed the company last year that it would be using steel in 50% of its projects in the future. Within three months, Bretts had started its steel fabrication business at its Geebung site, where it also manufactures aluminium windows and doors. He told the Courier Mail:

    We could have worn a $500,000 plus loss [by not switching to steel] but we simply focused on providing them with what they needed.
    Traditionalists in the industry might see us as traitors but to survive in a business you need to be aware of market shifts.

    Steel frames and trusses were easier to assemble in the factory and builders could generally put them up quicker. Mr Harris said:

    Steel maybe saves half a day on a job.

    The steel arrives at Bretts in large coils from supplier BlueScope where it is fed into machines that cut the flat sheets into the required lengths using a digital blueprint of the house. It is then assembled into wall frames and roof trusses before being shipped to the building site.

    Mr Harris now expects steel frames to make up more than a quarter of Bretts' business by 2024. He said:

    Commercial builders are leading the way in use of steel and we expect this to equate for 25-30% of our overall business within five years.

    The company has put on 10 extra staff to make the steel frames, with plans to expand production this year. Mr Harris said that despite the move into steel, timber will always be an important product for Bretts, which remains a family-owned business.

    Houses still look the same in that they have windows and doors but the technology and materials have changed. The old asbestos has gone and there are new types of cladding. But timber is still going to be around for flooring and timber posts.

    From The Brisbane Courier Mail

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

    retailers

    IHG Expo 2019

    IHG held its annual Expo in mid-March at the Adelaide Convention Centre

    This year's IHG Expo included a review of the past year's performance, and a guide to its growth plans

    The Metcash-owned Independent Hardware Group (IHG) held its 2019 Expo in Adelaide on 19-20 March. HNN attended the plenery session at the start of the Expo. According to IHG, there were 852 delegates/staff attending, as well as 893 supplier personnel, for a total of 1745 in all.

    Perhaps the best way to begin our coverage is through the lens provided by two endings. The first marked the end of a heartfelt, warm and at times very funny presentation by one of Mitre 10’s founding members, John Clennett. In part this was in recognition of the group’s 60th anniversary.

    But, just before we get to that, let’s hear about Mitre 10’s founding moment, as Mr Clennett related the history, which took place in 1959 in the grand tradition of the founding of hardware groups (Hardware & Building Traders followed a similar path):

    The four of them got together in a small weatherboard home in Union Road which still stands in Surrey Hills in Victoria. It was the home of a chap called Reg Buchanan who ... was the main driver and there were the four players Reg, Tom Danaher, Jack Womersley and Ian Davey together with Ian Nisbet. They had quite a number of meetings and then ... they said look we’ve been buggering around with trying to do something together, let’s have a big luncheon, let’s get legless, and finalise some decisions.
    Reg was very keen to sell paint, so he said, “Bugger it!”, threw $5000 on the table, and said to the others, “Well, are you going to join me or not?”
    So, before you could say “Jack Robinson”, they had $20,000 and then went off to a paint company and they were able to buy the paint at really less than half the price that they ever one of them [had paid before].

    At the close of this interesting review of the earliest history of Mitre 10 (which began as “Mitre 8”), Mr Clennett offered these remarks, reflecting on Mitre 10’s history, and IHG’s present:

    A lot of us remember when we as members ran the business. That was a time when co-operatives were reasonably successful. Those times are gone, and you’ve heard ... how important it is for all of us as small retailers to be supported by, in our case, Metcash is a publicly listed company with a real commitment to people ... and your individual businesses. So whatever you do, understand that Metcash actually care for us all and you need to support them, and you need to demand from them what you want from them. Thank you very much.

    We can match that up with the closing remarks of IHG CEO Mark Laidlaw, at the very end of the Expo’s plenary session:

    So, guys, it is time to unite. We’ve been spending too much time fighting each other amongst the brands. It doesn’t matter whether you are Home, Mitre 10, Thrifty or True Value. The thing that unites us is that we’re all independents. And Metcash for its part and IHG can add enormous value, as you’ve heard today in those areas that it’s hard for independents to do. We will invest in the brand. We will invest in store development. We’ll invest in the digital. We’ll invest in the warehouses, and we’ll invest in people — probably the most important.
    We will also — now that we have started to get our model together — reach out to those other independent groups such as HBT and Natbuild. It is time that we all unite. They don’t have to come under our brands but we do need to get together.
    We have great respect for Bunnings. But in this time, when the consumer is changing so rapidly, will they be flexible and adaptable enough to change with that? Time will tell. For our part there is a great opportunity to unite and become a genuine opportunity for Australian shoppers. Thank you very much.

    These closing summaries suggest a similar basic rationale: the market has changed in such a way that independent retailers will likely be able to better survive and prosper when they are in some form of partnership with a corporate entity, such as Metcash.

    Mr Clennett based his statement on what is likely a very genuine “gut feeling”, and many years of experience. Mr Laidlaw’s closing statement was more definite. It listed a series of activities that IHG would undertake:

    • Brand investment, including advertising, etc
    • Store development, which is likely a reference to the Sapphire program, and IHG’s “paintbrush” store ratings system
    • Investment in the digital aspects of retail business
    • Investment in warehouses, for the distribution of goods
    • Investment in people, such as training and/or hiring IHG staff

    This has become a familiar argument over the past five years or so. Mitre 10 and then IHG has presented itself as a “safe haven” from the market dominance of Bunnings. Much of that “safety” has come from its belief that its warehouse-based consolidation of demand across limited brands, which provides better bargaining power and therefore lower prices from suppliers, was one way of diminishing Bunnings’ dominance in low pricing.

    The counter-argument from buying groups such as HBT and Natbuild has been that the costs associated with IHG’s model are high, while they have very low costs, a difference which diminishes the pricing efficiencies of IHG’s model. The buying groups also provide a less-hierarchical, flatter model, where individual members really can see suppliers they discover become part of the group.

    It is the need to make these points and demonstrate them that drove most of the plenary presentations that Mr Laidlaw and IHG’s general manager - merchandise and operations, Annette Welsh, delivered. Mr Laidlaw concentrated on achievements to date, and the development of the organisation, while Ms Welsh provided an insight into innovations, and the direction IHG is taking towards markets and customer engagement — what Mr Laidlaw labelled “the sexy future stuff”.

    Ms Welsh also outlined some possibilities that, if developed further, could really help change the independent hardware retail sector, across all buying groups.

    Past and present

    Mr Laidlaw’s delivery of the latest news to members is quite distinctive. It’s very far from, for example, an officer reporting HQ’s view of the battle to the troops. It’s more like a battle-hardened sergeant in a behind-the-lines bunker letting his comrades know what the last battle was like, and what he expects from the next one. He projects a sense of physicality, that at times leads you to expect he would, given half the chance, be willing to wrestle some of the more recalcitrant graphs and numbers to the ground.

    There is certainly no doubt about his passion, and, as with all the top staff at IHG, there’s a clear sense that he is preoccupied not with his own success, but rather with that of the enterprise. It’s a passion that, while very welcome, can also lead to some over-statements. Perhaps that’s because Mr Laidlaw is seeking a balance, somewhere, between the strategic value of a percentage point, and the awareness that these numbers mean something also to the welfare of a family, to the value of a life spent in hardware retail, out there in the crowd of members gathered in the half-dark of the amphitheatre of the Adelaide Convention Centre.

    So, what is it that Mr Laidlaw is so passionate about? In terms of IHG itself, two main, linked concerns he has are the cohesion of the group, and its potential for growth. A good place to start to pick this apart is with what is commonly accepted as the bellwether for the group’s health, the store numbers.

    Store numbers

    Not that Mr Laidlaw is terrifically keen on these numbers himself. As he commented:

    We’re a public company. Couple times a year we front the analysts, we front our shareholders, and the first question that the analysts always tend to ask as they roll it into their modelling is, oh your store numbers, you’re closing stores, store numbers are going down. And that is true. So what we’ve done here, we’ve measured store numbers since we took over the business in 2010 and in the independent sector they actually have declined 28 percent. It’s worth having a look at that change.

    At the actual results announcement in December 2018, Mr Laidlaw made this response to the query about store numbers:

    The other thing that’s important to note that there were a 170 stores called Thrifty-Link that we took out from Woolworths that are about 20% of the stores that represent 2% of the [wholesale sales] volume. Those stores will continue to close and [this] will have minimal impact on our EBIT and indeed on our sales. So I’m not hung up on those. The other ones are with the company stores. We had 41 company stores that we acquired from Woolworths. Today, we have 37. We have got out of four poor leases, which has actually added to our EBIT. We did lose one large customer. We lost a large customer in Queensland.

    Looking at these numbers for the past couple of years, in Metcash’s proposal for the acquisition of HTH, the number of bannered stores was set at circa 740. A slide to 690 indicates a decline of 6.8% (over two years). That’s inline with the background rate of the 28% over eight years provided by Mr Laidlaw.

    The other element to note (as mentioned elsewhere in this issue) is that figures from Australian Bureau of Statistics (ABS) show there was a net loss of over 1000 hardware retail businesses with annual revenues under $2 million during the same period. It’s also worth noting that the ABS figures show there were 6127 hardware retail businesses at the end of FY2007/08, and 5325 left at the end of FY2017/18. That’s a decline of 13%, though allowing for mergers and consolidations, the real decline is likely around 11%.

    This has taken place against a background of an increase in overall retail revenue for hardware, according to the ABS, from $12.3 billion in FY2007/08 to $19.1 billion in FY2017/18, growth of 55.6%. Allowing for inflation, the increase would be from $15.2 billion in today’s dollars, to $19.1 billion, a market size increase of 26.0%

    For Mr Laidlaw and IHG, the reason for that discrepancy, the increase in overall revenue and the decrease in the number of viable stores, can be explained by a single word of two syllables: Bunnings.

    Equally, other buying groups have seen membership numbers increase. In terms of general comments in the industry, however, several seasoned veterans have told HNN that they have been surprised at IHG’s retention number, and had privately predicted the group losing around 10 or more further stores. Mr Laidlaw’s very hard work has produced results.

    Yet those same observers see 2019 as being quite a testing year in this regard for IHG. These observers see IHG moving to increase pressure on HTH members to cross-brand to Mitre 10. There is some support for this notion in remarks made by Mr Laidlaw when addressing financial analysts at a Metcash Strategy Update in early March 2019:

    Mitre 10 now has 22 stores in Tasmania. It used to be about 11 on both brands. We have made that a blue and white state.... We have used this as an absolute test bed where we’ve made it a blue and white state. And think of the synergies we’re going to get there because instead of running two catalogue programs you now run one catalogue program, instead of running two television commercials, we’ll be running one television commercial radio etc. So we really believe that’s the test bed to see what other synergies we can drive out of the business.

    As HNN has stated in the past, and as Mr Laidlaw’s remarks make clear, this is a great move from a corporate perspective, as it will decrease costs and increase earnings. However, many observers are not confident that all HTH members will see these moves as an entirely positive development.

    Revenue performance

    Quite rightly, Mr Laidlaw mentioned he was proud of the financial performance of IHG (formerly Mitre 10):

    But our revenues — proud of this chart — only eight, nine years of being here we have grown our sales back... For full year 2011 financial year we were about a $750 million business. Very few of our stores were buying through us, our suppliers were going direct to the stores.
    We developed a strategy. We stuck to it and through those next five or six years we continued to grow at about 5 percent a year and then fantastically and amazingly we took the opportunity to acquire the HTH business, and we doubled our revenues to $2.1 billion on a wholesale basis. We would expect of course the next couple of years that will flatten but then we’re confident that we’ll get a second kick after that.

    The recovery of Mitre 10, and its transformation into IHG is indeed praiseworthy. The business of completing a merger between two separate organisations of near-equal size is complex, and many organisations fail.

    The reason why IHG has not really received the recognition it deserves for this feat, however, is because — from the perspective of financial analysts — it has so far been more of a sidestep than a step forward. While revenues have grown, so has capital investment. Return, and in particular growth on return, is how corporations are judged.

    Since the acquisition, IHG has returned considerable earnings before interest and taxation (EBIT) through additional efficiencies it has developed, but the company also announced that this kind of gain is almost over.

    It’s very understandable, given the venue and the message that IHG had to deliver, that Mr Laidlaw not mention a recent, salient datapoint. The results from the first half of Metcash’s 2018/19 financial year were released in December 2018, and they are not encouraging. EBIT return was good, but overall revenue grew by only 1.25% — though like-for-like sales in bannered stores rose by 4.2%.

    While performance in terms of savings are material and ongoing, the core question now is how the company can use its additional scale to create growth.

    Trade

    One of the slight surprises announced at the half year results in December was that IHG sees itself as having moved from around a 60/40 split between trade/DIY to a 65/35 split. In his session at the Expo, Mr Laidlaw did go some way to explaining that evolution, seeing it as an indirect consequence of the Woolworths/Masters business plan:

    So Woolworths bought Danks first, and then they certainly acquired some of those other businesses. Hudson’s, Belmont, Tait’s, and they bought them 100%. And then, as we know, that madness stopped in 2016, and it was sold — [all] the businesses — and we took the opportunity to bring them together. And that’s why you then see today that we’ve moved to about 65 percent split between trade, 65% trade, 35% DIY.

    Going back to the presentation for the acquisition from 2016, this shows that Mitre 10 had a 55/45 split trade/DIY, while HTH had a 62/38 split, and the projected outcome of the merger was 59/41. This new shift further towards trade indicates that, while the history is accurate, there is more than that going on.

    To speculate, what is happening is that IHG has recognised two things: the first is that, for the moment, Bunnings has an almost unassailable position in DIY, and wresting marketshare away would be very tough — especially in the reduced demand situation of falling house prices and subdued activity in real estate markets. The second element is that Bunnings really is going into a situation of change, and it is possible that two years from now, a part of that market will be easier to take on.

    Meanwhile, of course, IHG is working hard to experiment at expanding into new areas of the trade market. In introducing Metcash’s half-year results, the company’s CEO, Jeff Adams, said this in his prepared comments:

    Our pilot trade store-focused stores are continuing to perform well. And we expect to have 12 low-cost, trade-only stores operating by the end of financial year 2019, growing to 40 by 2022.

    That document also describes the “trade-only” store objectives:

    The new Trade Only store was designed as a low-cost model to meet the Trade customer’s needs and attract new customers to the Mitre 10 brand.

    Some more insight into the thinking behind trade-only was also provided by Mr Laidlaw in response to an analyst’s question at the half-year results presentation.

    The traditional Mitre 10 business is a segment in the renovations. They didn’t deal with the big tier one builders, Mitre 10. It was good. It was a nice, safe place, and you make better margins in that area. So we have a large share of that 65% trade in the renovations. And then we also do have new dwellings, which is what we picked up with the big company stores. But we’re not in the multi-dwelling market.

    Bunnings has recently commented that its trade market is confined to the trades renovator, and builders who do one to ten houses a year. The strategy with the Mitre 10 trade-only stores could be to capture more of the five to 15 houses a year builder market.

    Sapphire/Mitre 10 crossbrand

    At first glance, some of what we’ve said above about IHG “cooling” it on DIY for the next two to three years, while getting set for a later push, might seem to contradict the ongoing expansion of the Sapphire program. In Metcash’s annual report for 2018, it described the targets for Sapphire:

    The success of the program to date has led to it being accelerated to target the completion of approximately 200 stores by 2022.

    Mr Laidlaw commented on the program:

    We’ve now completed 56 Sapphire stores. They are in three formats. We are at 27 stores at the time when we presented last year, so nearly 30 stores have been added. Some 37 are in that mixed-type business, they have a perfect mix ... maybe 55 trade 45 DIY now it’s the perfect mix of business. We also completed eight that are smaller convenience DIY stores.

    This indicates that the company will pick up the pace of Sapphire conversions to around 42 a year, to meet its goal. This large investment in DIY (though trade also benefits from the program) might seem to not fit with the DIY strategy described above, but actually it complements it nicely. In terms of the strategy of a delayed push into DIY, IHG could be planning to make that push once it has a fleet of stores fitted to a higher standard.

    HNN would predict that around 2021 Sapphire could further develop in two ways. There could be a new, higher standard introduced, which would relate more to the “connected store”, and internal infrastructure, as well as a “Sapphire Lite” program, which will help to improve the standard of amenity of more stores, without all the current requirements.

    Mr Laidlaw also commented on the requirements for HTH stores which planned to switch over to the Mitre 10 brand.

    So we may have confused a lot of people here last year when we talked about the opportunity to move to Mitre 10. And I think we left you thinking that to become a Mitre 10 you had to do Sapphire, you had to invest and you had to put in the core range that’s required under Sapphire. We had a lot of good discussion and debate with our National Advisory Council. We were very good and we developed a road map for the brand and it’s recognised that you do not have to make Sapphire standards to be painted up to Mitre 10.

    He commented further that four stores had already been cross-branded, and that a further 30 would make the transition during 2019.

    Outlook

    At the end of his presentation, Mr Laidlaw provided a quick overview of the market as IHG sees it developing over the next two years. Along with most in the hardware and construction industry, he sees the current “crash” as being somewhat oversold, and suggests that housing levels will likely come back to 2015 levels, but not below that. He pointed out that the market structure of IHG, as it stands currently, should adapt well to the shift in the market.

    The other thing ... to talk about is that we believe our business is quite well balanced in the sectors of the segments that we operate in. So in other words, if we’re 35% DIY and we’re 30% in the renovations and alterations and we’re 30% in the detached housing [then] we are only 5% in the multi-dwelling, which is the area that will get smashed the most.

    While that identifies how IHG has moved to protect its marketshare, and limit the effects of the downturn, what this doesn’t account for is the big question: where will growth come from?

    That’s really the question that Ms Welsh set out to answer after Mr Laidlaw’s presentation, by outlining some of the ambitious plans that she, Mr Laidlaw and the management team at IHG have developed.

    Future and growth

    After a field report on IHG stores that were doing well against the competition, Ms Welsh began a discussion of the market as IHG sees it:

    We know how hard it is for marketshare movement in the DIY side of the market. But where there is opportunity is in the trade side of the business. This is a $17.6 billion market in Australia and we compete evenly for share at this moment in time with Bunnings, and there’s a big piece of the market under the expertise of plumbing. But the remaining 62 percent still sits in a very fragmented way, and that’s where the opportunity is.

    She emphasised the importance of this market, not only for stores that are already trade-focused, but also for those with an established DIY business:

    Even if you are purely, at this moment in time, DIY, I’m going to ask you to keep your thoughts open over the course of the next couple of minutes as I talk you through the trade part of our business. And, potentially, encourage you to think about the opportunities you may have within this market.

    In what followed, she emphasised a series of market insights and directions. These included: exploring market adjacencies in house construction (whole of house); prefabrication; alignment between suppliers through a hardware retailer to deliver a complete solution to a builder; expanding markets through digital techniques; and making use of what IHG considers to be data analytics.

    Though that list really does not do Ms Welsh’s message justice. It wasn’t a message about expanding current practices to new areas, but rather developing new practices that encompass additional market opportunities. To go back to the statement by Mr Laidlaw with which we began, he said IHG “have started to get our model together”. What Ms Welsh outlined was what that model could do, and the direction in which it is headed.

    Whole of house: five stages

    One of the major areas of expansion Ms Welsh highlighted was a move to supply builders with products for all five stages of construction, which she called the “whole of house” strategy. Those stages would be:

    • foundations
    • frame and truss
    • lock-up
    • fix
    • fitout

    She introduced this strategy like this:

    There are five stages to the build of a house. Most of you and everyone of you I’m sure in this room knows this better than I do. So, five stages to build a house. And historically, traditionally, as an independent group, what we’ve done is really focus our attention on the frame and lockup stages, with a particular focus on selling quality stick timber.

    As Ms Welsh pointed out, this is also a vulnerable market segment at the moment:

    It’s given us a fantastic business but as the building cycle comes off that’s going to come under pressure in terms of our ability to maintain sales.

    To explore further opportunities, Ms Welsh’s team took a look at the current business both company and joint-venture stores were doing:

    We segmented our company owned stores and joint venture builders over 9000 account customers, and what we discovered was what, as much [about] what they are buying from us, as what they’re not buying from us.

    What they discovered was that they did well in the frame, lock-up and stick timber business, but this consisted of only 34% of the total opportunity. Looking beyond that, there was a further 62% of construction materials that IHG was not servicing, and that existed in what Ms Welsh describes as “a highly fragmented market”.

    Where we think the biggest opportunity is, is in the fix and fit-out stages. The good news that comes with that is that fix and fit-out comes absolutely with a better margin, higher profit return than perhaps the earlier stages of the build.

    To enable this approach, Ms Welsh and her team set about enhancing supplier relationships.

    To ensure we can complete a whole of house we were clear as a merchandise team that we were probably missing a few key relationships [needed] to make sure that we can offer product across all five stages of the build. So we went about making sure that we were able to fill every gap in the need of your builder.

    One step was to build a better relationship with truss makers.

    We created through Brett Martin a wonderful alliance with Melbourne Truss that is enabling our Victorian teams to start our relationship with the builder at the frame and truss level.

    With timber supplies tight, the team extended this to steel frames as well.

    We didn’t have a relationship with any supplier to enable you to support a builder on steel. We now do, through Steel Frame Solutions.

    The end result of this is a comprehensive set of suppliers.

    We have this, right suppliers with the right products and the right relationships, to ensure we can fill every single gap — or at least 90 percent of them. I’m sure there’s a few that we need to work on.

    Sales alignment

    With this background, Ms Welsh sees an opportunity for the trade sales reps in IHG hardware retailers to better align with their reps in supplier firms.

    Within those stores what you all have is sales reps, sales managers that are the key to the relationship with the trade. It’s what makes us different to any corporate. Within our own companies we know we have 73, and if I was to add up all of the others around the country, there would be more than 200. What we’d like to do is really see how we can leverage that army alongside the similar army that exists within our supplier base and help build the value that we add to the trade every day.

    Later in her talk she was more specific about what would happen in these relationships:

    I’m creating and starting trials to ensure that the sales managers that are aligned to every member in the room can connect with an equivalent expert in the supplier base. [This is] to ensure that together we can go to a builder and align the best quality of information that the supplier has on the best product for the builder, with the best relationship and service proposition that comes from our sales managers and our teams, and put the two together. [Then you can] have a conversation with the builder, and get them to understand and recognise the increased value that bringing that business through the right group with the right source product from the right supply can [deliver].

    One of the trials that Ms Welsh delivered was through Richmond Mitre 10.

    We’re confident in that model ... because of the great work that’s been done by Ben Shaw and his team at Richmond Mitre 10 in Victoria. About six months ago ... we had segmented the builders of Richmond’s Mitre 10. We understood what they weren’t buying from us. There were a couple of key areas that Ben was clear that there was opportunity.
    One of them was frame through Melbourne Truss, the other one was cladding, they were buying it through James Hardie, plaster through Boral, etc. [Ben] brought in the local state-based sales representatives from those three suppliers, and said, “I think we have an opportunity. Here are my top 17 builders that represent 40% of my trade business and I think together if we do this right, we can actually convert them to bring their business across to Mitre 10 Richmond.
    Across those five suppliers that they engaged with, the sales growth for 17 builders in six months was 24 percent. That’s a whole of house strategy.

    Digital

    Ms Welsh also provided a quick update on how online sales are doing, and what IHG’s plans for its future are. Much of IHG’s online development has been about establishing click-and-collect ordering.

    A year ago we sold through the membership $1.5 million dollars on click and collect. This year that number will exceed $6 million. It’s a huge amount of work and a massive amount of growth but over 500 stores every month receive an order from click-and-collect, and that provides that opportunity to drive a consumer to store and the connection that we’ve got with the consumers. Our expectation is next year that will be $11 million and the year after $30 million.

    Digital enables collecting more data about customers, and Ms Welsh sees the profile of these customers as being very positive.

    The average basket size on click-and-collect is now $220 and through the work that the digital teams have done it is attracting a brand new customer to us. A customer that wants to pay in a different way than a normal credit card or cash, [using] Afterpay or Zip-pay. A female customer, and a younger customer. All of this is really clear and key to the strategy I’ve talked about right at the front: can we grow the basket size of the customers we have, or can we attract brand new ones? And digital is doing actually both of those.

    Data analytics

    Ms Welsh also provided some details about the use of what IHG considers to be data analytics.

    The key to getting digital right, the key to consumer driven is about making sure that we have data... It adds huge value in relation to ensuring shopper-led [and] that we have the planograms right. But what it also does is enable us to engage with each one of the consumers in a manner that means something to them.
    And the way in which this is only going to succeed is if you and your teams continue to ask that awkward question, the one that the teams must become more used to is, “can I have your e-mail address or your mobile phone number?” The reason for that is we can personalise the product offer to the customer. What we want to do is ensure that we don’t bombard any customer with information that’s not relevant, that we give them information that’s going to add value to them.

    Analysis

    The developments put forward by Ms Welsh certainly would seem to offer some opportunities for growth. However, it’s equally evident that this is going to be difficult, long-term work to bring off successfully.

    Importantly, most of these suggested developments rely on a more centralised, corporate approach to managing the business of IHG. The commercial deals with suppliers, for example, will rely on IHG/Metcash building a relationship with a fellow supplier corporation, which will enable individual members to benefit, through IHG. Along with the transition to more Mitre 10 branded stores mooted by IHG, this kind of deal will be able to unlock more value for all participants.

    There is absolutely nothing wrong with this, of course. What is good about it, is that it more clearly defines the buying groups in the independent sector. IHG can represent the consolidated, corporate approach. Groups such as Natbuild and HBT can represent an approach where the “capital” consists of the people and the businesses that make up the group. For them, the “return” is not an EBIT number or a share price, but simply the success of those members and their businesses, on their own terms.

    It’s a genuine choice.

    At the same time of course, there is also some drive behind the idea of a more united independent sector, which Mr Laidlaw went some way to suggesting as an agenda item for the future. For that to happen, though, the sector would have reach beyond the corporate/non-corporate divide, and find common ground.

    What would that common ground look like? HNN believes that there is a strong clue in the work presented by Ms Welsh at the IHG Expo. In very broad form, many of the plans she presented contain the possibility of a new, different model that the independent hardware sector could adopt. That model is based on changing from commerce that is based on selling products supported by services, to primarily selling services that are supported by products.

    It would be a sharp change to the industry. What would drive it forward, however, is that this is the one model which would help independent hardware retailers get out from under the constant erosion of profit margin through competition with Bunnings, and other price-driven hardware retailers.

    In what follows we lay out some broad outlines of what this might look like.

    The Bunnings model

    If we are talking about business models in the modern Australian hardware retail market, we really do need to begin with Bunnings. We can start by repeating Mr Laidlaw’s astute and accurate assessment of the state of Bunnings — and of the industry:

    We have great respect for Bunnings. But in this time, when the consumer is changing so rapidly, will they be flexible and adaptable enough to change with that?

    While Mr Laidlaw is applying this need for change to Bunnings, it is, of course, applicable everywhere in the hardware industry, and especially to IHG — as well as groups such as HBT and Natbuild.

    The Bunnings model really begins with a specific relationship between profit margin and risk. This was developed during the time John Gillam was managing director. His realisation was that any increase in profit margin also increases business risk in retail, as, in an informed market, higher margins decrease the propensity of consumers to buy a product.

    That risk is, of course, balanced by the countervailing risk that if profit margins are too low, the retail business will not generate sufficient returns to cover operating costs and return on capex.

    Most retailers balance these two risks through externalities. The risk of the higher profit margin is reduced through high levels of marketing, high store amenity and, where possible, some control over the supply of a product.

    The entire Bunnings business model is based on reducing any risk arising from profit margin to the lowest possible level. Once a business has that kind of low-risk ballast providing stability, it can then radically increase risk in other areas. That means it needs only minimal marketing, low store amenity, very lean logistics, and customer service that is adequate, but far from outstanding.

    Of course, the only way for such a business to increase profits (which it must, in a corporate environment) is for it to continuously expand. But, as it turns out, increasing risk in all those areas — low store amenity, minimally trained staff — reduces the cost of expansion. As it expands, associated operating costs decrease, so that profit margin can go lower — and a competitive cycle is formed.

    This model has proved to be a very difficult for other retailers to compete against. Lacking the scale and supply chain access of Bunnings, retailers find limited profit margins render some business lines unviable and also, at the very least, inhibit their ability to recapitalise and further develop their businesses.

    The independent business model

    The model for most independents is to charge slightly higher prices than the lowest in the market, but to compensate for this by value-adds such as advice, better store amenity, and being “local” businesses.

    Looking at the raw numbers, as pointed out above in the business failure statistics, that isn’t working as well as retailers would like. They face what is really almost the equivalent of a “profit drought”, with retailers making do with less and less in order to survive.

    But what if there were a different business model, which provided for higher profit margins, did not require a high level of scale, would appear first in trade/commercial, and then move to DIY/consumer, and would also fit with the existing infrastructure of today’s independent hardware retailers?

    Such a model is in many ways implicit in the market approaches that Ms Welsh outlined during her talk. It has the potential to take hold over the next two to three years, and bring with it substantial changes to independent hardware retail in Australia.

    The basics of this model are simple. Rather than, as they do at present, selling products, with those sales enabled by the provision of services, such as delivery and finance, instead retailers will sell the equivalent of services, and those sales will be enabled by products.

    This solves the profit margin difficulty, because profit in service delivery is based not on costs, but quality, and quality of services is the result of skill and training. It is also a model that relies heavily on the digital, both in its marketing and delivery.

    While this might seem far from today’s model and market, in fact the work of Ms Welsh comes surprisingly close to directly touching the new model. It’s a definite step in that direction.

    If we look at what’s involved in IHG’s whole of house strategy, it is evident that this is a move from seeing a house build as a succession of product orders to be fulfilled, to regarding it instead as a continuum of build activities. When Ms Welsh speaks of what facilitates this market opportunity, it’s not about finding the lowest priced products and throwing them on the back of a truck for delivery. It’s about establishing an interlocking connection between suppliers, sales reps at IHG, a store owner (who may have relevant local knowledge as well) and the needs of the builders themselves.

    This is based on knowledge sharing between participants, and it is the sharing of that knowledge that builds value. In fact, the single most brilliant thing that Ms Welsh had to say in her presentation was this:

    Already, today, you are seeing 49,000 of those house plans. And when you get a house plan in hand, it offers up and opens up the opportunity for the world around all five stages [of the house build].

    The architectural plan is the central document of a build, and lays out what products are needed, but also, suggests the order and cadence of the build. Retailers could provide a comprehensive quote or bid based on this information. This could be developed in association with the groups involved. It’s likely that in such a case, builders will not regard the quote in terms of the prices of individual components, but rather as an overall price for a sequence of service deliveries to the build site.

    We could say that the move from products to services could change the main business model from the retailer-centric notion of using low profit margin to reduce retailer risk, to the consumer-centric notion of using knowledge sharing (driven by digital capabilities) to reduce consumer risk. In the latter case, value is not a matter of reduction to the basics, but instead something created from skill, trust, and better relationships.

    Data analytics

    While data analytics are useful in selling products, they are vital through the entire marketing process for services. However, the data analytics that are needed are what we might term “tertiary stage” analytics, which are quite different from both primary and secondary stage analytics.

    Most of what IHG presented at the Expo as data analytics was very much secondary stage. That stage is dominated by processes of segmentation. At first glance, segmentation does look like it is consumer focused — because, after all, you are “looking” at consumers. Closer examination, however, shows that it is surprisingly retailer focused.

    For example, on one slide Ms Welsh showed the need to segment builders by size. What is that really about? Size is usually used by retailers as a means to prioritise potentially more profitable customers over less profitable customers — and the less profitable ones, through this process, will likely lose out a bit. Yes, small and large builders do have different needs, but from a service rather than product perspective, it’s actually not all that different.

    What’s the alternative? In tertiary data analytics there is a concept known as “behavioural identity” or BI. Rather that assuming identity based on characteristics such as size, BI tracks what the customer does, and determines from this what their current BI is.

    BI seeks to understand what stage of the project development process customers are currently occupying. To take a consumer example, think of someone considering buying a kitchen. Segmentation divides these customers up into kitchen size, planned expenditure, materials, and so forth. The customer is then exposed to suitable products, based on this.

    The advantage of BI is that it permits complex interactions from the retailer, that can help the consumer move through the different BIs necessary to complete the purchase. In a kitchen project, customers might have a diagram sketch of what they want, or just be trying to choose a style. If there is a diagram, perhaps the consumer can take a picture of it with a mobile phone, and the retailer can provide an interactive version. If it’s all about style, the retailer can help build mood boards. Over time, the data on mood boards could accumulate, and the BI system might be able to determine, just from a mood board selection, the type of kitchen the consumer might prefer.

    To take a commercial example, an important characteristic to determine about builders is what their current attitude towards risk is. Some builders have a generally high acceptance of risk, others seek to reduce risk at all costs, but most vary the risk they are willing to assume depending on the project.

    How do you work out a builder’s risk status? One way is to analyse building permits and plans to determine whether a build is in keeping with past builds in an area, whether it is like other builds the builder has done, and how successful the immediate past builds of the builder have been.

    That’s not easy, and you really need a highly qualified data scientist to work out how to quantify those elements, and how to derive a risk profile from them. But the processing power to do this, which 20 years ago would have required access to a supercomputer, and today be purchased from Amazon, Google or Microsoft for a reasonable hourly rate.

    Summary

    All the buying groups have strong, unique identities. At the Expo you could experience a strong sense of fealty and fun in a robust, vigorous package. HBT, of course, is unmatched in the pure larrikin, creative cleverness of its members. Natbuild excels at a kind of store-by-store strategic approach, one which has made it surprisingly influential in the market. All of these have a place, now and in the future.

    The IHG Expo 2019 indicated the possibility of a move towards a more mature independent hardware sector, across all the buying groups. While the competition for buying group membership is set to continue, there are other processes at work, which will most likely benefit everyone in the sector.

    But what remains to do, if this potential is to be realised, is further hard work for all buying groups over the next three or four years. All the groups have a crucial contribution to make, and all the groups, should this model be developed, stand to benefit, and regain overall marketshare.

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

    retailers

    Traralgon H Hardware

    Andrew Graham takes his Dad's 30+ year-old store into the future

    Located in Victoria's Latrobe Valley, this H Hardware store has worked hard to expand its market through innovative products, great staff, plus new marketing initiatives online and to women

    When we imagine where –regionally – future developments will come from, most of us think of urban environments, or at the very least the suburbs and associated regions of major cities. Yet, in Australia at least, that's far from being the case. Rural and ex-urban areas have contributed more than their fair share of novel developments and inventions throughout the nation's history.

    Given that, it's probably not so much of a surprise to find that many of the innovations in hardware retailing originate in regional areas. In the case of Taralgon H Hardware and Andrew Graham, these innovations are about finding ways to expand market reach into new areas. In particular, and what first caught our attention about Andrew, is his work on reaching out to female customers and tradespeople.

    Traralgon is located 144km (or 160km by road) east and a little south of Melbourne, Victoria. It's in the Latrobe Valley, which is situated in the broader region of Gippsland. With a population of 25,500, Traralgon is Victoria's 11th largest town, just behind Mildura and Warrnambool, and ahead of Wangaratta at 18,600. The nearby towns of Moe and Morwell combine to add a further 28,000 to Latrobe's population, which recorded a total number of 75,000 in 2017. The entire Gippsland area has a population of 272,000.

    The Latrobe Valley is well-known for its production of electricity for the Melbourne market through the use of its brown coal reserves. Traralgon also has a papermill, first established in 1936, and then expanded post-World War II. It shares an active dairy industry with much of the surrounding district of Gippsland, the verdant green paddocks supporting a Lions dairy plant, among other commercial enterprises.

    Historically, Traralgon was sufficiently prominent in Victoria that 65 years ago it was one of the towns where Her Majesty, Queen Elizabeth II, stopped to greet the Australian people, on 3 March 1954.

    All that sounds good, but what is really unusual and interesting are some of the less likely activities the area has nurtured. It is also home to Australia's only aircraft manufacturer, and is currently set to provide strawberries to Melbourne, via Australia's largest hydroponic strawberry glasshouse, covering 12 hectares. The Latrobe Valley has been selected as the trial site for an electricity-generation "microgrid", which will enable farmers and others to directly share excess electricity generation, without going through a central provider –a bartering arrangement that will be managed through blockchain accounting.

    The store

    Given all that, it's perhaps not such a surprise that you would find someone who is building a real presence in the Australian independent hardware retail industry working in Traralgon.

    The Traralgon H Hardware is situated on Church Street, right near the town's centre, where it has been operating for several decades. It doesn't take long in a conversation with Andrew to realise you are talking to someone who takes hardware retailing very seriously. He has taken a new approach in areas such as marketing, product selection and staffing, but it's the fact that these ideas are built on an in-depth knowledge of hardware that really impresses. He's that rare combination of a second-generation hardware retailer who is able to retain the essence of long-term practice, while also integrating new business opportunities, and updating old practices.

    The store in Traralgon was originally opened by his father, Rob Graham, in 1988, and his mother, Charmaine Graham (a nurse by training), worked alongside him. This followed on from a previous hardware store the couple had opened in suburban Mordialloc, in 1983, meaning the family has been in the business for 36 years now. (Andrew's parents are originally from Moe.)

    Hardware retailing came after Rob's career in the Australian Navy, which he joined as a teenager. As Andrew tells the story:

    Dad left the navy because he was stationed in Sydney. So, he came back to to Frankston and then did the store in Mordialloc, sold that, came to Traralgon, and a year later, bought this store. Which from memory was a tiling and hardware store.
    We were a Homestead store for that period. Then I think it was 1996 or 1997 they had the merger and became Home Hardware. I think the population has grown like four times from what it was.

    It wasn't just the store and the business sense that Andrew gets from his father. It's evident in what Andrew says that Rob also had a strong passion for the business.

    Anyone who knew Dad, knew how passionate and vocal he was. I used that to go to the Home Hardware regional meetings, and pretty much pull him out of them!
    He was passionate about the businesses. He was on the selection committees for the catalogues, when they used to have those. It would have been in the late 1990s to the early 2000s. Dad was on the board, which was something like the members executive, like I am on the members' exec for HBT.
    He was very well-known and he would be very vocal about that because when they started setting catalogues nationally, he fought back against that. When something that works here, won't work in Queensland, for example. You are going to have that going either way, but it was really about having input and finding where it sort of does work nationally. That's what he was really asking for.

    With a history like that, it's no wonder that when Woolworths bought out Danks, and Home Timber & Hardware Group (HTH) along with it, after decades with HTH, Rob decided to leave that group and join HBT instead.

    When all that stuff happened with Woolworths – it was all too corporate for us. If I told the old man we were going to go to [Mitre 10] Sapphire today he would probably burn the shop down! And that's been the beauty of HBT. It's like every input you have is at least listened to and you get an answer back to it. Meanwhile, the corporate [stores] have got the blinkers on. They only feed the stores what they need to know.

    While Andrew has been happy with the transition to the HBT brand, it's the shift up in HBT to H Hardware branding that he sees as giving his store a real spark. He sees the brand as having a very bright future, combining the best of what the corporate independent groups receive with the responsiveness of non-corporate, cooperative groups.

    If I had of known about H Hardware when we left Home Hardware, I would have gone into it at 100% straight away. Trying to do your branding on your own is just hard. It costs a lot of money.
    The exclusive products with H have also been good. We had a family come from the Mooroopna H Hardware store when I was working on a Saturday, and the kid saw my [branded] car at the front and wanted to come into the store.
    His name is Mitch, from memory, and he does a lot of their Facebook posts. He's like a six or seven years old and he's like the mascot of the store and he wanted to stop in.
    It's cool that we are getting recognition, there's more popping up everywhere. And that's all it takes, once you get a bit more traction in the industry, we'll start to get more known. Once there's more of us in a similar area, we can start doing some sort of marketing together today. That's what we used to do when we were a Home store, we'd all put money together, do some TV, and then you can spread your costs a lot more.

    Today's hardware

    While issues about buying groups and the role of branding in helping hardware retailers grow are important, in today's environment there are a couple of things you have to do right out of a dozen that are equally important.

    To name some of those issues: there is hiring staff, firing staff, wage calculations, product selection that provides just the right price/quality/availability balance so that narrow margins can produce decent profits, store design, intrusive council regulations (notably about footpath displays and signage), planning regulations, technology –both for driving sales, as well as understanding new product technologies –sales reps that are overstretched by margin pressure on supplier companies, the exchange rate of the Australian dollar, as well as whole new ways of marketing.

    We haven't even mentioned Bunnings yet. And not just Mum and Dad's Bunnings, but the Bunnings Masters built, which seems to be almost everywhere, and "coming soon" to any likely market that crops up.

    For the next generation that will shape what hardware retail will be in the future, it must feel at times like reaching one of those unexpectedly hard levels in a video game (such as the tubular level of Nintendo's Super Mario World) where even though you've demonstrated good skills to come that far, you now have to develop a whole new set of skills if you want to continue.

    The answer seems to be to not only absorb the lessons of the previous leaders of independent hardware retail –the importance of personal relationships, personal service, closeness to the community, forging good commercial relationships, and extending a helping hand to tradespeople when possible –but to equip themselves also for a dynamic approach to the retail environment.

    The first step we see these leaders taking is to make an effort to step outside the hardware retail "bubble". For Andrew that meant working elsewhere in the hardware industry, and even stepping entirely outside of it for a time.

    When Bunnings opened [in Traralgon, in June 2012], I went to work for some other businesses. So I had the opportunity to do something different.
    I ran the Plumbtec in Frankston for about five years. I also worked for Beaconsfield Home Hardware for a couple of months, then sold cars for a couple of years. I really learnt heaps there, surprisingly, especially sales techniques.<
    Then I ran the Plumbtec in Warragul, which is part of Burdens Bathrooms, and I also learnt a lot there. I had 250 staff, it's an old business so it had a boys club and I don't believe in that stuff. I'm not a politics person and I actually came in and about three guys in the business had applied for the job and didn't get it. I got the job so I was already on the back foot with those people –and I didn't care!
    A big thing that businesses don't work on these days is culture. It's something I've been really pushing in the shop here for the last three years. That's what I learnt when I left Plumbtec, it had a poor culture, in my opinion.

    While that kind of informal education is key, Andrew also knows that formal education plays a part as well. That's why he's currently in a program to obtain his Masters in Business Administration. It's a program that not only provides a structure to business thinking and strategy, but also the tools to understand and express what is happening in a business. Culture, understanding what it really is and how it works, is one of those tools.

    Not that Andrew thinks that having a great business culture is an easy thing to pull off. As he points out, that is especially the case in hardware retail, where there are long work hours, and a range of stresses, from being polite, courteous and engaging with customers, dealing with the "big personalities" of some tradespeople, and, of course, more direct physical stress that comes from shifting heavy things, as well as dealing with hazardous substances daily.

    So culture is a big thing. The boys are working 7:00am until 5:30pm sometimes. And it's physical and draining, so if you don't have a [good] culture in the business they're just gonna burn out. Be spiteful, talk behind the boss's back, and it festers into your customers. Because they're on site, they are the face of the store, they're talking to customers. They are supposed to be salespeople –not just your delivery drivers.

    Andrew has some very clear ideas about what it takes to build a better culture in hardware retail:

    It's things like chatting to staff more than anything. I don't like saying that you want to be their friend. Because if you want to admonish them, or even possibly dismiss them, then you don't want to be their friend. But you have to make that relationship with them. So you've got to get to know about their home life and hobbies, and be aware of of their actual personalities, how that affects them, because everyone is different.

    But it's more than that, too, for Andrew. He's taken an active role in his community to employ people who have disabilities.

    I've been hiring a few staff from one of the local disability agencies lately. The lady who I work with from Wise Employment is just awesome. She's come from corporate human resources and recruitment.
    Most people think disability services is about hiring someone with autism or Down's [syndrome], or something like that –which is cool as well. My brother-in-law has Down's and he's completely hilarious. He works at Woolworths, so it's not like he can't work in this industry.
    That's what everyone thinks of. They don't think that people with depression and anxiety also have disabilities.
    So I'm a big advocate. My wife has been a respite carer for 12 years. Because her brother has Down's, she's always been involved with it.

    It's not, Andrew is quick to point out, just some entirely charitable thing to do –there are other advantages as well.

    Obviously it helps to get subsidies from the government, but also I'm finding the people I hire from Wise work harder. And not just work harder, but they really want the job so they are a lot more motivated.

    Accepting people as they are, and helping them to fit into an enabling store culture, while at the same time keeping the productivity up, is something Andrew also extends to younger hires.

    My Dad, for example, he really can't handle managing some of the younger staff. Attracting younger people to the industry and then managing them properly, that's a big thing when I talk to everyone at HBT.
    One of my [MBA] subjects was about managing the millennials and how it is 100% different. It's not that they don't work hard, they just work differently. Different work ethics, different lifestyle etc. So we work long hours, and you have to embrace it.
    We've got a guy who plays cricket, and we let him go home early on a Thursday so he can go to cricket training. That's worth more to him than any pay rise. Just so he can have a lifestyle.
    That's a hard thing with a lot of these older guys in the industry. They don't understand, they just think this younger generation is outstandingly lazy. It might look like that, but, really, it's not.

    One of the keys to getting HR matters sorted out, Andrew believes, is to make use of outside consultants for some of the important parts.

    I make use of the local Victorian Chamber of Commerce, and I've got a woman named Crystal who really helps me out. It cost about $1200 a year, and you can call her and she'll just get the right person to call you. On their website, you can download every template you can ever think of.

    Sometimes, however, Andrew has called in even more specialist help.

    I employed a woman last year, who was an HR specialist. She wrote all my workplace contracts. Once, I also got her to help dismiss a staff member whom I knew had sort of a jagged history with employment. He had already taken someone [through the complaints process] for unfair dismissal. He came into work one day and was moving one of his elbows like he's hurt it.
    And then I found out he had started recording conversations with my Dad, and with my sister who works here as well. So I thought, this is just going to become bad.
    I got her in and she was like this silent assassin. She is such a nice, quiet young lady. She just let him know he was going to be dismissed with the most monotone, polite voice.
    I learnt a lot on the spot watching her do it. One thing she did was to offer to provide him with support afterwards, like "if you want to sit down with me, I'm happy to go through everything with you". If I said, "do you want to sit down have a chat afterwards for some support?", it wouldn't work! But she was an independent person doing it. And that's something like $60 to take care of what could have been a big problem.

    While that is something of the less pleasant side of managing staff, Andrew is more drawn to the side where a business can directly improve the worklife of people, enhancing both their productivity and earning potential. What dominates that area is supplying good quality training, for the right staff.

    Something I went into the last couple of years is to find the best way to educate my staff. A lot of people in this business try to do everything themselves. Every self-help book you read tells you not to do this! Easy to say but hard to do!
    One of our new guys has been with me for about four months now. I hired him from the local race club, he used to manage the restaurant. I hired him because he had management experience, and he used to manage the pub in Warragul so he can talk to everyone, which includes those tradespeople who have "big personalities".
    But he turned out to be really good with our systems. I just unloaded everything on him. Like, information on every supplier I know, how to do everything on the computer. The growth in him was the quickest I'd ever seen in a staff member. He's just very good at absorbing stuff, which really helps.
    Doing that, I could instantly see why it was such a good idea. It's made my life much easier. So I've been trying to do that a lot more. But you can see with the older store owners, like Dad –he can't do that. And he doesn't even really want to unload most jobs. Because the way he had to run the business, you had to do everything yourself. And at that time, 20 years ago, you actually could.

    Marketing

    Many retailers struggle a little with marketing, while for others it's a natural part of the business –and Andrew is very much in the latter category. As with most "switched-on" marketers in hardware retail, Andrew's first point of reference is the rise of Facebook as a marketing platform.

    It's all marketing, and you want to gauge your return. That's why Facebook marketing is good, because you can see the actual return.
    I tested the local paper. We paid for a Christmas ad in it. The ad said that if you bring it in with you, you would get 20% off as well as going into the draw to win a $500 gift voucher.
    Only one response. It went out to 60,000 people in the area and only one came in.
    You've still got to wade through the crap on Facebook but at least you can see people talk about it, you can see there is interaction. It's time-consuming, but you've got to do it.
    I've been trying to work out how to get more people more interactive with the business this year like YouTube videos, so that's my next job to do.

    One problem Andrew and others have encountered, and a reason why this kind of marketing can be so time-consuming, is that most suppliers have not really geared up to help independent retailers with marketing their products.

    The problem is suppliers don't give us enough marketing material. The thing that really annoys me is a lot of suppliers do quite a bit of marketing for Bunnings, but don't contribute much to our marketing. Companies like Holman –they've got a great range and give a great deal to HBT members –but when it is advertised on TV, it's constantly Bunnings ads for Holman. I know Bunnings helps to fund that, but it's just frustrating that they don't give us videos or anything like that, that we would happily use. You go on to their YouTube page and there's Bunnings logos on some of the videos so you can't even use them. When they don't give you enough marketing you have to do your own which is very time consuming. For such good products, it's really frustrating.

    Women

    One of the areas where Andrew is far ahead of most hardware retailers is in understanding and getting better results from the women's market. We've seen a lot of efforts to engage better with this market which have come off as at best a little condescending. However, Andrew's approach has been very different, and very effective. It all starts with special events, a "Ladies' Night", but one with a very different focus.

    I'd been talking to the ladies on staff about doing a Ladies' Night, and so we had one –and it went crazy! It went really well.
    A lot of what my thoughts were that in the Latrobe Valley we have this situation. We have a lot of guys –because of what happened with the Hazelwood power plant shutting down in 2017 –who have gone into fly-in, fly-out [FIFO] work, so they're not home. Also, family separations are bigger these days, so a lot of ladies are trying to learn home maintenance on the fly.
    So, they really needed to know how to do the work. I did things like getting a local tradesman to come in and show them how to fit a door handle. We had Sheffield here, Bremick, Amgrow, PPG. Ladies were buying hand tools, drill bit sets and more. It was a really good vibe. They were asking the tradesmen questions and pulling things off the shelf.<
    The only criticism we had was that they wanted more crafty stuff. I didn't want to do that because one of our competitors do a lot of them and they do all the crafty stuff. I actually want to make this practical.

    What's evident in speaking with Andrew is that what makes his approach to the women's market so different from other hardware retailers is that it is holistic. Rather than just trying to "bolt on" sales to women, he's integrated women into his sales staff, and into the tradespeople he markets to as well.

    There are a lot more apprentices coming through who are women which is awesome. In the Valley, we've always had some of the best tradesmen in the area because of the power stations up here, and all that's being privatised now. It's all been changing, and it's good to see a lot more women coming through.
    We get a lot of ladies coming in here, because I've got a lot of women staff in the store –it's a 50/50 split. And sometimes you see people gravitate to the women more.
    I just hired the first lady to work in the timber yard. She's been here two months now, and she's picking it up pretty well. Her Dad was a plasterer and she also knows some of the builders. When I was at Plumbtec, I used to have a lady who worked with me on the trade desk. I find them more level headed, they don't get angry easily. However, you need to watch out, because they can hold grudges a lot longer than guys usually do!

    It's not only on the supply-side of tradespeople that there is a better gender split, there's also a specific demand for female trades as well.

    I am getting asked a lot more for lady tradespeople. I was speaking to a guy who does work for the Office Choice store, and he had to do a job for a law firm that specialises in domestic abuse and domestic violence. They asked specifically for lady trades, because they want to support that area, but it's also about being more comfortable.
    There still are not enough lady tradies down here at all. I'm trying to build up a network of lady tradies. In fact for the next ladies' night, I've got a lady plumber, a lady builder, and a woman landscaper. That will be great for the training on the ladies night.

    One reason why Andrew was keen to adopt the ladies' night approach is that he hasn't found "trade nights" to be very effective.

    Builders just don't appreciate them anymore because there are so many. Also there weren't many coming in because they were knackered at the end of the day. So I started doing breakfasts, and still only a few turn up.
    But what set me over the edge was we had a Christmas party for the builders not last Christmas but in 2017, and I bought a thousand dollars worth of grog and food. We had three people turn up. Then they complain that they don't get anything for free!

    To read these and other articles in our HI News PDF magazine, please download here: hnn.bz/pdfs/hinews-5-01.pdf

    retailers

    Indie store update

    State awards for HTH stores

    A hardware and trade supplies store slated for an inner-city suburb of Toowoomba (QLD) has been approved

    The Independent Hardware Group 2018 Awards of Excellence were awarded to two Home Timber and Hardware (HTH) stores recently.

    The team at Peterborough Home Hardware in South Australia have taken out a win for the state's best store, two years in a row.

    The store were awarded for its cleanliness, outstanding customer service and large stock range. Store owners and managers, Nick and Konny Srour have been serving Peterborough and the surrounding towns of Terowie, Yongala and Orroroo for nearly 14 years. Nick Srour told The Flinders News:

    For a regional country town, many people comment about the amount of stock that we have in the shop and ... we have travelled around a fair bit to a lot of country towns and it is hard work stocking a store in a country town but we realised early on that if you don't have the stock people go elsewhere.

    Winning the award for the second time helped them realise that what they provide is award worthy. They strive for exceptional customer service and they believe this is what will keep their customers coming from far and wide, time and time again. Nick said:

    I came in here when I was a builder many years ago and you used to have to badger the staff to find out when your order was coming in and we didn't want that to happen. We have a process in place and we try to get the products that the customers want as soon as we can.

    There is also an added element to the store's customer service and that is their four legged friend Sandy, who wanders the store and greets the customers. Konny said:

    Everybody loves Sandy, you can't not love her she is so cute. She came to us when she was five weeks old and everyone loved her. One of our customers brought her into the store and we couldn't resist. From then on, she gets upset if we don't bring her, and the customers are upset if she is not here.

    The team want to thank Peterborough and surrounding towns for keeping them in business and supporting them as a local business choice. Both Nick and Konny pride themselves on being described as the "mini Bunnings of the Mid North" and "best store ever".

    Dipper's store

    In Moree (NSW), Dipper's Home Timber and Hardware won the Northern Region Store of the Year Over 1,000m2 and the Northern Region Garden Centre of the Year. The victory took owner, Rebecca Diprose, by surprise, according to the Moree Champion. She said:

    I think these awards are reflective of our great staff and the hard work everyone has put in over the past 12 months. We've embarked on substantial physical changes that customers will notice - visual merchandising that is clean and fresh, de-cluttering so visitors can see through the store, and really efficient labelling - the right product and the right price.

    Rebecca's vision for Dipper's is to encourage a retail outlet that "people can take their coffee and go for a wander in a genuine customer friendly shopping environment".

    Our interior decorating, shelving, merchandising is all about increasing our store standards, and we believe there's still room for improvement, which we'll be focusing on over the next 12 months.

    South Toowoomba

    Toowoomba Regional Council officers have approved a proposal to create a nearly 500sqm hardware store tenancy at 19 Pechey Street in South Toowoomba (QLD).

    The new development would be built in two stages, with the main store, 15 car parks, loading bar and landscaping down first before a warehouse tenancy and another loading bay were added later. Planning officer Peter Swan said in his report he was satisfied that the code-assessable application had met the planning scheme requirements. He told The Chronicle:

    The proposed development generally complies with the assessment benchmarks or it can be conditioned to comply. Where the applicant has not provided sufficient information, conditions have been imposed to ensure compliance.

    Those 81 conditions covered landscaping, waste management, fencing, stormwater and visual amenities.

    South Toowoomba doesn't currently have a hardware store, with the nearest one being a Mitre 10 in Darling Heights.

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    Indie Store Update - HI News Vol. 4 No.8
    retailers

    Diamond Valley Mitre 10

    Sapphire program

    Long-time Mitre 10 store carefully balancing an independent approach with corporate marketing advantages

    Diamond Valley Mitre 10 began in 1979 as a store name "Timber King". It was little more than a tin shed in a leased paddock outside the town of Diamond Creek, about 25km north of Melbourne. Flash forward 39, almost 40 years later, and the business Norm Hastings started in a tin shed while living in a small caravan has moved closer to the centre of Diamond Creek, and now occupies a block that is 1.4ha., with a main store of 2000sqm and an extension of 1380sqm of floor space, plus an additional 1300sqm under cover in the outside yard. The renamed Diamond Valley Mitre 10 (DVM10) also has a turnover of well over $20 million a year.

    Though none of those numbers completely tell the story. The real value of the company is in its human capital, which extends through its 85 total employees (many of whom are, of course part-time). It's a crew that includes Norm's children, as well as an outstanding team of veteran retail staff, many of whom have been with the store for over 15 and even 20 years.

    It's the kind of human capital that is valuable to everyone involved: the store management, because it gives the business excellent capabilities in the field, the staff itself as it means experienced, high performance people get to work with colleagues of equal standing, and can learn from experienced people at first hand - and, of course, it really benefits the customers, who get such great service many of them may not even realise just how lucky they are.

    Progress

    Obviously, all that didn't "just happen". The progress from the tin shed to the 2000sqm, high ceiling, high-finish store required lots of effort and even more risk-taking.

    The development of the first store, the tin shed, started only a year after it first opened. As Norm tells it:

    The tin shed that we had, we decided to put some hardware into that. We put some hardware into the shop but we ran out of space. So we were going to rebuild a double storey building onto the front of the tin shed, and we made that the hardware store. And we joined Mitre 10 at the same time.

    The next really major change took place in 2007, when Timber King moved from its original location to the new store in the centre of Diamond Creek, and changed its name to Diamond Valley Mitre 10 (DVM10). Timber King had bought up a local company, Valley Outdoor Supply, and the new enterprise was partly a result of merging those two businesses.

    That wasn't the only change. Timber King's long-time manager of hardware operations, Frank Benton, also bought a part of the business, becoming a partner. As operations manager, Paige Hastings explains:

    Frank is the one who developed the whole retail side of things in terms of the hardware store. Before that, it was mainly timber, and Frank gave some pizzazz to it and developed that side (DIY and retail) of things.
    Frank is a merchandiser. That's what he's done throughout his career. He's built that from scratch. He used to work for McEwans. He brought that to the store and he took my brother and various other people under his wing, and he's been very stringent in terms of the merchandising. Now he's starting to bring some of that theory out into the trade area, and it does help. It's your silent salesperson. It really attracts people to the area.

    Frank's influence is really felt everywhere throughout the store. When you point out some very good feature of how products are presented and sold, the floor staff will just about always say something like "Yeah, that was Frank's idea".

    Even with a great team, the store expansion, move and name change carried a high degree of risk. But it started to pay off almost instantly. The new store fully opened to the public on a Saturday, and by the end of Sunday demand had been so high that the store completely ran out of paint.

    What makes this a really notable achievement is that at the time, in Mitre 10's pre-Metcash days, the buying group had opened a large number of "Mega" stores, almost all of which had started to fail by 2008. Sources have told HNN this was in large part due to difficulties in keeping them stocked - they had the stores, but they didn't have the supplychain. The one exception was an independently owned Mega store in Packenham, which, some of the floor sales staff told HNN, had been a source of inspiration for the original merchandising at DVM10's second location.

    Sapphire

    Ten years after the move to the new premises, in 2017, the DVM10 team decided it would be a good idea to make moves to keep the store fresh and at the forefront of good design and presentation. So the management decided to sign up for IHG's Sapphire store program.

    As Paige describes the decision:

    So we were 10 years old. Sales are still kicking along and about where we wanted them to be. However, we wanted to keep up with the industry. We knew that Bunnings were building new stores out in the northern suburbs. And we just wanted to stay fresh. We wanted to keep up with the market and to evolve with the community. So we needed to give them a reason to shop here instead of anywhere else, to keep shopping local and keep supporting the local community.
    That's the main reason why we did it. Through the merchandising and the way that the store looks, people can actually see that you are investing in what you've got.

    DVM10 store management is very pleased with the result of the Sapphire transformation. Talking to the people on the floor who manage departments, it's also evident that there was a great deal of give-and-take when it came to implementing "standard" Sapphire design policies. When HNN asked Paige about this, she explained:

    We had to [make changes to Sapphire] because one of our biggest growth areas is garden and outdoor - which is quite unique for a Mitre 10 store. And the profits are quite healthy in that area as well.
    We wanted to invest money in that department, and we changed some of the elements that Sapphire had. For example, they wanted us to have the paint counter right at the front. But we saw the need to push for placing faster-moving kinds of items up front for impulse buys. That is mainly because our store is so narrow and slim. It's not really wide like a lot of Mitre 10 stores are, so we pushed to have paint remain at the back, which is where it was before.
    You can still see the paint desk from the front, and that was our compromise with them. However, we weren't missing impulse sales. Paint is ... you're only going to buy it if you really need it. It's not like you're going to just walk past one day say, "Oh, I really want that".
    So we were very strict on the fact that we wanted to still have the "prettiness" at the front. A lot of our customers are female, so that's also very different to many other Mitre 10s. In fact, in the retail area, 80% of our clientele is female, and that's what we needed to keep pushing.

    Part of the compromise on the paint desk was that, while the Sapphire team wanted the paint card display shelves at right angles to the desk (which is parallel to the front entrance wall), DVM10 pointed out it would be better if they were angled so that they, too, were visible from the front. The end effect is a "V" of display cards in back of the paint desk, all presenting to the entrance of the store. It's highly effective.

    There was a similar development of the above-shelf signage. While this was originally a two-dimensional, flat display, DVM10 pointed out that it could be used instead to front additional shelving, making a handy storage place for additional stock. (That's important to DVM10 as they operate with minimal warehouse storage for stock.) The result works so well, that it's likely you will see a similar system appearing in more recent Sapphire conversions.

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    HI News, Vol.4, No.8: Diamond Valley Mitre 10
    retailers

    Lowe's store closures and exits

    "Non-core" activities

    Managing inventory, building efficiency in-store and driving increased sales per square foot

    US home improvement chain, Lowe's announced that it is closing 20 of its most underperforming stores around the United States and an additional 31 stores in Canada.

    The stores set to close may have been hurt by their proximity to Home Depot stores and other Lowe's stores, according to Credit Suisse analyst Seth Sigman. He noted that of the US stores being closed, 75% have another Lowe's within 10 miles, and 90% have a Home Depot store within 10 miles.

    The majority of the Canadian stores that are being shut down are under the Rona banner, a chain that Lowe's bought in 2016 for USD2.3 billion.

    Lowe's currently operates 2,390 home improvement and hardware stores, including 1,740 in the US. The shuttering of the stores is expected to take place by February, the end of its 2018 fiscal year.

    Mexico, "non-core" exits

    Lowe's said it is exiting its retail business in Mexico, where it operates 13 stores, and exploring alternatives for the business, including a sale.

    The company also said it has identified "certain non-core activities" to exit including its contracting service, Alacrity Renovation Services and Iris Smart Home businesses.

    Lowe's CEO Marvin Ellison, in pursuing a buyer for the Iris home automation business, said the company will no longer pursue ventures that dilute its return on capital.

    Lowe's decision to sell its smart home Iris platform is a major shift for the company. It was the first major home improvement retailer to target the mass consumer market with a broad home automation solution using the open platform by Iris for devices from different brands to connect with each other. Back in 2015, Lowe's Innovation Lab launched leading edge technology including robots at CES (Consumer Electronics Show).

    While Lowe's plans to sell its Iris business, it will continue to sell smart home products. A Lowe's spokesperson said:

    We will continue to carry Iris and other smart products on our shelves. However, we will focus on the retail side of the Iris business, not on supporting our own smart home platform. The smart home category continues to be an important part of our customers' home improvement journey, and Lowe's remains committed to carrying the breadth and depth of smart home products and brands to meet our consumers' needs now and in the future.

    The moves to exit Mexico and divest its contracting and smart home businesses came as it reported a sluggish third quarter. Same-store sales rose 1.5%, trailing analysts' estimates of 2.9%.

    However the home improvement retailer posted revenue of USD17.42 billion in the period, up 3.8% from the same period year ago, and beat analysts' forecasts who expected USD17.33 billion.

    Lowe's said earnings for the quarter were USD629 million, down from USD872 million during the same quarter of 2017, mostly because of costs related to store closures recently announced.

    CEO priorities

    This was the first full quarter under Mr Ellison since becoming CEO in July. He has told investors that he needs time to focus the company on improving core operations, and he's removing distractions and underperforming assets to do that. The review of the business has been "substantially" completed, Lowe's said.

    In an interview with the Charlotte Business Journal, Mr Ellison said making changes quickly was part of the plan.

    It's best to do a detailed assessment of the business as quick as you can to limit the disruption over the long-time horizon.

    After thinning executive positions at the company, Mr Ellison began paring away what he sees as non-essential in the aisles of Lowe's. That means rethinking some of the goods it sells, getting rid of lower-selling items, and focusing on the top 2,000 products it carries. Lowe's also wants to bolster its business with professionals, something that has been Home Depot's forte. He said:

    The pro customers are looking for a great price, service that saves them time and brands they want.

    Lowe's is working to regain those customers by expanding its offering of brand-named tools and through other methods.

    In another interview with The Observer, Mr Ellison said he considers Lowe's a "transformation" and not a "turnaround" like J.C. Penney, where he spent the last three years as CEO. The priority for Lowe's right now, he said, is improving basic "retail fundamentals".

    Retooling inventory is one of the "retail fundamentals" Mr Ellison said has to be addressed first. Another "fundamental" to be addressed is a need for basic engineering standards for unloading large trucks so as to make the best use of workers' time.

    Home Depot, where Mr Ellison spent 12 years, including six as executive vice president of stores, has launched same-day and next-day delivery in a handful of markets. He said Lowe's is testing that service in select places, but that the company's supply chain isn't "mature enough" to roll it out chain-wide. He said:

    I call it 'second mover advantage'. Sometimes it's not terrible that you're behind if you have the capital to catch up quickly. So we're going to learn a lot from our competition. And we'll be right there with them, if not right in front of them, in a few years.

    However Mr Ellison believes that when its recently opened USD150 million direct fulfillment centre in Tennessee is in full operation, two-day deliveries will be possible to 75% of the continental US.

    Down the line, Lowe's also will be looking at how to better position itself with social media, Ellison says, especially to appeal to young customers and first-time homeowners undertaking do-it-yourself projects. YouTube, for instance, is a huge opportunity for Lowe's to grow in, Mr Ellison said, as it helps to de-mystify DIY projects.

    We're going to do a much better job of leveraging social media ... so that we can be more active and make sure customers know that we are relevant and we want to help them to make choices.

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    USA Update - HI News Vol. 4 No.8
    retailers

    Retail update

    Smart home zones in Beacon Lighting stores

    Temple & Webster is looking to expand its products in the home improvement market

    Beacon Lighting believes consumer demand for "smart" lighting can lift sales; and Temple & Webster looks to capture a greater portion of the dollars that consumers spend on their homes.

    Meeting the demand for smart products

    Wi-fi has been deployed across all of Beacon Lighting's 109 stores, which the retailer will use to set up smart home demonstration zones in each location. Chief information officer Mick Tan told IoT Hub the wi-fi network would be used to help the retailer educate consumers on the benefits and requirements of smart home automation setups. He said:

    What we're doing at Beacon is creating an area where we put smart lights by Phillips and LIFX in two different areas [of each store]. We attach them to a Google Home and Amazon Echo and we talk to them. We're actually demonstrating to customers how it works and what you need device-wise to have it in your house.

    Mr Tan said that Beacon Lighting will also be launching its own brand of lights that would be more cost effective than the big brand systems already in the market. He said that he has been testing Beacon's own smart lighting technology in his own home. He said:

    I'm experimenting with the products from our manufacturer and have become the test case for them. I like that when I'm watching TV I can lower the lights, or that if I'm not home in winter by 6pm the light is on [automatically] so my dogs are happy [and] can see where they're going.

    Mr Tan revealed that Beacon Lighting may also use the wi-fi network to trial some beacon technology in stores for location-based marketing and footfall traffic measurement purposes. The retailer may be looking at smart price tags on products on the showroom floor.

    Sales expectations

    In a trading update at its annual meeting recently, Beacon said same-store sales were flat in the September quarter after growing 1.6% in 2018.

    However, chief executive Glen Robinson expects consumer demand for "smart" or internet-connected lighting and strong growth in Beacon's international, street lighting, solar and architectural lighting businesses - to lift top-line sales. He told Fairfax Media:

    There's been a lot of coverage of [smart lighting] on home renovation shows like The Block and [replacing standard lighting with internet-connected lighting] potentially has just as much upside as the LED transition has had.
    That's been a real benefit to Beacon in the last decade and I see smart lighting in a similar transition.

    Beacon also expects an uptick in renovation activity to counter the impact of weaker house prices, housing starts and churn. Mr Robinson said:

    People aren't selling houses as much as they were, and that's had a bit of an impact on sales. However, we expect renovation activity will start to pick up and that should be positive ... at the moment we're in a lull between those two points.

    New stores are also cannibalising sales at existing stores, but Mr Robinson said about 20 stores opened in the past two-and-a-half years were starting to mature and earn their keep.

    Beacon Lighting's gross margins rose 230 points to a record 65.7% in 2018, helping to deliver a record net profit of $19.6 million. Mr Robinson said further gross margin growth was unlikely this year because of the weaker Australian dollar, which will push up the price of lights imported from Asia in US dollars.

    Temple & Webster moves into home improvement

    Online homewares and furniture retailer, Temple & Webster is targeting the home improvement market to expand its business.

    The web-based retailer plans to add products such as flooring, window coverings, sinks, taps and baths to its existing range. Chief executive Mark Coulter told Fairfax Media:

    Home improvement is a big category - a bigger category than furniture and homewares.
    We won't go into selling timber and building materials - that's not our game - but what we will be looking at is categories that make sense and are a natural extension to our range...[For example, curtains and potentially larger appliances]
    You may go to Bunnings for your building materials, but if you're looking for inspiration you come to us - we think there is an opportunity there.

    The retailer has taken initial steps towards offering more home improvement and DIY products when it introduced a paint range in May 2017, but Mr Coulter said the company will begin going after the market more aggressively this year.

    The home improvement category has even lower online penetration in Australia than furniture, with Bunnings only recently launching a limited e-commerce site and Mitre 10 offering buy online, pick-up in-store. Mr Coulter told Inside Retail:

    I think Bunnings not being online is an opportunity for us, but I think we'll play in a different space. Like Amazon, Bunnings is definitely about convenience and price, whereas we're about inspiration and making a home beautiful.

    Progress

    The company sees the next phase of its journey as one all about growth. With only 4% of furniture and homewares being currently purchased online, it believes it is well placed for strong growth for years to come.

    It predicts sales will shift online at a faster rate as Millennials aged 22 to 35 start spending money in the homewares and furniture category.

    The web-based retailer recently reported a solid first quarter in what it expects to be its first profitable year of trading since launching in 2011. Gross revenue was up a record 39% year-on-year in the first quarter of FY19 and earnings before interest, tax, depreciation and amortisation (EBITDA) were in excess of $200,000.

    The group finished the quarter ended September 30, 2018, with a cash balance of $10.5 million and net cash flows of $600,000.

    The number of active customers grew by 30% year-on-year, reaching 214,000, and a record number of first-time customers were added during the quarter at a cost of $55 per customer. Forty-five per cent of orders were made by repeat customers.

    First-time customers are profitable during their first year with the group, said Mr Coulter. He added:

    This means that we can now begin to accelerate marketing spend beyond digital channels to ensure more of Australia is aware of Temple & Webster.

    Expansion

    The online retailer is planning for an app due to launch before Christmas. Mr Coulter explains:

    Interestingly, we are thinking about it slightly differently. We want to make sure our mobile site is a fast, transactional site, and our mobile app is the place where you go to experience the world of Temple & Webster.

    It also plans to open a small-format design store to provide in-person styling services and advice to customers out of its head office in St Peters, Sydney. Mr Coulter said:

    It's a place to come and experience Temple & Webster in the real world, see samples of products, meet a consultant and have a more human experience. The whole point is to make [the customer's] shopping journey easier.

    At the same time, it is an opportunity for the retailer to test a new bricks-and-mortar format, having already trialled a clearance outlet and a showroom in its Richmond (NSW) store. Mr Coulter said the company will continue to experiment with different physical formats, though its "main game" is online retail.

    The company is also testing the market in New Zealand, setting up shop on TradeMe before possibly establishing a dedicated website and app. If the expansion is successful, Mr Coulter said the team will look to launch in other markets, with South East Asia a probable area of focus.

    retailers

    Europe update

    Staffing restructure at B&Q

    Trade retailer uses artificial intelligence to deliver a seamless, personalised customer experience

    Plans are underway at B&Q to no longer have overnight stock taking roles leading to the loss of 200 supervisory roles; parent company Kingfisher replaces the head of its struggling French division; and artificial Intelligence (AI) will unify Toolstation's online and offline customer databases onto one platform.

    B&Q cuts store roles, leadership changes

    Home and DIY retailer B&Q announced it will move an additional 1750 staff to "customer-facing colleagues on shop floors", a move which will mean overnight operations will be scrapped.

    Stock replenishment will now be carried out during the day by the extra staff on the shop floor, so that overnight shift management and supervisor roles will be cut, along with the higher hourly rate.

    The retailer stated that it would offer "colleagues in overnight replenishment roles the opportunity to take a new daytime replenishment role instead, though we recognise that not all of them may want to take up these new positions". B&Q retail and property director Paul Crisp added:

    The overall impact of the proposals will be to improve our customers' shopping experience in our stores...The changes in replenishment would mean...improving stock availability and customer service throughout the day.
    In addition, we are creating greater consistency in the way we operate our stores, removing duplication of tasks and improving efficiency...

    Senior management reshuffle

    Parent company, Kingfisher also made a number of senior appointments across the business, with former Screwfix CEO, Graham Bell taking up the helm of B&Q UK & Ireland.

    The home improvement group also revealed that current B&Q boss Christian Mazauric has been appointed CEO of Kingfisher in France to replace Marc Tenart who has decided to step down from his role.

    The move, which became effective on October 1, has set in motion a number of other changes across senior management.

    Mr Mazauric has worked at Kingfisher for 17 years, holding a number of positions across Castorama France, including operational roles and then four years as finance director. Other roles have included finance director of B&Q UK & Ireland and CEO of Brico Depot Romania. He took over the CEO role at B&Q UK & Ireland in 2017 and, since then, has successfully led the business through a significant number of changes.

    Mr Bell will be replaced by Kingfisher group digital director John Mewett. Mr Bell has spent 20 years at Kingfisher, during which time he has been B&Q operations director and HR director. He made the move to Screwfix in 2006, where he led operations and property before his appointment to CEO last year. At Screwfix, he has overseen the rapid roll-out of the store network, opening 60 stores a year, on average, for the past five years.

    John Mewett is the new boss at Screwfix, and has spent 10 years with Kingfisher, starting his career at Screwfix in 2008 as marketing and IT director. During this time he played a significant role in its growth and, most recently, has been leveraging the group's digital capability across the other business units.

    Toolstation integrates AI into its marketing

    Tools and building supplies retailer to the trade, Toolstation has expanded its partnership with marketing platform company Emarsys to include "personalised direct mail and link a physical channel to its digital marketing strategy". The deal will see Toolstation use the Emarsys Artificial Intelligence (AI) to support its direct mail, email, and SMS marketing strategy.

    The news comes just weeks after it was reported that over 52% of UK shoppers believe that retailers need to offer a more seamless experience between online and offline commerce to retain their custom. This was one of the key findings from a survey of 1,000 shoppers, conducted by e-commerce agency, PushON, which stated that retailers should invest in technology that enables a better omnichannel experience, according to diy.net.

    Toolstation customers can buy online, through a dedicated UK call centre, via a mobile website or at over 300 branches. Customer information is captured both in-store and online so the company can consolidate this data to get a clear view of its target audience.

    Data consolidation is critical to enable a more coordinated marketing strategy across different channels. Using the Emarsys Offline Mail, Toolstation can also pre-set and optimise its direct mail marketing as part of wider multi-channel campaigns. Greg Richardson, head of marketing at Toolstation, said:

    With all our customer data now in one place, we have a deeper understanding of the level of engagement we're achieving across various channels, and the different types of campaigns our customers like to see. Consolidating our data into one platform was always going to be a huge priority for us in a post-GDPR (General Data Protection Regulation) world, and Emarsys will enable us to be responsible custodians of all the information we hold.

    Emarsys manages over 350 million daily interactions while analysing 3.9 billion consumer records and 2.5 million purchase events. It integrates customer intelligence, personalisation, predictive recommendations and omnichannel marketing at scale, across all devices and social channels into a single cloud-based marketing platform. Grant Coleman, vice-president and market director - UK at Emarsys, said:

    Direct mail is one of the most powerful tools in a multichannel marketing strategy, due to its unique ability to drive and strengthen relationships with customers.
    We're delighted to expand our partnership to help Toolstation get a 360-degree view of their customers and run more efficient and tailored marketing campaigns across email, SMS and direct mail.
    retailers

    HBT Business Workshop

    HBT's special event for members

    Held at the RACV Royal Pines resort in Queensland, the Workshop event showcased the best of HBT values: strong leadership ideas, member engagement - and lots of good conversations

    If you wanted to find a subtitle for the strategic content that HBT's CEO, Greg Benstead delivered at the conference, it might well be "How to avoid becoming collateral damage". What he has clearly understood - and this knowledge is surprising rare in the leadership of independent hardware retail groups - is that Bunnings (and other companies) are not, in any sense, out to "get" independents.

    All that Bunnings cares about, in a strategic sense, is continuing and increasing growth, by finding new markets, and improving prices and efficiencies in existing markets. In the process of doing that, it can certainly harm independent retailers - but they are, to use a modern term, "collateral damage", not targeted victims.

    As a consequence, what Mr Benstead understands and conveyed to HBT members in his opening address, was that what you need to do to survive one of Bunnings' periodic growth surges, is to make sure that you are, strategically and in your market orientation, not in "the wrong place at the wrong time".

    Once you are clear that this is a good strategic goal, it's not really all that hard to do, as Mr Benstead showed by many of his comments about the market. You just have to get one of those conditions right - where you are at strategically, or the timing - to stay on the safe side of the market.

    Probably the most laudatory part of what Mr Benstead and HBT's general manager, member services Mike LoRicco had to present is that they deftly avoided the trap that many small business groups fall into: they didn't press the "greed" button. It's always tempting to promise growth, to talk about profits, highlight canny deals and so on. The reality, though, for the solid, professional small retailers that make up most of HBT's membership, is that "security" will win out over "greed" anytime.

    While that might seem like a cautious approach, the truth is that behind the scenes the new leadership at HBT has been anything but cautious. As Mr Benstead no doubt knows from his years of working for a large corporation, if you want to change things as a new CEO, the time to do that is right away, after you assume the position. While the temptation is just to stick with the expected practice of the past, and make changes in the second and third years, that just about never works.

    As a result we've seen Mr Benstead moving to shake things up right from the beginning. One reason he's been able to move so fast is because Mr LoRicco has been his co-manager on many projects, acting like a personal database of the history of the past 25 years of the home improvement industry, and HBT in particular.

    Recently those changes have meant shaking up the way HBT handles its buying, with three new buyers joining the group. But perhaps the most exciting news is that HBT is looking into launching its own tools brand. While HBT is not sharing many details on this, we can say that there was one session for ITT members that went on for a suspiciously very long time.

    All we really know is what Mr Benstead had to say in his opening remarks:

    Just as we launched H brands many years ago, it has been very successful rolling out, we also see an opportunity for the ITT Group to develop a tools brand as well, so we are going to show the look of that as well to the relevant members. We will be doing that a little later on today.

    If they can bring this off, it will be not only significant for HBT, but also for hardware industry buying groups in Australia. Own-brand tools are one of the advantages that IHG enjoys, and is also a technique that Bunnings uses very effectively. This kind of partnership and sourcing for HBT could have very wide significance to the overall industry.

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    HBT 2018 Business Workshop - HI News Vol. 4 No.7
    retailers

    Indie store update

    Store returns to its independent roots

    Mitre 10 goes back in time and Mackay-based Porters celebrates a milestone anniversary

    Heatherbrae store, H&D Timber and Hardware regains its independent status; Toowoomba suburb poised to get a hardware and trade supplies store; Mitre 10 revisits its history in its latest campaign; Dahlsens' Warrnambool store shuts down; WA co-op that includes a Makit Hardware closes permanently; Porters Hardware in Mackay has been in operation for 135 years.

    Timber & hardware store turns independent

    H&D Timber and Hardware, located in Heatherbrae (NSW), has been part of the local business community for decades, in different configurations.

    Darrell and Diana Haynes opened the original H&D Timber store in Raymond Terrace in the Hunter region of NSW, back in 1978. In 2009, Darrell and Diana's son James and wife Renee relocated H&D to 1 Archibald Place, Heatherbrae.

    In that time the business has seen a few changes in name, but the family connection has remained strong. General manager, Renee Haynes told the Port Stephens Examiner:

    James and I both run the day-to-day operation, with Darrell in the timber mill...and Diana taking care of the admin side of the business. On top of supplying timber and hardware, we always donate money, gifts or time to the community and sponsor the local soccer and football junior teams.

    For many years, H&D Timber and Hardware were part of a group - Home Hardware and then Mitre 10 - but recently went it alone as a fully fledged independent operation. Renee explains:

    It was time for us to take control back of our business and focus on what our customer base needed, but we remain a member of the Paint Place group and stock Wattyl and Norglass paints.

    The decision to go independent has coincided with a new chapter in the family business, the opening of "Select Fasteners". Select Fasteners offers stainless steel and high tensile bolts, along with a range of construction glues, screws and tools. Renee said:

    James has known for a little while that we were not able to serve our trade customer to the full 100% capacity due to lack of space for more construction and industrial lines...so he created Select Fasteners.

    Store proposal in South Toowoomba

    The Chronicle reports a new trade and hardware supplies store is being proposed for Toowoomba (QLD), as part of a new development. The council will look over an application from Coonan Industries to build a "hardware and trade supplies" store on Pechey Street in South Toowoomba, nearby the public hospital.

    According to plans put forward by Precinct Urban Planning's Paul Kelly, the development will be split into two tenancies, including a warehouse as a second shop. He wrote in his submission:

    The final development will be built to boundary on the northern and southern side boundaries and rear western boundary with carparking, access and landscaped areas within the front setback which comprises 19.3m.
    The building will be slab on ground construction with tilt-up panel concrete walls that will include a textured finish to the front eastern elevation visible from the street.

    The site currently features a warehouse, which is home to a MotoGear supply shop. But the applicant wants to demolish the current building and replace it with a new structure.

    South Toowoomba doesn't currently have a hardware store, with the nearest one being a Mitre 10 outlet in Darling Heights.

    The council will look at the proposal as code-assessable which means public consultation is not directly sought. Its decision on the proposal is expected later this year.

    Mitre 10 plays on its history

    The latest campaign from Mitre 10 promotes the brand's heritage and its support for tradies building houses in Australia.

    It was created by Edge and features brand ambassador and host of Channel 9's The Block, Scott Cam. He is driving through time in a series of classic utes past period homes of the 1950s, 60s and 80s. Edge Group managing director, David Stretch, told Mumbrella:

    While Mitre 10 was established in 1959, some of its member stores had been family-run businesses for over a hundred years, building relationships with their local builders, generation after generation. And this provides the perfect platform for the campaign.

    Mitre 10's general manager - marketing, Karen Fahey said the campaign is a celebration of the brand's heritage but also showcases the group's state-of-the-art "Sapphire-standard stores" that are set up to service the trade.

    From years of experience, Mitre 10 knows what tradies want and this has informed our store development program: drive-thru trade areas, dedicated trade desks, timber under cover, state-of the art colour centres. And of course, what works for the trade also works for the weekend warrior DIYers. Service, expertise and a trade quality range are all elements of shopping with Mitre 10, and they are all celebrated in this campaign.

    The campaign includes a 45-second and 30-second brand TV commercials, supported by 15-second retail ads, airing throughout the 2018 season of The Block. Edge executive creative director, Matt Batten, said:

    While last year's TVC celebrated DIY renovators...this year's commercial champions the unsung heroes who really do all the hard graft on The Block, and thousands of renos and new builds around the country - the tradies. It's a fun little drive through time with Scotty in some classic Aussie cars passing some classic Aussie homes.

    Warrnambool loses Dahlsens store

    Dahlsens Building Centre in Warrnambool (VIC) has closed its doors. According to a report in The Standard newspaper, management issued a statement that said:

    Changing market conditions mean that businesses need to make some hard decisions to ensure they remain sustainable in the long run. Over the last few years we have witnessed flat market conditions and also a change in the demographics of our customer base in Warrnambool and the surrounding region.
    With little indication that these trends will change, it is unfortunately no longer viable for Dahlsens to sustain the operating costs of the Warrnambool store. After careful consideration we have made the decision to close the site, with trading ceasing on September 27.
    This announcement marks a big turning point for Dahlsens in the western region of Victoria and it will be sad to no longer have a presence in Warrnambool as part of our store network.

    Management said staff would be informed about other vacant positions within the company and would "receive assistance during this difficult time". The statement also said:

    For those affected, the company would like to publicly thank them all for their dedication and effort over the years.

    The Warrnambool store supplied pre-fabricated truss and wall frames, posi-struts, timber, bricks, mesh, plaster, claddings, doors and door handles, fix out, front of wall plumbing, kitchen and bathroom joinery and power tools.

    It was part of a chain of 20 stores, eight truss and frame manufacturing sites and one metal roofing centre across Victoria and southern New South Wales. Dahlsens has subsidiaries in Sydney, far north Queensland, Western Australia and the Northern Territory.

    It is the largest independent hardware retailer in Australia. The fifth-generation family owned and operated group opened its first store in 1877.

    WA-based co-op has closed after 98 years

    The Broomehill, Katanning & Woodanilling (BKW) Co-operative in Katanning (WA) which traded as IGA, Cellarbrations, Makit Hardware, Bi-Rite Electrical and Telstra has shut its doors for the last time after liquidators rejected an offer from a local buyer to keep the business operating.

    The BKW Co-op went into administration in August 2018 after $800,000 of losses over the last two years.

    The Albany Advertiser revealed the co--op board was calling for expressions of interest in the business, which has operated for 98 years.

    Co-op administrator Neil Cribb sent a letter to all co-op members to inform them he had selected a preferred buyer for the business. However, their offer has since been rejected.

    The co-op was formed in 1921 by a small group of farmers and residents across the region. The shop has since become an iconic business in the Great Southern Region.

    Co-op chairman Norm Flugge said multiple factors had led to the decision to enter into administration.

    What really conspired against us was the perfect storm, it was a combination of the online competition, seven-day trading as well as the general decline of the retail industry throughout Australia.

    Mr Flugge said the co-op's recent efforts to revitalise the shop's look and brand had proven to be a little too late to save it.

    I believe we made some good changes in management late last year and the new manager brought a great deal of experience in retail. Unfortunately before those initiatives could really deliver values and turn some of those trading figures around, we ran out of time.

    Porters enters 135th year of operation

    Timber and hardware retailer Porters Mitre 10 celebrated its 135th anniversary this year, and remains a significant hardware and timber business in Mackay (QLD). Established way back in 1883 as Charles Porter & Son, it is a highly regarded family business brand.

    Descendants of Charles Porter continue to run the business. Paul Porter is a director, Gavan Snr is managing director and Barry Porter is chairman of the board. The brothers told their often-told story to The Daily Mercury recently.

    Porters has 11 branches operating under the Mitre 10, Inspirations Paint and Plumbing Plus banners. Stores are located in Mackay city, Cannonvale, Glenella, Marian, Proserpine and Sarina.

    It won Hardware Store of the Year (over 2500sqm) and Garden Centre of the Year at the Hardware Australia Queensland Awards earlier this year.

    retailers

    Indie store update

    Mitre 10 closure after more than two decades

    End of an era for Port Fairy hardware store and Mitre 10 in Kingaroy responds to new Bunninngs

    A South Australian Mitre 10 store is shutting down in anticipation of a nearby Bunnings being built; a hardware store in Port Fairy (VIC) is on the market; Mitre 10 gets ready to compete with Bunnings in Kingaroy (QLD); Mount Isa store gets an ATOM industrial hardware store; hardware is part of new-look Hastings Co-op; and Terang Co-op records small profit in annual results.

    Domain Mitre 10 closes before Bunnings opens

    After 26 years, Domain Mitre 10 in Westbourne Park (SA) is closing down before a new Bunnings store being built just 3km away opens for business. Owner Chris Wauchope told the Adelaide Advertiser that his store could not compete with a $45 million Bunnings store being built in nearby South Road, Edwardstown.

    Mr Wauchope said he chose not to renew his lease after predictive figures showed his business had little chance of surviving a loss of trade once the Edwardstown Bunnings opened. He said it was a "very tough decision" that had "far-reaching implications".

    Port Fairy hardware business for sale

    Ken and June Brookes are selling their Port Fairy (VIC) hardware business and property after 42 years in the industry. The couple has decided to retire and the sale of Brookes Home Timber and Hardware is expected to fetch in excess of $2.5 million.

    While the couple is keen to sell the business and property as one, there has been interest from those who want to just purchase the property for redevelopment.

    Mr and Mrs Brookes opened the store not long after they cut short a round-the-world trip and returned to Koroit (VIC) to help his ill father. The couple had left Australia in 1973, spent a year living in New Zealand before heading around the world via South America and Europe when word came that Mr Brookes' father needed help running his plumbing business. He told The Standard:

    This is why we are here. We were going to head over to Canada so we'll take that up later, we'll resume our trip so to speak.

    The couple's first store, called Port Fairy Hardware, opened in March 1976. In 1983 they purchased the Sackville Street shop and moved the business there, expanding the site over the years when they purchased about five neighbouring blocks.

    Mr Brookes said he had built up the business to include electrical goods, tools, hardware, timber, paint and giftware.

    We've grown it from nothing to what it is. Our aim was to keep business in Port Fairy for Port Fairy and district people. I just hope that whoever takes it on has a good feeling for Port Fairy.

    Mitre 10 responds to Bunnings Kingaroy

    Sunshine Mitre 10 Kingaroy in South Burnett (QLD) believes it already offers everything people need despite a new Bunnings Warehouse opening in 2019. Retail store manager Steve Miatt said he was extremely proud of his team and the hard work they did for the community. He told the South Burnett Times:

    We employ more than 40 people and have many staff with 10 years or more service and some with more than 15.

    Julie Hanson and Barry Collins are two such team members with 27 years of service to Mitre 10's Kingaroy store between them.

    Sunshine Mitre 10 has been focused on supporting the local community since it opened in 1985 in its 4000sqm purpose built premises. Mr Miatt said:

    We employ locals who have been a part of the Kingaroy community for many years and are proud of their long term connections.

    The store has heavily supported many community and sporting groups for nearly over three decades, Mr Miatt said. And it would continue to look after their customers as well as they always have, no matter what new business came into town.

    We pride ourselves on our exceptional service to retail and trade customers, providing a large range from our store as well as expert advice for everyone.

    ATOM opens in Mount Isa

    Industrial hardware supplier ATOM has opened shop in Mount Isa (QLD) thanks to resident, Mark Campbell.

    Born and bred in Mount Isa, Mr Campbell has spent the past 20 years working in the mining sector. He saw an opportunity to develop the local supply market, so he approached the company.

    ATOM chairman Jason Johnson flew up to Mount Isa to meet with Mr Campbell and was so impressed he spent the plane ride home putting together a business plan on the back of an envelope. He told the North West Star:

    Mark approached us and told us there was a gap in the market, and we really backed him. We checked out his credentials and thought this is someone we can build a business around.
    We could see that our business model would work here, provided we had the right local person. The original plan was to open a small to medium size business, but we were lucky enough to land two major Glencore tenders at about the same time we were opening.

    ATOM's Mount Isa store is referred to as the "Bunnings for industry", selling giant spanners, gumboots, angle grinders and safety goggles.

    Hastings Co-op re-development includes hardware

    Construction work is progressing behind the scenes on Hastings Co-op's IGA supermarket, hardware and liquor store which will open in October 2019, as part of the Sovereign Hills town centre in regional New South Wales.

    Chief executive officer Allan Gordon said the new store would be an integral part of Hastings Co-op's family of 15 businesses. He told Port Macquarie News:

    Uniquely, our IGA store will incorporate a full-service hardware store where customers will be able to buy everything from a hammer to landscaping supplies. Covering more than 600sqm, the hardware component will add a great dimension to our offering.

    The development will eventually provide 25,000sqm of amenity to the growing Sovereign Hills community and beyond. The open-air design will feature roof-mounted solar panels, with rainwater harvesting to be utilised for all landscaping irrigation, while recycled bricks and natural timbers will form the key architectural features of the building.

    When it's completed, the Sovereign Hills master-planned community will be home to 2,000-plus new homes, onsite schools, childcare, recreation facilities and the area's new town centre.

    Terang Co-op believes in its business model

    Rural co-operative, Terang Co-op posted a modest profit for the 2017-18 financial year in what has been a tough economic period for south-west Victoria.

    The supermarket, hardware and rural supplies business made a small net profit of $9900 from a turnover of more than $23 million. (The Co-op posted a profit of $150,000 for the 2016-17 financial year.)

    Co-op chief executive officer Kevin Ford said although the Co-op's bottom line hadn't provided the result they'd wanted, the positive was that $270,000 of debt had been paid. He told the Standard:

    We're in a financially stronger position than we were 12 months ago.

    Terang Co-op chairman Brendan Kenna said the Co-op had grown sales against the previous year but costs had continued to climb. He also said the Co-op's rural services were still suffering from the severe downturn that hit the dairy industry. He told the Weekly Times:

    Our business is reflecting their reduced circumstances.

    Mr Kenna believes the co-operative model remained viable and important to rural communities. He said:

    We were all shocked to watch the rapid demise of one of Australia's largest co-operatives, Murray-Goulburn. [We] felt the pain and disappointment of its members as they saw their business fail.
    But as big business and the large banks increasingly turn their back on rural Australia, in the pursuit of higher profits at the expense of services, it makes the co-operative model more important than ever and we think it has an exciting future.

    Membership continued to grow with 110 new members bringing the total to 2610. Highlights of the year also included the purchase of the DTS West business and the branding of dairy services as 360 Dairy Solutions.

    retailers

    Europe update

    Homebase stores closing as Bunnings UK brand disappears

    B&Q moves away from promotional pricing and Metabo Germany joins Cordless Alliance System

    Homebase's turnaround plans involves closing 42 of its 241 stores; B&Q will reduce the use of short-term pricing deals and discounts; Metabo Germany partners with power tool manufactures to form Cordless Alliance System (CAS); HOUSE opens fifth UK store; and Travis Perkins said a "challenging UK DIY market" has negatively impacted its consumer-facing brands.

    Homebase confirms 42 closures, for now

    DIY retailer Homebase said at least 42 outlets will be shutting down by early next year. The company is looking to close stores in order to cut costs after being acquired by Hilco for GBP1 earlier this year, with up to 70 more stores potentially at risk.

    Homebase wants to cut rents - or close - on nearly a fifth of its 241-store chain, via a company voluntary agreement (CVA), a controversial insolvency procedure used by struggling firms to shut underperforming shops.

    Under the process, Homebase will also promise to continue paying market rents on about half its stores but will ask for smaller rent reductions on another 60 and business rate reductions on all the stores where it wants rent cuts. Chief executive Damian McGloughlin said:

    Launching a CVA has been a difficult decision and one that we have not taken lightly. Homebase has been one of the most recognisable retail brands for almost 40 years, but the reality is we need to continue to take decisive action to address the underperformance of the business and deal with the burden of our cost base, as well as to protect thousands of jobs.
    The CVA is therefore an essential measure for the business to take and will enable us to refocus our operations and rebuild our offer for the years ahead.

    The company added that the trading environment had been "extremely challenging", with weak consumer confidence. Homebase said:

    Under the terms of the CVA proposal, all creditors receive a better outcome than any other likely alternative.

    Restructuring experts at Alvarez & Marsal will carry out the CVA, which will require the support of landlords via a vote on 31 August. The process is designed to stave off administration and save the business, but landlords say it is being misused as a quick way to downsize during tough times.

    A group of landlords settled out of court after challenging a CVA process at department store House of Fraser before it was bought by Sports Direct via a pre-pack administration.

    However, Stephanie Pollitt, the assistant director of real estate policy at the landlords' trade body, the British Property Federation (BPF), said:

    Homebase and Alvarez & Marsal have demonstrated best practice, engaging with the BPF in the process and therefore ensuring property owners' interests have been properly taken into account.

    Under Hilco's ownership, the 24 stores that were trading as Bunnings will convert back to the Homebase fascia.

    Amazon to buy sites?

    According to the Sunday Telegraph, Amazon is looking to acquire Homebase stores around the UK as it looks to extend its network of warehouses. If completed, the Homebase sites, many of which are situated in urban locations in major towns and cities, could become "last mile" warehouses, allowing for quicker delivery times for items ordered from the site.

    B&Q drops prices, adopts EDLP strategy

    UK-based DIY and garden chain, B&Q plans to lower prices on 2,000 products by around 15%, as part of its "Do It For Less" strategy, in the hope that lower prices all year round will appeal to shoppers. As a result, the retailer will be reducing its short-term pricing deals, including multi-buys, and reviewing some of its loyalty scheme benefits.

    It has already invested GBP100 million in dropping prices on both branded and own-branded products, with further discounts planned on additional lines later on this year.

    Like EDLP (Every Day Low Prices), B&Q's pricing strategy is aimed at encouraging shoppers to take on home improvement projects straight away, rather than waiting weeks or months for the next promotion or sales event.

    B&Q said its new policy means that customers can enjoy competitively-priced products any day of the week throughout the year, rather than having to wait for sales to roll around.

    The company also said its "Do It For Less" plan will make DIY more affordable, and therefore accessible to homeowners and renters of all ages and incomes. Paul White, B&Q's commercial director, said:

    People may enjoy hunting for the best deal, but at the end of the day there is much more comfort knowing that there's one place where you can always get a low price.
    All customers want to have prices they can trust and, as industry leaders, it's our responsibility to look after their best interests by ensuring our customers get our most competitive price.

    B&Q first introduced a "simplified pricing strategy" across its kitchens offer in September 2014. Describing it as a successful move, B&Q said the use of promotional pricing in the category makes it difficult for customers to know if they are getting the best possible price.

    The retailer said the economies of scale afforded by being part of the Kingfisher group and the joint buying functions under the One Kingfisher transformation enable it to price products competitively, as well as building a "unique and unified offer".

    B&Q started to promote its Do It For Less price drops in mid-July, in the mainstream press, and via digital and social media, as well as in-store marketing.

    When Bunnings acquired the Homebase stores in 2016, it rolled out EDLP across the Homebase business with an "Always low prices" tagline. The converted Bunnings stores came with "Lowest prices are just the beginning" tagline that was later changed to help UK customers understand what the stores actually sold. It meant that Bunnings generally concentrated on beating the opposition with low prices but analysts believe B&Q was often able to match these savings, which often resulted in a race to the lowest price.

    Q2 improves

    A run of hot weather also boosted sales at B&Q parent company, Kingfisher in the second quarter as more customers stocked up on barbecues and other outdoor items.

    However, shares fell 2.2% as analysts pointed out that Kingfisher's recent performance has relied too much on good weather conditions.

    The retail group, which also owns Screwfix, reported a 3.4% increase in sales to GBP3.25 billion for the quarter ended July 31. On a like-for-like basis, sales grew 1.6%, rebounding from a 4.0% decline in the first quarter when snowfall and icy temperatures in February and March kept customers away.

    In the UK and Ireland division, like-for-like sales increased 4.2%, including 3.6% growth at B&Q and a 5.5% gain at Screwfix. Kingfisher said sales at B&Q were buoyed by demand for weather-related categories while Screwfix sales were lifted by the opening of 12 new outlets during the quarter. George Salmon, equity analyst at Hargreaves Lansdown, said:

    At first glance, UK results represent a marked improvement. However, the strong sales figures are more a function of a scorching summer than any underlying progress. Strip out the impact of summer items like barbeques and garden furniture, and sales, which headed south over the winter, have continued to fall. That's quashed any hopes that B&Q would benefit from the recent problems at Homebase.

    Like-for-sales in France dipped 1% as its DIY retail store Castorama continued to struggle in part due to weaker footfall and the impact of restructuring efforts. In the other international unit, like-for-like sales edged up 1.4%, driven by growth in Poland.

    Metabo Germany joins Cordless Alliance System

    Metabo in Germany announced its partnership with other tool manufacturers to create the Cordless Alliance System (CAS).

    Under the CAS partnership, nine manufacturers of similar company size and with a focus on power tools for professional applications, will be sharing the same battery platform and chargers produced by Metabo. This allows CAS manufactures the use of the same battery pack systems, providing compatible batteries to be interchanged with other CAS tools manufacturers.

    It provides end-users more freedom, flexibility with a broader range of tools, costs savings and solves problems by sharing the same battery platform across multiple tool manufacturers. Currently, there are over 110 power tools that are part of the CAS manufacturers.

    The partnership is the latest step towards expanding Metabo's vision of a cordless construction site and metalworking shop, entirely run with 18V Lithium-ion High-Density Battery operated tools.

    Metabo Germany president, Horst Garbrecht, expects the CAS to continue to grow, with a variety of manufacturers joining in the name of advanced battery technology. He said:

    With Lithium-ion High-Density Battery we have enough power for the most energy-intensive applications, allowing us to build any hand-held power tool in a cordless version in such a way it meets the professional user's requirements of power and endurance.

    When choosing a technology partner, CAS manufacturer Rothenberger chose to go with Metabo for several reasons, according to managing director Dr Christian Heine:

    Due to the developments in [previous] years, Metabo has conquered the technological leadership and currently offers the most powerful system in the industry.

    Aussie HOUSE opens in Norwich

    Homewares and kitchen specialist, HOUSE, has opened its fifth UK store in Norwich's intu Chapelfield centre.

    The Australian-based retailer has already opened stores in Oxford, Bracknell, Sheffield and online at www.houseUK.com. Executive chairman and CEO, Steven Lew, said:

    Our UK rollout has focused on opening the best stores in the right locations. Norwich is a natural fit for HOUSE...

    The Norwich HOUSE store offers more than 4,000 products including cookware, bakeware, glassware, kitchen gadgets, small electrical appliances, knives, table linens and accessories. With online ordering available in-store, Norwich residents will have access to a large range of brands including Cuisinepro, Alex Liddy, LSA and Joseph Joseph, to name a few.

    Established in Australia in 1978, HOUSE is a member of the Global Retail Brands (GRB) family. GRB is the largest private specialty kitchen & homewares chain in the southern hemisphere, with more than 170 stand alone stores. The UK is the first foray into the northern hemisphere with more planned.

    Travis Perkins' DIY business faces market challenges

    The challenging state of the home improvement market in the UK are reflected in the latest results from Travis Perkins' consumer-facing division that includes DIY chain Wickes and trade supplier Toolstation.

    Sales fell 1.8% to GBP807 million in the six months to the end of June, though on a like-for-like basis the drop was 4.2%.

    Travis Perkins previously warned householders was reining in spending and unwilling to splash out on major DIY projects such as kitchens and bathrooms. Uncertainty in the property market and poor weather in March and April compounded this, as building projects were put off.

    However, the situation has become so serious chief executive John Carter has launched a comprehensive review of the business, with current market conditions expected to continue for the "foreseeable future". He said:

    Wickes has had a far more challenging period as weaker consumer spending trends, combined with a difficult competitive environment, have held back profitability.
    Consequently, the Wickes team is executing a significant cost-reduction program. Whilst these savings will help drive improved profitability through the second half of the year, Wickes' profits will be lower than previously expected.

    While attention was focused on the consumer business, Travis Perkins reported a rise in group revenues of 4.4% at GBP3.4 billion, though it fell to a GBP123.4 million pre-tax loss from a GBP167.4 million profit for the same period last year. This was largely the result of a GBP246 million goodwill impairment against Wickes, with restructuring costs also having an impact.

    Sales growth was driven by the continued growth of the store network in the UK, with 22 new stores opened in the half taking the total network to 317. The expansion of the Toolstation Europe network continued with further stores in the Netherlands and an extension of the trial in France, with encouraging sales results.

    The other parts of the business performed better. General merchanting, the company's largest division which supplies builders, reported sales up 0.9% at GBP1.1 billion, plumbing and heating - which was restructured last year - was 15.5% better at GBP774 million, and the contracts business, which supplies larger builders, saw sales rise 6.4% to GBP718 million.

    Mr Carter tried to put a positive spin on the business, saying "long-term drivers of market growth remain strong, centred on the UK's requirement for more homes and under-investment in the repair, maintenance and improvement of existing dwellings".

    retailers

    USA update

    In-store lockers at Home Depot

    Newly installed Lowe's CEO "cleaning" house and MORSCO buys Nevada plumbing business

    Home Depot is installing lockers in its stores for customers to pick up items they have ordered online; Lowe's CEO is working quickly to streamline the business; MORSCO enters Nevada plumbing market; Lowe's is using virtual reality technology to get people into stores; cloud-based platform makes managing hourly staff more efficient at Ace Hardware; and home improvement companies phasing out paint strippers with toxic chemicals.

    Home Depot adds convenience to online sales

    Big box retailer, Home Depot is installing lockers in many of its locations to support its in-store pick-up service. The move enables the home improvement retailer to get items to online customers right away instead of waiting for their purchases to be delivered to their home.

    Those who order merchandise online are directed to the rows of orange boxes, where they unlock the designated one and then leave without having to seek assistance from an employee. Spokeswoman Lana Johnston has said:

    ...customers' expectations with shopping are changing, and they want as many options as you can possibly give them.

    As a result, Home Depot hopes to have lockers in all its brick-and-mortar stores within three years. With 46% of its online orders picked up at stores, "the lockers allow us to simplify that process by providing customers with the convenience of self-service and time savings," Ms Johnston said.

    Lockers at Home Depot were first tested in early 2016 and were rolled out more widely late last year. They offer three compartment sizes that can hold more than 60% of items available through the retailer's "Buy Online, Pickup In Store" program. Items that don't fit can be picked up at the customer service desk.

    Lockers are a way that chains such as Home Depot are trying to leverage their network of stores - one is situated within 10 miles (16kms) of 90% of the US population - to provide customers with their merchandise soon after it is ordered.

    Given the massive size of its stores and myriad items that it makes available online but are not sold in stores, the lockers seem to make sense. Rob Haslehurst, managing director and partner of L.E.K. Consulting, believes the lockers help reduce lines at the stores' customer service desks, which had become a "pinch point." And "many consumers don't like interacting with people, and the locker gives that segment a way to get their product in an all-digital experience."

    The pick up locker option also meets the consumer desire to avoid shipping charges on their online orders, according to research from Astound Commerce, which found that 57% of shoppers (in the US) hunt for free shipping offers, making "low shipping rates" too expensive for most.

    Q2 performance

    The big box retailer also beat expectations during the second quarter as it boosted its full-year profit and revenue forecasts. Its second-quarter profit reached USD3.51 billion, or USD3.05 per share. That a much bigger per-share profit than the USD2.84 that Wall Street was looking for, according to analysts surveyed by Zacks Investment Research.

    Revenue rose to USD30.46 billion, from USD28.11 billion, also topping projections of USD29.98 billion on Wall Street.

    Sales at stores open at least a year, or same-store sales, increased 8%, and 8.1% in the US.

    Home Depot said that big ticket sales - now being defined as transactions over USD1,000 - represent about 20% of the chain's US sales. It had previously defined big ticket sales as transactions over USD900.

    In the second quarter, transactions over USD1,000 were up 10.6% compared to the second quarter of fiscal 2017. Big ticket purchases that contributed to growth during the period included vinyl plank flooring appliances. Its Pro customers also helped drive growth.

    New Lowe's CEO hits the ground running

    In less than two months, Lowe's chief executive officer Marvin Ellison has decided to shut down a division of smaller stores and eliminate USD500 million in capital projects that will be returned to shareholders.

    Lowe's said it would close 99 stores of its hardware and garden chain Orchard Supply by the end of the fiscal year. It also said it would seek to cut back on inventory of slow-selling product lines and reinvest in faster-moving goods.

    The acquisition of Orchard Supply, with stores based mainly on the west coast of America, accelerated the company's expansion into key markets like California. But it came at a price as the chain, which Lowe's purchased out of bankruptcy for about USD205 million, was often a drag on results.

    For the shutdown of the unit, Lowe's took a USD230 million charge last quarter, and it expects additional costs of as much as USD475 million in the second half of the year.

    Mr Ellison said the exiting of Orchard Supply was part of a larger strategic review of the company that will including looking at its real estate holdings and assets that don't involve its retail business. Cost cutting will also be a major focus. He said:

    The company has unfortunately become distracted over the past few years. We must create a true expense reduction culture here.

    Lowe's same-store sales growth has usually lagged Home Depot's because it focuses more on DIY customers compared to its rival's focus on professional contractors (tradies) with their larger purchases.

    The home improvement retailer's same-store sales increased 5.2% during the period that ended August 3, capitalising on the delayed demand for spring season goods but missed expectation of a 5.34% increase.

    However net sales rose 7% to USD20.89 billion, beating expectations. Excluding one-time items, the company earned USD2.07 per share, topping estimates of USD2.02.

    Restructure

    Under Mr Ellison, who took charge in July, the company has also eliminated four senior positions including chief operating officer, chief customer officer, corporate administration executive, and chief development officer, while creating two new senior roles for stores and supply chain.

    To keep Lowe's from slipping further behind Home Depot, Mr Ellison said a shake-up was necessary. In a statement, he said:

    We have taken a fresh look at our organisational structure and are realigning our leadership team to improve our focus, better leverage Lowe's omni-channel capabilities and deliver increased value for our customers, associates and shareholders.

    The overall purpose of the changes is to "drive operational excellence," according to the company.

    Reece-owned MORSCO enters new market

    US-based distributor of plumbing, waterworks and HVAC products, MORSCO announced it has entered into an agreement to purchase the assets of Desert Pipe & Supply's Las Vegas location.

    Desert Pipe & Supply is a plumbing wholesaler located in Palm Desert, California and Las Vegas. The company has serviced residential and commercial plumbing and mechanical contractors for more than 30 years.

    As a part of the agreement, five associates and one Desert Pipe & Supply location in Las Vegas will become a part of MORSCO, operating under the Farnsworth Wholesale brand, following a transition period. Desert Pipe & Supply's Palm Desert outpost will continue to be owned and operated by the existing Desert Pipe & Supply ownership. MORSCO CEO, Chip Hornsby, said:

    MORSCO is very enthusiastic to be a part of the booming Las Vegas market. This is certainly an area of the country we've had on our radar for some time and this opportunity with Desert Pipe & Supply fits well into our overall strategic growth initiatives for 2018. As the Las Vegas economy continues to recover from the financial crisis in the late 2000s, MORSCO sees plenty of opportunity here...

    Australian plumbing group, Reece recently completed its acquisition of MORSCO. First announced in May 2018, this acquisition marks Reece Group's entry into the US plumbing market through MORSCO's 170+ branches within 16 states throughout the Sun Belt region of the US.

    Related:

    Supplier update: Reece expands into US, after 10 year study

    Lowe's attracting DIYers with reality tech

    Augmented reality and virtual reality tools are being used by Lowe's to help customers visualise and "feel" a large home improvement product in the context of the customer's living space.

    Josh Shabtai, director of lab productions at Lowe's Innovation Labs, said:

    We look at age-old customer problems. These are problems that keep resurfacing that folks haven't solved yet. Our hypothesis is that as we move people closer to realising their visions, they'll feel more confident.

    Lowe's Innovation Labs were established four years ago to delve deeper into these questions, said Mr Shabtai. Often working with startups, the company has since rolled out several pilot projects to test customers' comfort with virtual and augmented reality, including Holoroom How-To, which immerses a customer in a DIY project - such as tiling a shower - and gives them step-by-step instruction to complete the task; employee training programs that involve virtual reality; Holoroom Test Drive, a feature that uses VR to offer customers a chance to sense the feeling they are actually holding and using a power tool; and View in Your Space, a mobile app feature which lets customers visualise how a piece of furniture may fit within the physical dimensions of their own living spaces.

    Of these pilots, two currently are still in market: Holoroom Test and the AR feature which went live for Android users in March.

    While quick turnaround trials may suggest there are challenges getting customers to comfortably use the technology on a regular basis, Mr Shabtai said the timing is part of Lowe's approach to test new use cases, study the outcomes, and apply the lessons to future releases. He said:

    We're trying to refine the experience and move on to an application that will be better and ready to scale.

    Mr Shabtai said early results are showing that VR-and AR-enabled tools offer two key use cases: helping customers better navigate how they'll use tools or whether products are physically compatible with their homes; and helping employees learn more quickly to offer more personalised expertise. This will add more value to the in-store experience.

    When [customers] come into a Lowe's store, they want to talk to an employee who is a real expert in the space.

    According to company proprietary data, employees who are trained on machinery using VR are 76% more likely to try out a piece of machinery compared to those who were trained using conventional methods; and customers have 42% greater recall with VR tools compared to YouTube how-to videos.

    He conceded that the biggest challenge standing in the way of more mainstream adoption is cost, while AR can be more quickly deployed given the ubiquity of smartphones.

    Lowe's advantage is to tie the customer closer to the brand through these types of immersive efforts. Tactile experiences through virtual and augmented reality are ways legacy retailers can keep customers loyal, especially with competition from Amazon. Jim Cusson, president of retail marketing agency Theory House, said:

    Amazon wins on convenience and selection, so how can retailers combat that? A lot of this has to do with the experience and brand engagement [derived from immersive tools like VR and AR].

    Morningstar analyst Jaime Katz also wrote in a recent report that Lowes' business model is built off of customer service, knowledge, and innovation. Using VR and AR could help augment its reach.

    Ace Hardware manages hourly staff with software

    Several Ace Hardware locations have turned to workforce management software company Deputy to help manage an hourly workforce across a number of stores.

    The software supports mobile clocking in and out capabilities, scheduling, meal and break compliance, task-tracking and performance management. This should free up managers and floor staff to spend time serving customers. Darrell Moseley, owner of a Washington-based Ace Hardware store, said:

    I used to spend up to eight hours a week creating my staff's schedules, With Deputy's integrated timesheet and scheduling feature, this previously laborious task only takes a couple hours, leaving my time open to pay attention to other critical matters - bettering our store's performance.

    Deputy is an Australian-based company that aims is to make managing employees easier. Ashik Ahmed, Deputy's CEO and founder, tells UK-based Techworld.com that Deputy is designed to reduce the stress of mundane tasks and automate team schedule management. He said:

    Deputy as a product, what we do is scheduling, time and attendance, communication and tasking. These problems are universal for any hourly paid worker and Deputy solves them in a mobile-first, user-intuitive way that allows the product to get easily adopted.
    The key part of what we offer is mobility. Everyone has a smartphone these days and 60% of our user base is actually on mobile.

    Deputy's platform is a smartphone-based app, which is accessible by every employee to clock in and out and swaps shifts. Auto-scheduling is a new feature that is powered by artificial intelligence for workers to build their own schedules. Mr Ahmed said:

    Quite a lot of businesses will be using an iPad app that we have for clock in and out, and of course we made sure it is all GDPR (General Data Protection Regulation) complaint. Because it is smartphone accessible, people can have their schedules and do everything they need to change their work lives.
    For Deputy...what we want to do is get the best employees back on the floor working with the team. Everything that they have to do from an administrative perspective, they can do straight from their phone.

    Home improvement firms ban toxic chemicals

    Home Depot announced it will stop selling paint stripping products containing purportedly toxic substances responsible for consumer deaths. The big box retailer will phase out the use of the chemicals - methylene chloride and N-methylpyrrolidone - in paint removal products by the end of this year.

    Banning the two chemicals is a way "to build upon our strategy to maintain continual improvement in health and environmental safety for products," it said in a statement.

    The announcement came after aggressive lobbying by a group known as Safer Chemicals, Healthy Families, which includes more than 450 US-based organisations and businesses. At least 60 deaths are blamed on the chemicals commercial use, the group said.

    Rival home improvement retailer, Lowe's was the first US retailer to agree to ban those chemicals, according to Mike Schade, a representative of Safer Chemicals.

    Paint and coating giant, Sherwin-Williams also recently said it would stop using the chemicals.

    The chemicals have been found to pose unacceptable health risks to the public, including cancer, harm to the nervous system and to childhood development, and death. In 2017, the US Environmental Protection Agency proposed a ban on the paint removers that contain the chemicals.

    However, the agency has taken no action since Scott Pruitt became EPA administrator.

    retailers

    Indie store update

    Geelong hardware & timber businesses join forces

    Closure for Culburra Beach Hardware and Landmark grows with two new agribusinesses

    Bringing Belmont Timber and Fagg's together; rejection of development leads to a hardware store closure in Culburra Beach (NSW); and Landmark adds to its rural merchandise business.

    Belmont Timber & Fagg's integration

    As the new general manager of Belmont Timber and Fagg's Mitre 10, Andrew Pitman said uniting the cultures of the two businesses into one is a priority. With a corporate background working for oil companies, Mr Pittman can bring another approach to the hardware and timber business. He told the Geelong Advertiser:

    I don't claim to know the timber, but I think I know and understand business and how we can market the business in a different direction and in a different way to reach the customers better than we do at the moment.

    Previously the wholesale fuels sales manager for Mobil Oil Australia, Mr Pitman's career has been in downstream marketing in the oil industry and his retail exposure was gained through running Mobil's company-operated service stations. He brings an outside perspective and experience in a highly competitive environment to the Geelong-based business:

    We are going to employ new technologies, new marketing techniques, things that I am going to bring to the table that haven't necessarily been in play in this industry.

    He and his team will work to combine two significant Geelong brands. Fagg's has a 164-year history in the city and Belmont Timber was established by well-known Geelong Football Club benefactor, the late Alex Popescu in the early 1950s.

    In recent years, both companies have come under Metcash ownership in different ways but there is a commitment to keep both brands under the new merged operation. Mr Pitman explains:

    There is a rich history and pedigree of experience there which is well recognised in the Geelong community and we are not going to let that go. We are keeping the heritage of both companies alive.

    Having completed the initial back-end integration so they share point of sale and accounting systems, attention has turned to harmonising the cultures of teams who were once competitors. That process includes relocating some senior management from Fagg's, which has absorbed the Belmont Timber business, and investing more than $100,000 to renovate offices on the Settlement Road site.

    Belmont Timber represents about 30-40% of the combined company which employs 230 staff (including casuals and part-timers) and which now promotes itself as the largest timber and hardware business in the greater Geelong region. Mr Pitman said the focus would be on growing its share of the trade market.

    We don't discount the retail side ... Bunnings has had an impact, but our DIY and Mighty Rewards customers remain loyal and from a trade perspective, that's where our strength is and that's where our core business is.

    Operating out of four locations will give trade customers, particularly Belmont Timber clients, greater scope and opportunity to engage with the business.

    Fagg's is partly owned by Metcash, while Belmont Timber has been owned by Metcash since it bought the Home Timber & Hardware group from Woolworths for $165 million almost two years ago. Mr Pitman said:

    They were owned by the one company, (but) operating independently, competing independently. What we have done has brought them together.

    Culburra Beach Hardware forced to close

    The West Culburra development in NSW gained the support of the local community, especially businesses who believed they could drastically improve their bottom-line. Jean-Paul and Kylie Maulguet purchased Culburra Beach Hardware eight years ago after hearing about the proposed development. Ms Maulguet told the South Coast Register:

    That was one of the main reasons we bought the shop. With all the new homes we would have had a lot of ongoing clients."=

    But, after news the Department of Planning and Environment recommended refusal of the project, the Maulguets have decided to close the doors at their hardware store. Mr Maulguet said:

    It's just not financially viable. A large proportion of people who own homes in Culburra don't live here so we don't have enough customers to keep us going.

    Mrs Maulguet said the couple made the decision, after months of stress.

    There are still plenty of tourists coming through but they don't stop at stores like ours. When you're married and have kids the stress of the business flows on to that, so we needed to make the decision to close up. It's really sad.

    The proposed development covers nearly 100 hectares of land. Approval was sought for 650 homes, 3.5 hectares of industrial real estate, tourist accommodation, cafes, restaurants, cycleways, picnic areas and a sports field. Mr and Mrs Maulguet said had the development gone ahead sooner, it could have allowed them to stay open.

    We thought this development would have gone ahead years ago which could have really helped us.

    Mr and Mrs Maulguet said although the decision was fresh, they believed they would be closed within the next couple of months. Mrs Maulguet said:

    ...There's been a hardware store in Culburra Beach since the 1970s so we feel like we are letting our loyal customers down, but we just can't do it anymore.

    Agribusiness group gets bigger

    Landmark refers to itself as Australia's largest distributor of (rural) merchandise and fertiliser with a national network of around 400 locations. Recently it has acquired two independent South Australian-based agribusinesses, Jolpac Rural Supplies and Naracoorte Agri Services.

    The entities now trade as Landmark Jolpac in Bordertown and Landmark NAS in Naracoorte. General manager for SA, Craig Tapfield said the two well-established, successful businesses were a "good fit" for the company. He told Stock Journal:

    We are continuing on what the Jolpac and NAS team have been doing. We are not here to change anything, just add to it and provide extra services to the local community.

    At Bordertown, Landmark Jolpac will run out of the current Jolpac site, while the company's Dalgety Wool depot will run from the existing Landmark site. Fertiliser and seed sales will continue out of the NAS site in Naracoorte, with Landmark Naracoorte's branch remaining the merchandise hub.

    NAS also owned a site at Murray Bridge which is now being used by Landmark Murray Bridge. All staff were offered full-time employment during the change of ownership.

    Jolpac director Peter Jolly has become the new Landmark Jolpac branch manager. NAS general manager Neil Nolan has taken on the role of fertiliser manager and agronomist at Naracoorte.

    retailers

    USA update

    Delivery plan at Home Depot

    Activist investors take active interest in Lowe's and e-commerce sales delivers for Ace Hardware

    Home Depot initiative aimed at making next-day deliveries to all its US customers; Lowe's attracts hedge funds after missing expectations in Q1; Ace Hardware's Q1 benefits from online sales; Amazon's home improvement growth outpaces major players; Tesla ends partnership with Home Depot; Menards ranks highest in customer satisfaction; Kobalt tool chests offer SmartKey security; and Hillman agrees to acquire minuteKEY.

    Home Depot investing in delivery infrastructure

    The Home Depot plans to spend USD1.2 billion over the next four years to speed up delivery of goods to homes and job sites, reports The Wall Street Journal. It comes at a time when the rise of online shopping is re-setting consumer expectations.

    The funds will be used to add over 170 new distribution facilities across the US, allowing 90% of the country's population to have same-day or next-day delivery. The retailer can now only reach about 30% of the country with that type of service.

    The new distribution centres will have a mix of products. Some of the centres will specialise in products that are most frequently ordered, while others will concentrate on larger, more difficult-to-ship items like patio furniture, building materials and appliances.

    Speaking at the Bernstein 34th Annual Strategic Decisions Conference in New York City recently, Home Depot chairman and CEO Craig Menear acknowledged that, upon completion, the investment will enable Home Depot to offer the same shipping capabilities like that of Amazon

    The investment could also do more than fighting off a major competitor. It can also improve the in-store experience, something Amazon cannot offer. Home Depot's Northern Division president, Crystal Hanlon, explained this benefit using roof shingles as an example:

    Today, if we were to sell a delivery of shingles, you're going to pull those shingles off of the shelf in the store potentially during business hours, right, disrupting the customer experience who wants to be in that aisle shopping shingles. You're going to bring it to the back, you're going to load it on a truck, that truck's going to go out to the customer. If you think about the future state, the future state involves essentially what we'll call a warehouse for ease of understanding, where those are already staged. And so now we're not disrupting the experience in the store. We're also centralising where all of those delivery trucks are going to. So it becomes much more efficient, gives us greater capacity, and makes the experience better.

    Online orders accounted for 6.7% of Home Depot's USD100.9 billion in sales last year, but the digital revenues grew 21% from the year before. About 45% of online orders are picked up inside stores, and the company is rolling out self-service lockers at the front of some stores to speed up order retrieval.

    Shoppers accustomed to two-day delivery from online retailers like Amazon are increasingly making buying decisions based on convenience factors, experts say, such as speed of delivery or availability of a wide range of products.

    That's pushing retailers to reshape distribution networks that were originally designed to ship pallet-loads of goods from warehouses to stores. They are turning to tactics such as drop-shipping, where suppliers ship online orders directly to customers, and opening warehouses closer to customers.

    Mark Holifield, the company's executive vice president of supply chain and product development told a logistics industry conference the retailer is realigning its supply chain to a changing retail landscape. He said:

    Customers expect delivery to be free, they expect it to be timely. Sometimes they want it fast, and are willing to pay for that. Sometimes they want it free, and they're willing to wait for it. We need to have the right options there.

    The company is already pushing the so called BOPIS initiative, which stands for "buy online, pick up in store." Home Depot's stores will play key roles in the new initiatives as delivery nodes, Mr Holifield said.

    Investor targets as Lowe's Q1 disappoints

    Investment firm Pershing Square Capital Management has accumulated approximately USD1 billion worth of shares in Lowe's Home Improvement.

    Pershing is led by CEO and founder, billionaire William (Bill) Ackman. He is one of the hedge fund industry's most high profile and closely watched activist investors. Mr Ackman's stock bets tend to push up shares of companies he invests in, on speculation that he will agitate for boardroom changes.

    Pershing Square is now the second activist investor in Lowe's stock. Activist investors take large stakes in public companies in an effort to effect change.

    Earlier this year the home improvement retailer reached a settlement with hedge fund D.E. Shaw Group, which has a roughly USD1 billion stake in the company, to put three new directors on the board.

    Q1 results

    The news of Pershing's investment, first reported by the Wall Street Journal, came the same day Lowe's reported first-quarter earnings that fell short of analysts' expectations, which the company attributed to a cold start to the spring season.

    This has impacted negatively on sales of lawn-mowers, patio furniture and other seasonal products during the February-April period. But the company was optimistic about making up for lost business. Chief financial officer Marshall Croom said on a conference call with analysts:

    We are anticipating recovering the majority of the sales miss in the first quarter. ... So that's what we factored in to maintain our guidance.

    Sales totalled USD17.36 billion in the latest period, up about 3% from USD16.9 billion a year ago. Analysts had expected earnings revenue of USD17.46 billion.

    Same-store sales rose 0.6% in the three months ended May 4, whereas analysts had projected an increase of 3%.

    According to the earnings call transcript, the retailer is focusing on more frequent but smaller shipments to better manage inventory and meet consumer demands. Chief operating officer, Richard Maltsbarger, said:

    The first [action plan] is supply chain product flow where we believe we've made the inventory investments necessary to have the depth and breadth in key categories like appliances and flooring and tools and hardware to serve both the Pro customer and DIY customer. Our focus is now shifted to, how do we optimise that flow to improve our service levels and to improve our in-stock percentages.

    The home improvement retailer also plans to open 10 new stores this year and will test a new delivery service for home delivery.

    Lowe's president and CEO Marvin Ellison began his tenure on 2 July. Mr Ellison boasts some 30 years of experience in the retail sector including 12 years at The Home Depot. He is credited with helping improve in-store operations at Home Depot by investing in technology to reduce labour in some areas, so that it could be shifted to helping customers.

    As of May 4, Lowe's had 2,154 home-improvement and hardware stores in operation across the US, Canada and Mexico.

    Looking ahead, the company says it expects a 5% increase in sales in fiscal 2018, with same-store sales increasing 3.5%.

    Related:

    USA update: Lowe's names new CEO - HNN

    Online sales drives Ace Hardware in Q1

    Ace Hardware Corporation posted record sales in its first quarter, mainly as a result of e-commerce growth.

    The hardware cooperative said it had a 2.2% increase in retail same-store sales during the first quarter of 2018, reported by the approximately 3,000 Ace retailers who share daily retail sales data. This increase was the result of a 3.3% increase in average ticket, partially offset by 1.1% decrease in same-store transactions.

    Consolidated revenues for the quarter ended March 31, 2018, totalled USD1.31 billion, an increase of 6% from the previous corresponding period (pcp). Total wholesale revenues were USD1.25 billion, an increase of 5.3%, as compared to the pcp. Increases were noted across all departments with paint, electric and outdoor living showing the largest gains.

    Total retail revenues for the quarter were USD63.1 million, an increase of 21.3%, compared to the pcp. Retail revenues from Ace Retail Holdings were USD57 million in the first quarter of 2018. Retail revenues from Ace Ecommerce Holdings, which was formed in the third quarter of 2017 for the acquisition of The Grommet, were USD6.1 million in the first quarter of 2018.

    Net income was USD11.9 million for the first quarter of 2018, a decrease of USD16.4 million from the first quarter of 2017, as the retailer boosted its strategic investments. President and CEO, John Venhuizen, said:

    A 34% increase in sales from Acehardware.com coupled with new store growth from existing Ace retailers and renewed interest from competitor conversions fuelled our record sales growth.
    While first quarter profits are well below last year's levels, most of this was expected. We invested heavily in the first quarter to get our new 1.1 million square foot Fredericksburg retail support centre ready to open in June as well as to prepare for the insourcing and re-platforming of our new Acehardware.com website.

    Ace added 28 US stores in the first quarter of 2018 and cancelled 28 stores. The retailer co-op's total domestic store count remained at 4,418 for the first quarter of 2018 which was an increase of 60 stores from the first quarter of 2017. On a worldwide basis, Ace added 44 stores in the first quarter of 2018 and cancelled 28, bringing the international store count to 5,137 at the end of the first quarter of 2018.

    Related

    USA update: The Grommet boosts sales at Ace Hardware

    Online home improvement sales growth trails Amazon

    Home improvement sales are moving increasingly online in the US market, according to Retail Dive. This positions Amazon to take marketshare in a category largely seen as immune to e-commerce. Home Depot's first quarter e-commerce sales rose 20% this year, while Lowe's said it saw comp sales growth 20% online in its first quarter or about 5% of overall sales.

    Amazon has catching up to do in terms of raw sales across all sub-categories in home improvement, but sales of tools and other home improvement items grew 25% last year to USD6.1 billion, according to One Click Retail.

    Connected-home and Alexa-enabled devices, especially in security, are key to Amazon's share, but so are tool sales, and tool brands themselves are helping stoke Amazon's growth in the segment, based on a benchmark report from product experience platform Salsify.

    In the first quarter, Amazon had 93% market share in home improvement tool sales, according to another report from Jumpshot.

    Home improvement seemed to be a retail segment sheltered from the Amazon effect, largely because of the two big retailers' level of sales to building professionals, their in-store expertise when DIY customers embarked on home projects and the spontaneous nature of some of the work - weekend weather is nice, or a homeowner needs a new drill when the old one breaks down.

    That customer service is protective, especially to Home Depot, according to GlobalData Retail managing director Neil Saunders. Home Depot benefits from being a destination for home improvement projects in all stages from planning through final touches and from its locations, he said, while Lowe's draws in more impulse shoppers. Mr Saunders believes that difference hurts Lowe's when weather drives a decline in demand.

    But many home improvement items - from bathtubs to tools - are now available at Amazon, and tool brands are vying for market share on its marketplace. Brands that provide more information, including all technical specifications, a variety of images and, especially at higher price points, good reviews are taking sales, according to Salsify's report.

    As Amazon grows in the space - it acquired smart doorbell startup Ring in February - the legacy retailers are also facing some challenges that could make customers more sensitive to price, something that tends to send many consumers to Amazon.

    Amazon remains a small player, although its marketplace gives shoppers a range of products that rival the big box players, according to Salsify. Still, Home Depot's USD24.9 billion in sales in the first quarter alone vastly outpaces Amazon's USD6 billion take in the segment for all of last year - and Mr Saunders believes Home Depot isn't feeling the impact of Amazon.

    Amazon's growth is outpacing other retailers in the category, though, and it has a smooth path upward. Analysts predict that traditional home improvement and hardware stores may not be immune to the "Amazon Effect" forever.

    Read the One Click Retail here:

    Tools & Home Improvement: The Amazon Effect - One Click Retail

    Tesla pulling out of Home Depot stores

    Tesla is ending its partnership with Home Depot and will remove its branded kiosks from as many as 800 of the home improvement chain's US stores by the end of the year.

    The move is sudden reversal for Tesla, which has spent the past six months trying to expand its presence in Home Depot stores.

    The Tesla kiosks were designed to educate consumers and ultimately generate sales of its residential rooftop solar panels and Powerwall, a battery it designed for homes that store the energy generated by solar panels.

    Home Depot's relationship with Tesla will continue through the end of the year, a Home Depot spokesman told Fortune magazine. The change doesn't affect Home Depot's plans to continue offering solar options to its customers.

    A Tesla spokesman confirmed that the kiosks would be phased out and the home energy products will be moved to Tesla's retail locations. The automaker has 300 retail locations worldwide.

    The company confirmed that the exit is not a signal that its pivoting away from its residential solar or energy storage products.

    Customers most satisfied with Menards

    Menards ranks highest in customer satisfaction among home improvement retailers for the first time, according to the J.D. Power 2018 Home Improvement Retailer Satisfaction Study.

    The study measures customer satisfaction with US-based home improvement retailers by examining five factors (in alphabetical order): merchandise; price; sales and promotions; staff and service; and store facility. Satisfaction is measured on a 1,000-point scale.

    Some key findings of the 2018 study include the following:

  • The "two-minute warning". From the time a customer enters a store, that person expects to receive assistance from a store employee within two minutes, otherwise, satisfaction begins to decline. Overall satisfaction declines significantly when a customer waits more than two minutes to have his/her question answered, compared with waiting less than two minutes (satisfaction scores of 821 vs. 882, respectively).
  • Satisfaction drives loyalty. Among delighted customers (overall satisfaction scores of 901 and above), 80% say they "definitely will" repurchase from the retailer, compared with the study average of 48%. Additionally, 83% of delighted home improvement retailer customers say they "definitely will" recommend the retailer to others, compared with the study average of 49%.
  • Delightful experience influences recommendations. Among delighted customers, the average number of positive recommendations is 4.0, compared with the study average of 2.6.
  • Menards (836) ranks highest in customer satisfaction among home improvement retailers and performs particularly well in the merchandise; price; and sales and promotions factors. Ace Hardware (832) ranks second, performing highest in staff and service. Lowe's (828) ranks third, performing highest in merchandise and store facility.

    The 2018 Home Improvement Retailer Satisfaction Study is based on responses from 2,972 customers who purchased home improvement-related products from a home improvement retailer within the previous 12 months. The study was fielded in March 2018.

    For more information about the J.D. Power Home Improvement Retailer Satisfaction Study, visit:

    J.D. Power 2018 Home Improvement Retailer Satisfaction Study

    SmartKey available in select Kobalt tool chests

    The Kwikset brand of Spectrum Brands' Hardware & Home Improvement Division (HHI), now offers one-key convenience through SmartKey Security[tm] technology in select Kobalt Tools 3000 Series tool chests, available at Lowe's. This will allow homeowners and trade professionals one-key access for their home or workshop.

    SmartKey Security is a patented feature that enables end-users to quickly and easily re-key their locks so all can be accessed using the same key. It was designed to make security simple, with features to protect homeowners from common break-in methods such as lock bumping and picking.

    The ability to mix and match different sizes to build a custom work station that is accessible with a single key is now possible with the new Kobalt 3000 Series tool chests that have SmartKey Security.

    The partnership between Kobalt Tools and Kwikset bring a streamlined, secure solution to the tool storage category.

    Hillman integrates key cutting service

    The Hillman Group has entered into a definitive agreement to acquire minuteKey. Terms of the transaction were not disclosed.

    The transaction will join together Hillman's full-service key-cutting platform with minuteKEY's self-service key-cutting kiosks, building on both companies' technologies. The unified key-cutting platform will be backed by KeyHero, Hillman's digital key backup and retrieval technology platform.

    Hillman president and CEO Greg Gluchowski said the combination brings advantages to both companies.

    Hillman's key duplication and origination business is primarily driven by the hardware desk at home improvement retailers across North America. By combining that retail presence with minuteKEY's network of self-service kiosks, we will be able to offer consumers a simple, consistent, technology-enabled solution regardless of how, when, and where they want to have their key made.

    The transaction is subject to regulatory approvals.

    minuteKEY makes the world's first patented self-service, key duplication kiosk. It has created a highly accurate, secure and easy-to-use key-cutting device. The kiosks are found in Lowe's, Menards and Walmart across North America and Canada. It was founded in 2008 and based in Boulder, Colorado (USA).

    Related:

    USA update: Hillman's digital platform for keys - HNN
    retailers

    Indie store update

    Honouring a Laidley hardware store

    Bexley North will lose its local hardware outlet and successful re-brand for Kellys Wodonga

    A Mitre 10 store is celebrated for its longevity; a 58-year-old hardware business in NSW will shut its doors for good; and Kellys in Wodonga (VIC) shows consistency after changing to the Mitre 10 banner.

    Goodwin & Storr's long term legacy

    The Goodwin & Storr Mitre 10 in Laidley (QLD) will be honoured in the Long Established Category at the Lockyer Valley Chamber of Commerce and Industry Business Recognition Dinner later this month.

    The store started out as a fabrication business when Bill Goodwin and John Herbert "Herb" Storr took it on "more by accident than anything" over a century ago, according to the Gatton Star newspaper.

    The firm John Storr's grandfather began has evolved into a major hardware store in the region. He explains:

    During the 1920s when Peter Nelson, who had the hardware shop in town, passed away, his son sold the business. That's when we got into hardware as well as making tanks and iron mongering.

    In the 1950s, Mr Goodwin left the business and Herb ran things with his son, Arthur. Mr Storr's own father went into partnership in the business in the 1980s when he returned from overseas.

    In 1992, Mr Storr joined the business - in which his three sisters are partners - and during his time he has seen plenty of change. He said it was vital to keep on top of the market and make sure he was selling things people wanted.

    When I started here 30 years ago we were selling different products. We would have sold 90% nails and 10% screws and, of course, there were hammers and things.
    Now we probably sell 90% screws, 10% nails and it's not hammers any more, it's all electric screw guns. The nail section has completely diminished...You can have the same product in two different colours and one won't sell, the other will walk out the door. And what sells in Brisbane won't necessarily sell in Laidley, they're completely different markets.

    In 2011, Mr Storr made the decision to focus on hardware and get out of tank manufacturing. He said:

    We stopped the tanks after the last rebates back in about 2011 because the business died.

    Shifting the focus meant he was able to invest in expanding and renovating the hardware store. He said:

    We did about a quarter-of-a-million-dollar expansion back around that time. You've got to keep reinvesting in your business otherwise you just keep losing."

    After 105 years in business Mr Storr is not sure what the future will hold, with no family members interested in taking over once he retires.

    My dad asked me to get it to 100 years old and he said 'I don't care what you do after that'. To get it to 110 would be a good score. I'm 58, I don't want to be like my grandfather and uncle, working until I'm 100 and not have a life.

    Mr Storr said he would like to see the business continue but admitted it was "hard yakka" and there were easier ways to make money, especially with pressure from major stores like Bunnings.

    Bexley North Hardware calls it a day

    Peter Blackwell is closing the hardware business started by his father at Bexley North (NSW) 58 years ago, reports The Leader newspaper. Blackwell's Bexley North Hardware closes its doors at the end of June. He said:

    This one little shop has supplied hardware to some major projects including the M5, the Port Botany container wharf expansion and the upgrade of railway bridges at Bardwell Park, Kingsgrove and Narwee.

    Mr Blackwell's father, Ronald opened the family business in the late 1960s and Peter bought it from him 21 years ago. He said:

    We don't have any kids and my nephews and nieces aren't interested in taking it over...A small hardware shop is not as viable as it used to be.

    Mr Blackwell has seen a lot of changes in Bexley North over the years. He explains to The Leader:

    The area has an ageing population and now the elderly are passing away or going into retirement villages. The new people moving are either in too much debt or are not doing their own handy-work but getting someone else to do it.
    Where the older generation did it themselves the new generation doesn't know what they are doing.

    Mr Blackwell said the attitude of some of his bigger customers, particularly the local schools, has also changed when it comes to supporting small businesses.

    We used to have a lot of accounts with the schools. But the new principals always tell their maintenance people to go to Bunnings.
    I know we are still officially on the books with the schools. We are still asked to source specialist supplies. They have always had good customer service here. Otherwise, they go to Bunnings.
    I don't know why the government is encouraging them to do it just to keep the big boys going.

    Mr Blackwell said he has three categories of customers: project managers covering major developments; developers building units, and people building their own homes.

    The only people we have had trouble with payment are the developers. But I never have trouble with payment from the top end project managers or the home handymen. Sometimes a project manager would ring and ask for something that could not be sourced anywhere or that they needed in a hurry and I would do it.

    There have been difficult times in the past when Mr Blackwell was hit by a car and seriously injured. His wife Karen had to run the business for two years but he was able to recover and make it back to working full-time. While Mr Blackwell won that battle, he said the fight with big business has defeated him.

    When the new Bunnings opened at Kingsgrove I thought we would lose about 30% of our clients but we lost 60%...For Bexley North it means that personal service will be lost.

    Kellys Wodonga re-brand two years on

    The Border Mail newspaper recently profiled Kelly's Wodonga and reports that despite external changes, the owners and service are still the same with Adrian (AJ) and Shelley still managing the store under the Kelly's Mitre 10 Wodonga brand.

    The husband and wife team have been operating the business since 2006, starting as Kelly's Wodonga. They changed to take on the Mitre 10 banner in July 2016. AJ said:

    We are still the same business as we were when we were Kelly's. We just added some additional Mitre 10 products to our existing lines. Even though we are just a husband and wife business, we are backed with the buying power of Mitre 10, NRI and AIS, which means that our prices are competitive with the big corporate enterprises.

    Agricultural retail has been in the Kelly blood for some time. Adrian's father, Des Kelly, was a stock and station agent as was his father.

    You can quite often see any of our four kids in the business as well. Samson now works on one of the counters and Zach helps customers out with their needs and loading cars. Cate and Isla help with putting stock away and cleaning shelves on occasions. Also our niece Gabbs has joined our team, and she is a great asset.

    Related:

    Indie store update: Kellys Wodonga part of Mitre 10 - HNN
    retailers

    Retail update

    Temple & Webster collaborates with Taubmans

    Newly appointed Ikea Australia CEO reveals plans to open over 30 more stores around the country

    The paint range Temple & Webster developed with Taubmans is available exclusively on the retailer's website; and Ikea could have 40 stores in Australia by 2030, up from 10, according to its new CEO.

    Taubmans paint for Temple & Webster

    Online furniture and homewares retailer, Temple & Webster has released its paint line developed in collaboration with Taubmans. Colour by Temple & Webster is made up of 20 low-VOC classic paint shades and on-trend colours designed to work together seamlessly.

    Included in the range are neutral palettes of Chateau, Lighthouse and Pavilion, or the serene, coastal feel created by Treehouse, Ranch and Temple.

    With the added convenience of to-your-door delivery, renovators and decorators have the option to try a ready-made palette of colours or build a custom colour scheme with wall colour, trim colour and accessories.

    All 20 colours come in two finishes; low sheen, available in one and four litre tins; and semi-gloss, available in one litre tins. A low-sheen, white ceiling paint is also available.

    There are also ready-to-go sample pot packs in varying colour combinations, as well as brushes, rollers, trays and drop sheets.

    Ikea sees 30 more stores in Australia

    Home improvement giant Ikea said it will open over 30 new Australian stores. It currently has 10 stores in Australia, but by 2030 the number is expected to increase to 40. And the number could be even greater if "smaller format" stores are opened inside shopping centres.

    The expansion is part of a plan by Ikea's new boss, Jan Gardberg, who has set his sights on rapid growth in Australia, including selling solar panels. He said:

    We have more than 40 years of home furnishing experience here in Australia and we want to take that and transform that home furnishing knowledge into the virtual and electronic world also.

    In addition to its existing 10 stores, Ikea has recently rolled out collection points in regional areas, primarily for online shopping in Queensland, Northern Territory, Tasmania, Canberra and greater Sydney.

    Last year, the company also opened a $150 million distribution centre in Sydney's Marsden Park, underpinning its online shopping push.

    Ikea customers can expect to see fewer human beings at the checkouts in favour of a more "seamless" experience of touchscreens, self-service and online ordering. Richard Harries, head of HR for Ikea Australia, said:

    Our focus is on customer fulfilment. We know we have great possibilities to meet the needs of our customers. The technology that we're looking at is how we can make it as seamless as possible. We're looking at digital screens for the Ikea food business, payment methods - all things to make it a seamless journey.
    retailers

    Indie store update

    CRT updates its marketing

    Suppliers help to vote for AIRR's best store and quarter century milestone for rural retailer

    CRT's "Your local bloke" message is being replaced in an era where women's roles in agriculture are acknowledged to be as significant as men's; Yolla Co-op is a highly "progressive" store; and Dave and Cheryl Thomas took over Heathcote Rural Merchandise 25 years ago.

    "Local bloke" cut from CRT branding

    Ruralco-owned CRT (Combined Rural Traders) branches across Australia will have the "Your Local Bloke" slogan removed. CRT general manager, Greg O'Neil, announced the decision at the group's annual conference recently.

    It has already disappeared from corporate advertising and the slogan will now gradually be removed from uniforms and store advertising at 500 locations around Australia as the branding is updated, he said.

    Mr O'Neil told conference delegates the word "bloke" was a problem when women were increasingly taking professional roles in agriculture. He said:

    It was felt that the word 'bloke' was limiting in today's environment.

    Ruralco managing director, Travis Dillon, believes the familiar "Your Local Bloke" message "has had its time". He said:

    Your Local Bloke is not a branding you would choose today if you were starting from scratch.

    Mr Dillon also said the Ruralco marketing team decided it was time for a refresh and that the slogan change was not motivated by political correctness. He told The Wellington Times:

    It's just unfortunate our timing has come around that of which political correctness is in the headlines. It is a discussion that has been going on within the company for years in order to make it more relevant to our customers and CRT members.
    The Local Bloke, while it has been part of the business since 1988, it's just not as relevant as it was before ... it's just not contemporary or fits with the profile or our business.

    Mr Dillon said it is unlikely the company will create a new slogan for CRT, instead a number of brands around rural Australia will be upgraded and refreshed in what will be rolled out as a staged approach.

    Not everyone will have to change overnight, it is a gradual upgrade over the years. In terms of stores, they'll be given a time frame to change it so we don't expect it will be a massive impact to our branches.

    However he admitted the news hasn't been well-received by all members of the group, some who have been a part of it prior to the slogan even being introduced. Mr Dillon said:

    I think everyone understands we need to have a more contemporary logo and that 'Your Local Bloke' doesn't necessarily represent our customer base anymore, so generally it's all been pretty supportive.

    During the past year it acquired "a portfolio of high quality businesses", including five CRT member sites in WA, NSW and Tasmania, with help from a $65 million capital raising a year ago. Mr Dillon said:

    We've looked to grow our base by attracting existing member businesses to come over to Ruralco, and we've also acquired businesses not previously part of the network.

    AIRR chooses most progressive store

    Yolla Co-op in Tasmania has won the award for Most Progressive Store for the second year running, at the Australian Independent Rural Retailers (AIRR) conference. General manager Peter Moore told The Advocate:

    This award for the best marketed store is voted on by suppliers around Australia. It's a great honour.

    Mr Moore credits Yolla Co-op's success to the relationships staff and management build with suppliers. He said:

    We run the largest in-store open day each year, where 60 national suppliers attend

    Yolla Co-op runs supplier information sessions and regularly sends staff to mainland Australia or New Zealand for training. Mr Moore explains:

    We are heavily into forming good relationships with suppliers. It's that commitment to work with suppliers in partnership and understand their objectives. This is recognition of what we do in the field and store and is a good indication of what we put into the store.

    AIRR group sales general manager Peter Lourey said the award was based on driving sales, promotional support, in-store merchandise, service and use of technology, and Yolla Co-op won "fairly resoundingly".

    Suppliers spend a lot of money to get in front of the end user and Yolla harnesses that exceptionally well. They really see the worth in partnering with suppliers to bring value to their customers. They're leading the way Australia wide.

    AIRR said it has 400 members in the group.

    Rural retailers celebrate 25 years

    Cheryl and Dave Thomas, owners of Heathcote Rural Merchandise in regional Victoria, have reached the quarter century milestone of operating the business.

    In March 1993, they moved from Dandenong to take it over. Cheryl told The McIvor Times that after 25 years, she is unsure if the time has gone fast or slow but sometimes it can be both. She said:

    It seems like a very long time when you look back on it, but then again time flies when you're having fun and we sure have had fun.

    When the couple took over, the newspaper ran an article in which Dave said they were "looking forward to getting to know the people here". Cheryl said he anticipated correctly that it is what they've enjoyed most about the job.

    The most rewarding and enjoyable part for us has been the people - the people you meet every day and what we have learnt from them and are still learning. The relationships you make out of a job like this mean a lot to Dave and I, some of them will last a long time.

    Cheryl was hopeful the milestone wasn't going to attract attention. She said:

    We were hoping it was going to just drift by!

    While Cheryl and Dave have enjoyed their time at Heathcote Rural Merchandise, Cheryl mentioned it hasn't always been smooth sailing.

    There have definitely been tough times, it obviously depends on the season, but the whole way through we have tried to stick to the positives and think about the good times because there have been plenty of them.
    retailers

    USA update

    Private equity owns True Value

    Lowe's needs a new CEO and Home Depot partners with Pinterest on a shopping tool

    True Value to enter the deal with ACON Investments; Lowe's CEO Robert Niblock will retire as soon as the company finds a successor; Home Depot and Pinterest expand "Shop the Look" feature with over 100,000 decor products; Lowe's has a new artificial reality feature in its mobile phone app; and a female-led paint company is taking it up to the corporate players in terms of environmentally-safe products.

    True Value moves out of retail co-op model

    A private equity firm has taken a majority stake in True Value that will shift the hardware retailer away from its co-operative roots that dates back to1948.

    Eighty-five per cent of True Value members voted to pass the deal, which will turn over 70% equity of the Chicago-based retailer to ACON Investments. Current members will keep the remaining 30% equity, as well as receive a USD196 million cash payout.

    About USD229 million of ACON's funds will be used to return 70% of retailers' capital, promissory notes and dividends. In an interview, True Value president and CEO John Hartmann Hartmann said the returned money would give store operators more financial flexibility.

    The concept of a co-op, which I'm very respectful of even though I've asked shareholders to move away from that, is that individuals came together as a group to do things they couldn't do on their own. The unfortunate thing is it traps their investment, their equity, in the company.

    The retailers who retain a stake in the new True Value can use the returned funds to invest in their business or use as they see fit. Mr Hatmann said:

    Our independent retailers operate in a very competitive space, so freeing up this capital is a really big deal. It allows them to reinvest in their stores, modernise their stores and invest in new stores.

    The retailer's day-to-day operations at existing stores will not change, at least for now. Members will continue to receive True Value merchandising and marketing support. In the future, a minimum-purchase threshold will entitle retailers to use the True Value brand in the store and in local media, as well as participation in the True Value e-commerce ship to store program. Mr Hartmann said:

    The partnership also will let True Value broaden its brand's reach by eliminating the requirement that anyone selling True Value products purchase stock. The company is now free to sell to anyone who wants to buy from us.

    Mr Hartmann acknowledges that members "have weathered some significant intrusions from very able competitors" including big box home improvement stores like Home Depot and Lowe's. He also concedes the company is "not 100-percent insulated from Amazon". But he remains optimistic that True Value has carved out a solid niche.

    Our stores are community-based, very convenient, small retail. A drone can't get you a hammer any faster than you can get it from your local True Value, and it can't mix your paint, either.

    ACON's investment was particularly attractive, Mr Hartmann said, because the firm already has investments in wholesale, retail and manufacturing - all three of which are part of True Value's business. In addition to its retail locations and wholesale distribution arm, the company also operates a manufacturing facility for its branded paint. In a prepared statement, Aron Schwartz, managing partner of ACON said:

    True Value is an iconic brand and one that we have long admired. We believe that independent hardware retailers are an essential part of our society, providing consumers and communities with unrivalled service and expertise. We share True Value's passion for helping to ensure that the independent hardware retailer thrives for decades to come, even as times change and the competition gets tougher.

    True Value currently has about 4,400 independent retailers worldwide and revenue of USD1.5 billion in 2017. It operates under the store identities of True Value, True Value Rental, Grand Rental Station, Taylor Rental, Home & Garden Showplace and Induserve Supply.

    Lowe's CEO stepping down, investors happy

    Robert Niblock is stepping down as chief executive of Lowe's Home Improvement, and according to a report in Bloomberg, investors are hoping a new leader can bring the mojo back to a chain that has spent years in the shadow of rival Home Depot. Seema Shah, an analyst at Bloomberg Intelligence, said:

    The market is likely excited for new leadership. It is hoping for a leader who can better capitalise on the macro tailwinds and drive improved bottom-line performance.

    Lowe's same-store sales growth has trailed Home Depot's for many years, weighed down by a focus on DIY customers compared to Home Depot's core customer base of professional contractors who buy more bigger ticket items.

    In the most recent (fourth) quarter, same-store sales grew by 4.1% at Lowe's, while Home Depot reported an increase of 7.5%.

    While both Home Depot and Lowe's have benefited enormously from the home improvement boom caused by increasing home values and the ageing housing stock in the United States, Lowe's has not been as adept at capitalising on that. Home Depot has also achieved better sales performances, thanks to better store locations because they are located in more lucrative areas than Lowe's. In addition, its earlier investments in e-commerce and more responsiveness to changing market trends through product assortment, has helped place Home Depot in a leading position.

    And Home Depot is not ready to cede any of its leadership. In addition to an aggressive move into appliances, an area where Lowe's leads it, Home Depot is roughly doubling its capital spending in the next three fiscal years to some USD11.1 billion on store remodelling and new technology to make store workers more productive and deepen their interaction with customers. (Last year, Home Depot's online sales rose 21.5%.) Mr Niblock said in December that Lowe's will increase its own capital spending to USD3.6 billion from 2017 to 2019.

    Strategy for improvement

    Lowe's executives have announced plans to get profits back on track through initiatives aimed at improving the in-store shopping experience. They also want to bring in more exclusive product partnerships like the one it announced with paint giant Sherwin Williams.

    The company has also reinvested in its workforce to increase motivation and performance; it has announced bigger bonuses as well as higher benefits packages for its employees. At the same time, Lowe's is expanding its supply chain by launching its first ever direct-to-customer fulfillment centre in Nashville.

    The home improvement retailer is expecting a growth in revenues of about 4% and same-store sales are expected to increase by 3.5% this year. Additionally, Lowe's is expected to build another 10 stores in the US in 2018.

    Home Depot expands decor strategy with Pinterest

    The Home Depot is doubling down on its interior home decor push, broadening its partnership with image bookmarking site Pinterest.

    The home improvement retailer said the partnership will "dramatically expand" Pinterest's visual discovery feature called Shop the Look, to include more than 100,000 new shoppable home decor products. That includes vanities, faucets, lighting, textiles, tabletop and interior decor, according to a press release.

    Shop the Look is meant to simplify the way Pinterest users can search and buy similar products to the ones featured in Pins.

    In an article in AdWeek, Melanie Babcock, senior director of agile marketing and social media at Home Depot, explains:

    In the past, a user would go to Pinterest, find a room scene they liked and see an item they really liked ... but now what? In order to find that item, they would have to go to another website and make a search describing it.
    On Pinterest with Shop the Look, they're taking all that extra work out. Customers can roll over hot spots and see an assortment ... hopefully, an exact match and others like it appear in the customer experience.

    Home Depot is now working with Pinterest to identify products in Pins whether they're from Home Depot or not to help that customer experience go from inspiration to discovery to sale in one experience, Ms Babcock added.

    Ms Babcock said that Pinterest is ideal for Home Depot because "it's a great place" for people to start home improvement projects "in a safe way".

    Home Depot has expanded our offering to consumers from traditional do-it-yourself to the home decor business. For us, our strategy with Pinterest was originally around an introduction to do-it-yourself projects and has evolved to drive awareness around soft goods...
    I have been Pinterest's No. 1 advocate at Home Depot for a number of years. Shop the Look is the first time we're able, as a retailer, to see the direct relationship between Pinterest and how it meets customers' need [for] discovery, which is why we're doubling down on multiple versions of types of ads and experiments with components.

    Pinterest debuted Shop the Look in February 2017; the feature combines computer vision and human curation to make recommendations. At the time, Pinterest said visual search was one of its most-used features, with hundreds of millions of searches every month.

    Video campaign

    Home Depot launched a video campaign on Pinterest in earlier this called "Built in Pins" that demonstrates the work for home improvement projects inside a pinned video. The Pins feature how-to guides and tip-sheets for the projects and are fully shoppable. Ms Babcock explains::

    Sometimes, when you're a big company and have a campaign or message you want to send, you tend to create a creative strategy that is generic across multiple channels. In this case, we knew customers are going to Pinterest to seek out help around home decor and redoing rooms, and we wanted to build a strategy for the actual pins.

    Home Depot said the partnership expansion with Pinterest complements its growing online catalogue of home and interior decor products. Most notably, it fits with the company's acquisition in December 2017 of home decor online retailer The Company Store from Hanover Direct.

    Last July, Home Depot also joined online startup Laurel & Wolf, which describes itself as a "digital decorating platform," to provide customers with a professional designer.

    Lowe's using AR for faster buying decisions

    Home improvement retailer Lowe's has partnered with Google to launch an augmented reality (AR) enabled feature showcasing the latest spring collection on its mobile app.

    The new "View in Your Space" mobile tool allows Android users with ARCore-enabled devices to place lifelike, size-accurate items from Lowe's spring catalogue into their outdoor spaces, according to the company's website. They select certain products in their homes prior to making a purchase.

    Lowe's research reveals consumers often take weeks when considering big-ticket items such as patio furniture and bbq setups, culminated in the "stalling out" of more than USD70 billion in home improvement projects. The goal for Lowe's mobile augmented reality is to close this gap.

    Typically that lag in purchase is due to ensuring the potential product will fit and look appropriate in the home or yard space. The AR capability eliminates any concern about how the items will look once in place as it lets consumers embed products into a scanned image of the space.

    Gihad Jawhar, head of digital development at Lowe's, told Retail Dive in an interview:

    There are a lot of returns driven by a product not actually fitting in a space. Many times it doesn't look like what it looked like it did in the picture, because you're looking at this two dimensional picture on a small screen even if it's on a desktop...

    Product-in-place

    With the "View in Your Space" feature, a Lowe's app user taps on the option while browsing products on the retailer's website. The customer can then scan, via the device camera, a potential product location and then drag and drop a product into the desired spot.

    Shoppers can even "walk" closer to the product or walk "around" it to get a look at how the item looks from different vantage points. If all looks good, consumers just need to click an icon in the lower right-hand corner to move it into their online cart.

    While technology is the centerpiece to Mr Jawhar's job, he acknowledges that Lowe's doesn't have a competitive advantage when it comes to technology but companies like Google and Apple do, so partnerships are a critical piece to staying ahead of the retail competition.

    Stores are an important piece of tying everything together. Roughly 60% of all in-store sales are influenced by digital, Mr Jawhar said. Where Lowe's hopes to continue to differentiate from online players like Amazon and other brick-and-mortar companies that haven't invested much in technology is with the interplay between channels, allowing customers to research online or on mobile and then come into stores to get advice and browse materials and potentially buy them.

    Paint brand challenging others to think green

    Colorhouse is a US-based women-led, women-owned company that is making its product as eco-friendly as possible. Established in 2005, it became one of the first paint companies to combine an eco-formulation (of acrylic-based paints) with an emphasis on colour and sustainability.

    The paints are GreenWise certified, the highest verification available for a paint brand. As part of that certification, the following chemical compounds are not allowed: methylene chloride, 1,2 dichlorobenzene, phthalates, isophorone, formaldehyde, methyl ethyl ketone, methyl isobutyl ketone, and heavy metals (antimony, cadmium, hexavalent chromium, lead, and mercury).

    Puji Sherer, company president, said the eco-sensibility goes beyond just the formulation: the paint comes in recycled content containers with 100% PCW chlorine-free labels, and brochures; it is manufactured in a LEED gold manufacturing facility, and the company is a member of the EPA SmartWay transportation (to streamline freight and delivery). Colorhouse headquarters is run on renewable energy and serves as a paint can drop off site.

    When founders, Virginia Young and Janie Lowe, started the company, they wanted to adapt their clay-based paints to make them easier for consumers to use in their homes. But the company ended up going beyond just formulation to think more deeply about their impact. Ms Young said:

    Our search for healthier paint options pointed us to the vibrant green building community, a grassroots community that is about sharing knowledge and pushing the envelope on building materials that are better for us and the planet.

    That trickles down to small details: for instance, the company doesn't hand out colour cards. Instead, they ask customers to purchase the cards (for 50 cents a piece) on its website. It is simply to reduce waste and unnecessary paper usage. And instead of having a long roster of colour cards, Colorhouse has 128 in total.

    Kim Martin, e-commerce manager, works with customers to find the right colour. She answers everyone's questions whether it is on email, Facebook Messenger, or Instagram. Ms Sherer said:

    The biggest challenge for Colorhouse has been competing in an industry with only a few major players, all with deep pockets. From offering free colour chips to Google Adwords, it is expensive for us to compete in the traditional marketing world, so we rely on our reputation for quality, our creativity, and grassroots marketing ideas to get the word out about our brand.

    Colorhouse has received investment from Solera Capital, a women-owned, mission-based private equity firm that invests in emerging-growth companies.

    That said the economics of running a small business in a massive industry can be challenging. The paints do cost more than standard options at Home Depot but they have zero smell, which some consumers appreciate, making it easy to swiftly move into the space after painting it. Ms Sherer said:

    We have a toll manufacturing agreement that allows us to share in the cost of raw materials and helps to keep the cost of our paint down. As an independent paint brand, it would be difficult to keep costs down without this arrangement.

    As the company expands, it is turning up in more stores: Ace Hardware, Home Depot (online), Amazon, Crate and Barrel.

    retailers

    Retail update

    Beaumonts looks to overseas markets

    Australia's largest specialty homewares retailer House makes its debut in the UK market

    Bob Beaumont from Beaumont Tiles has been in the business for 50 years; and House is providing a different proposition for the UK customer with an omnichannel experience.

    Global expansion for Beaumont Tiles

    Australia's largest tile retailer, Beaumont Tiles - Bunnings is the second biggest player in tile retailing - plans to grow its footprint in the country from 115 stores to 180 outlets and take its brand overseas. Most of the 65 new Australian stores will be franchised businesses, according to CEO and executive chairman Bob Beaumont.

    Mr Beaumont also believes home owners are spending an average of $20,000 on a full bathroom renovation which is helping to drive its robust growth. The company is importing 100 shipping containers full of tiles each week to keep up with demand, according to a report in Fairfax Media.

    Beaumont Tiles generates about 50% of its business from the renovations market and the other half from new home and apartment construction.

    However Mr Beaumont believes there has been slight cooling in the market and the company isn't likely to repeat the exceptional 12% growth in sales to $275 million that occurred in 2016-17. It was likely that rate of growth was the high watermark in this housing cycle.

    Mr Beaumont expects it to remain solid even if interest rates begin to rise this year but said a tapering was occurring in NSW. He said:

    Melbourne is still going gangbusters. We are seeing a slight tapering off in Sydney. Things are certainly coming off the boil a bit.

    Despite an expected slowdown, Mr Beaumont told Inside Franchise Business, "there is plenty of opportunity within Australia, and opportunity for sales within each store to grow as well". Staff development is the key to strong sales growth, he added.

    We already have very good marketing. I think we can develop our people to be stronger and better than they already are.

    This year the retailer is launching an IT system that is a base for future business. Mr Beaumont said:

    We plan to grow substantially over the next four to five years and then we can use this as a launch pad to extend the brand overseas.

    There are currently no specific countries targeted for expansion, but the team working on exporting the brand have pinpointed countries such as Malaysia and India as well as North America (ie. Canada) as potential regions. He said:

    We believe by bringing together the disparate parts of the business, particularly the IT this year, we can build on this package, transfer and adapt it. We will have to be flexible but strong enough to withstand any environment.

    Mr Beaumont identifies the challenges ahead to be developing a system that takes a client through the sales process to delivery and payment, integrating all aspects. He said:

    We also need to be able to plug in marketing, web, IT based training and payroll - any system in a different country. The big one is logistics but we're set up already with worldwide sourcing so its not such a big step there.

    House homewares kicks off in the UK

    Australian housewares retailer, House said its launch in the UK in April will see it initially open four stores and will be joined by a further two before the end of June.

    The first branch has opened at Westgate shopping centre in Oxford, followed by Bracknell in Berkshire and Meadowhall shopping centre in Sheffield. There are also plans for House to trade directly to consumers via its own dedicated UK website.

    It has ambitious plans to open 75 stores across the UK within three years. Steven Lew, founder and executive chairman of Global Retail Brands, owner of House, said:

    Visiting a House store will not be a 'me-tool' experience. We have a strong store presence, with both favourite brands and so much never seen before product launches.
    We are committed to showing our fresh approach to customer interaction. We want our customers to feel right at home when they come in to see us for cooking, dining and entertaining tips.

    Mr Lew added that the company is an "extraordinary advocate" of training its in-store teams, and has already secured its first UK-based training kitchen and learning facility. He said:

    Our teams must know our products 'inside and out' before they can interact in our stores with our customers...What better endorsement is there than a team member who uses the very product they are demonstrating to you?

    Mr Lew said it is also revealed that it has won the exclusive rights to launch a number of international brands into the UK that are not yet available.

    Related:

    Europe update: Aussie retailer House in UK launch - HNN
    retailers

    Grant Crowle, hardware activist

    The personal is political

    Grant believes better town planning is vital to helping small retailers do better, and to the creation of lively communities

    Grant Crowle first came to the attention of HNN through a series of irascible but oddly enjoyable emails about a Bunnings small format warehouse store that had been proposed in Balmain, a suburb of Sydney, NSW. The proposed store would be quite close to one of Grant's two hardware stores, which are evocatively titled "The Hardware Store".

    It's not uncommon for HNN to receive emails and notes from hardware retailers who are concerned about what a nearby Bunnings could do to their businesses. Grant, however, had gone further than just complaining. He was, umm, in close personal touch with individuals who might have been responsible for putting up a protest sign on the proposed site - which was rapidly taken down.

    As it turned out, the Balmain store is more than just your average Bunnings urban infill project. It's an entirely new style of building. Instead of the "crammed to the scuppers" design that has worked well in areas such as Melbourne's urban-edge semi-compact Collingwood Bunnings store, the Balmain project is much more a warehouse-style store scaled down. Among its unique features is an internal turntable, to enable delivery trucks to better navigate the urban traffic situation.

    While the design is very interesting, it also has to be said that the way in which Bunnings has attempted to get around issues such as traffic congestion in this busy, wealthy, inner-urban Sydney suburb has been, well, somewhat "creative". And in one of those things "that just happen", this particular high-concept Bunnings store has found a worthy opponent in the person of Grant.

    Though "opponent" is perhaps a little unfair. As our conversations on this topic have developed, what has emerged is the portrait of someone who is quite a deep thinker on urban issues. Grant's concerns are not just that a major competitor might move directly into a neighbourhood he has had to himself for some years. It's really that planning bodies and councils are, in his opinion, not really doing their jobs.

    From Grant's point of view the Bunnings application does not go far enough in answering basic questions about issues such as traffic flow. While the turntable is an interesting innovation, it doesn't answer the key question of where delivery trucks will park while they wait to access the store. He also has a lot of questions about the application's modelling of general traffic flow. He says from what he has seen, the most recent application suggests that traffic flow will not increase, because they will be taking customers from businesses like his own. As Grant tells us, "A mate of mine who used to be a traffic engineer said he had never seen that argument used before."

    Whether councils and city planners approve what he might call "dodgy" proposals from major retailers is one thing. Equally important is whether they are actively working to find and develop inner urban space for all the commercial enterprises that are vital to making an urban area "work". That includes large-scale retail, such as hardware stores and furniture shops, but also vital services such as automotive repair, air-conditioning servicing, and even light manufacturing. Grant's point is that all too often councils and planners will work diligently to help a major retailer move into an area, but knock back environmentally sensitive, well thought-out plans to integrate retail and services into residential areas.

    History

    Grant is typically succinct when asked about how he became a hardware retailer.

    I was a boat builder and sailor. Then that industry got really hard by the late 80s and early 90s, so I thought I would buy a hardware store, as that would be so easy. [Grant grins.] Stupid man!
    And now here I am 30 years later and I'm still trying to do it. I bought a store in Burwood (NSW) and the guy shafted me a little bit and we worked really hard at it but it was a tough environment. I ended up selling it to some guys and then I opened this store.
    I knew the area. There used to be Brown's Hardware up the road which was quite successful, but was just too expensive. So we sort of brought a bit of Burwood pricing into Balmain. And gave people what they wanted. From the very first day the local community really supported us.
    I was a local too in Balmain. I just lived down the road.

    Balmain is, of course, an area of high property prices, with the average dwelling costing around $2 million. It's split about 50/50 in terms of renters and owners, and skews lower in the age range with under 39 year-olds dominating. It features considerable harbour frontage, and is located around 4km from the Sydney CBD.

    Grant's store was at one time a factory for Leatherman tools, and later became a depot for Campbell's Soup trucks, before passing into the hands of the Sydney College of the Arts. It's a high-ceilinged space, but the overall floor space is relatively limited - typical of an inner-city hardware store in a high-growth area.

    It's also one of those hardware stores where, through long years of hard experience, Grant and his team have managed to pack a lot of stock into the space.

    I know that we stock probably four times the industry average, stock per metre. There is about $385,000 worth of stock here.

    Grant is also very obviously someone who works hard at improving his stock position with brands, moving away from those that return smaller margins, or offer direct competition through distribution at Bunnings.

    I was having a discussion with our Dulux rep the other day, and I showed him the figures going back five years, where we have basically reversed what we sell. We put Haymes in about five years ago, or probably less, and now we are doing around $140,000 with them a year. Previously, we were doing over $140,000 with Dulux, and now we are doing only $70,000. So I've grown the paint segment, but as I told the rep, the Dulux part of that has nearly halved.
    We only have a little bit of the trade paint and will broaden it with Haymes; we are a Haymes trade depot. But it is really hard yakka in Sydney, it seems to be.
    It just comes down to dollars. All major paint brands all make good paint for all different levels, for premium and for entry-level. It's horses for courses. Tradies who are coming in to do offices and that, we say don't buy a $200 can of 15 litre, we can sell you a $110 can, and it will last the two years it needs to last, until the next refurbishment.

    In fact, Grant has been quite active when it comes to finding brands in paints, coatings and stains that work better with his store.

    You may know Feast Watson, which makes Intergrain, are exclusive to Bunnings. That has caused a lot of friction in the industry. We've always been a large timber stockist because the local area has a lot of timber, so we had full shelves of Intergrain. We felt like telling them they can take them all and put them where the sun don't shine! [Laughter.] Instead, we decided to sell the stock off at a steep discount.
    Orica wasn't happy with us, because we put it up on our website, "Return of sale because of exclusivity to the green shed". Anyway, the state manager rang up and said they wanted us to take that down. Feast Watson said, "Why are you doing that when we already offered to take the product back?" I replied that after supporting their brand for 30 years I felt that I could earn more money discounting it than receiving a credit.

    Grant has replaced Intergrain with a range of alternative brands, including Haymes, Sikkens and Cutek. He says that as a result, the store did not see any drop off in sales revenue from that category. Grant is particularly enthusiastic about the Australian-made Cutek.

    Cutek is the big mover with architects and specifiers. They buy the tin, and buy the stain, separately, so they can add it in themselves. So a landscaper will buy a big drum and he will pour out what he needs. Their cleaners are fantastic, great for stripping off products like Cabot's Aquadeck. These will actually strip it all off. They are amazing, they will keep working for a week.

    While the store currently stocks Flexovit, Grant admits he wants to shift to Klingspor, but hasn't found time to make the necessary data changes in the POS system to accommodate that. Other suppliers have also lured him with special offers.

    We've been buying a large amount of cutting wheels from Makita lately. They have set deals where you can buy 200 boxes of wheels and we can get a proper price. They have an unusual pricing system. There is a large disparity based on size of the order. There are not many incentives for small guys to push the brand because the next discount level is quite high. So that makes it really hard sometimes to achieve the sale because you are competing with someone who is on a better discount level.
    It would be easier if the pricing was a flatter structure. I understand you are giving some of the big guys deals, but then the big guys can always shaft you. In general, though, I think Gavin [Keane] has done really well to get HBT on special prices with Makita and other suppliers, that's really helped.

    While Grant is a strong fan of Makita power tool accessories, as with many smaller retailers, selling the actual power tools is another thing.

    Makita are a good brand, they are a good tool. We're not too concerned about the sales volumes on the Makita tools. If we sold $50,000 worth of power tools for the year, we are selling $150,000 of accessories and accessories. The accessories are selling at 55% gross profit margin, and power tools are selling at 15% gross profit margin. The power tools themselves are there to say I sell power tools, and I sell accessories.

    One of the tricks Grant uses to better utilise the small space to provide all that people need is to not take a "one of each" approach, but to rather carefully select which brands he does stock.

    We have just about everything our customers need in the store. Well, it's what they need 90% of the time, and the other 10% of the time we will get it for them.
    It is interesting, in the industry you used to get a "good, better, best" in the range. I've been with a focus group for quite a long time and we would go on store visits. Two of the stores we went to were Kents at Orange, and Camerons at Batemans Bay. Both are pretty good operations but a few of us said when we got there, what's with all these rows of silicone?
    I said they are all different, but also they are all the same. At this store we decided over time that this kind of stocking was really a failure of the staff selling the product. They think they have to have several different brands to sell basically the same product. And that takes up a huge amount of space.
    For example, we are selling the HBT brand of silicone, which is 100% silicon for $3.99 a cartridge. So there's no real need to buy the cheap stuff. The funny thing with that, we sell Soudal, we've got a roofer that buys boxes off us, and we gave him the HBT one and we said it's the same thing, and he said to us, no it's not. So I asked Soudal, can you 100% guarantee me that it's the same? They said it's 100% the same. But the roofer said, "I'm still not sure..."
    When we were at other stores, for the study group, they told us, 'We understand your problems with space'. I told them, guys, you have no idea. I pointed out to them that they were using space for no real reason. The shops looks really smart from the outside, but when you get in them and you look at them the way we do, quite critically, all of a sudden we found stock hidden behind doors, stairwells. There were trowels and boxes of tiles, etc.
    And then the paint department, it was one-deep and had the same product displayed four times. But all the paint accessories were at the back of the store. We asked why are they out there? Our trays and brushes are directly opposite the paint cans. That's the best way to pick up additional sales.

    A little surprising for overbuilt Balmain, Grant says the store does a good trade in gardening products as well.

    People are amazed at how well we do with gardening products here but people in Balmain have smart little gardens. We've had two local gardening stores close down recently, but we go through a tremendous amount of potting mix, and stuff like that. But we don't sell anything that's alive - no plants. That's dead stock - literally! We used to stock seeds a long time ago but that was such a nightmare. The reps needed to change the packets due to the expiry dates. We eventually just said, forget it, it's too hard.

    There are some products that Grant has an obvious liking for, which he gets a great response for from customers as well. Walking down one aisle, he grabs a big bushy broom off the rack, and holds it up to us to smell.

    Hand-made brooms made in Australia. Smells like hay, made from millet. From Tumut. We sell six to seven at a time to people at Christmas, They are the biggest selling thing so far on our website at the moment. So we like putting the Sabco next to it, which isn't a bad brand, at $25, but people still like to buy handmade brooms for $70. I make people smell them before they buy them!

    Grant is also serious about ecommerce, and has developed his own website. As everyone does, he's had a few issues with this. Some of those issues are major, but others are small and annoying. For example, while Grant is a great supporter of Haymes paints, he's had real problems just getting images from them to use on the website, while companies such as Dulux are keen to help him out.

    Grant admits that some of the numbers when it comes to ecommerce for smaller stores may not work out all that well, but the issue is larger than only profit.

    I don't think [ecommerce] is hugely viable to a large degree, but I think it's a leakage issue. For example, one of our issues is the amount of people who buy Velux [skylights] online, and Velux don't give those guys the same deal we get, because we are a stockist, we display the product etc, but the margins are so slim it doesn't matter. It's a bit like selling power tools. It doesn't matter if you're not making anything on it as long as you're selling it. So it's about leakage, about stopping people going elsewhere.
    We said to Velux we need a flat 12.5% across the board otherwise it's not viable having it on the website. Velux are the best company to deal with in the industry. Their margin for stuff-ups is like 0.02%. In 15 years of dealing with them they've only stuffed up about four jobs. It doesn't happen very often. But they are very disciplined. People ring up and say but I want to get some Velux product today. Well, it just doesn't happen. [Laughter.] You have to wait like everyone else.

    While the website might not directly supply much profit, Grant sees it as helping to develop a lot of secondary business as well.

    People have been contacting us through the website and we've had a couple of really good jobs from Spantech out of it, like $2500 worth of posts and steel beams.

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

    Indie store update

    Top CRT stores celebrated

    Hardex store in regional NSW shutting down and 30 years in business for Tyler's Rural

    CRT 2017 stores of distinction honoured at its national conference; a hardware store in Fairy Meadow (NSW) is closing its doors; and Tyler's Rural in Victoria reaches its 30 year anniversary.

    CRT acknowledges its best

    Farmcraft Kalbar was named the CRT Community Member for the Year at CRT's national conference in Perth recently.

    It has been an integral part of the community for 25 years, and Farmcraft Kalbar managing director Alistair Ross said they were all about giving back. Some of the local organisations to benefit from its support include the Fassifern Cricket Association, Fassifern Falcons AFL Club, Fassifern Men's Shed and the Beaudesert High School.

    This involvement has led to an understanding of the community and an ability to rally those around them in difficult times. When a young local was seriously injured in a car accident, Farmcraft Kalbar helped to raise funds to support his recovery.

    Taree Produce

    The Taree Produce team was named the NSW CRT Business of the Year for 2017 at the event, taking out the title for the fourth consecutive year.

    Principal of Taree Produce, Craig Allport spoke of the efforts of his team in securing the award. Mr Allport is reported as saying:

    Sue and I have worked hard, along with our store managers, David Moscatt and David Leach to ensure our team can continue to support our community in every endeavour. As a business we can never stop adapting to their needs and ensuring we have the most up to date knowledge to help them succeed.
    Knowing how many fantastic CRT businesses there are across NSW, we are really proud to have defended our title again this year.

    Greg O'Neil, executive general manager of CRT, on behalf of Ruralco Holdings Limited, is reported as saying:

    Their continued success and outstanding performance really speaks to the strong culture Craig and Sue have established within the business. Their reputation within their community, but also within the CRT group, is something to be admired.

    Finance partnership

    A strategic partnership between Agfarm and CRT, also announced at the conference, will see Australian broadacre farmers gain more access to affordable input finance this planting season.

    Agfarm's input finance program "Accelerate" has been in the market for the last five years, and is now being offered through all participating CRT stores based in broadacre cropping areas. Mr O'Neil is looking forward to the roll out and said in a statement:

    CRT is always looking for ways to improve our service offering and assist our clients to expand and improve their operations, so the introduction of Agfarm Accelerate to the broader CRT network is great news.
    Most CRT stores currently offer a limited range of finance models to broadacre farmers, however, in many cases they have been restricted due to a number of factors, in being able to offer seasonal finance more broadly. The introduction of Agfarm Accelerate will allow post-harvest payment terms, which will better suit their farming clientele.

    CRT (Combined Rural Traders) was formed in 1970 in Orange (NSW) by a small group of businesses determined to get a better deal for the region's independent rural retailers and their farming customers. Today, the original member base of six has evolved into Australia's largest group of independent rural retailers with over 300 stores.

    Fairy Meadow store closure

    A Hardex Hardware Plus store in Fairy Meadow (NSW) is holding a closing down sale of its stock after owner Rene Tummers said he was hit with a 50% drop in customers when the Bellambi Bunnings store opened last October. He told the Illawarra Mercury:

    When Masters was going to open up in Jardine Street, that's only 50m away, I thought that's the end for us. It's a death of a thousand cuts. It's just a torturous way to go. We resolved that the day they opened up their doors is the day we'll close ours.

    The Masters store never came, and when Bunnings bought the land at Bellambi Mr Tummers believed it was just a "chess manoeuvre" in its battle with Masters. It was not. He said:

    They had a 'soft opening' and from that very first day I lost half my sales. I thought OK, people get curious, they want to go have a look. We recovered a bit but not enough to sustain us. I thought we'll see if people come back. Some do - but we've still lost 30 to 40%.
    I wasn't surprised; I was just caught out a bit at the timing. From Christmas on we had our closing down plan. I knew Bunnings was going to kill me.
    I could probably count eleven hardware stores in the Illawarra which have closed as a result of this phenomenon, which is 'big box'. You think 'OK, that's the nature of the beast', but I do worry about where it's going to end up.
    Some of the customers were practically in tears about us leaving. They felt lost, that they wouldn't be able to go to their favourite store and have somebody solve their problems for them.

    Mr Tummers and his brother Theo purchased the store in 1999. Theo has since passed away and was considered the driving force behind the business.

    Business milestone for Tyler's Rural

    Tyler's Rural started with two brothers at Rupanyup (VIC) in 1988 and since then purchased hardware stores at Stawell and Murtoa to become a prominent franchise in the area.

    As the business celebrates 30 years, owner Kelvin Tyler said it was a huge achievement. He told the Stawell Times:

    It all started with myself and my brother Adrian and now we employ up to 14 people.

    Mr Tyler said the business branched into the Stawell township to reach more agronomy clients. The farm supplies and hardware store is in its fourth year at the town.

    There are a lot of agronomy clients in this area. So the move into Stawell was to make it more convenient for them, because some of them were having to travel about 60 or 70 kilometres to reach the other two locations.

    Mr Tyler said after a "tough" first year of business at Stawell, sales were steady. He said:

    It hasn't skyrocketed, but it is steady and we are finding there is more and more demand.
    retailers

    Europe update

    New and proposed stores for BUKI

    The Cologne Hardware Fair is over for another year and job cuts at Kingfisher brands

    Ashford and London Penge are the latest locations for Bunnings stores; organisers of the 2018 International Hardware Fair have reported an increase in attendance; Kingfisher is cutting staff at B&Q head office and Brico Depot in France; Grafton has purchased a decorators' merchant business; and Travis Perkins has reported a second, consecutive profit decline.

    BUKI plans for Ashford, opens in Penge

    Bunnings United Kingdom and Ireland (BUKI) has submitted a proposal for a store in Ashford, a town in the county of Kent, as part of Drovers Retail Park.

    Kent Online reports that developer Davies Street Castle City has revealed the plan for a 50,000sqft store. It would be the big box retailer's first purpose built store in the UK. The developer said:

    If the scheme is accepted and consent is granted, we will begin construction next year and the new store could be open in the summer of 2019 ... The scheme will provide a step change in the home improvement market and help keep expenditure in Ashford. It will deliver jobs and investment as well as choice and competition for shoppers.

    Artists' impressions of the site indicate the new store would be built in a wave shape and use natural materials to complement the nearby woods. It would be joined by a 37,000sqft retail terrace containing four units for kitchen and furniture companies. The site would also have room for a 2,000sqft unit and a drive through coffee shop.

    The type of retailers which could open stores in the location would be restricted by Ashford Borough Councils planning rules, to prevent a negative impact on the town centre. But Ashford Borough Council leader Gerry Clarkson said the plan was exciting for shoppers, and will complement the existing John Lewis at Home store. He told Kent Online:

    The Drovers roundabout has good road interconnections. That's what out of town retailers want, they need good parking facilities and roads for people to drive there ... I met the developers and in principle the scheme is to be welcomed.
    We have to be cautious, as the scheme is yet to come before our planning committee. We have to be smart on this. It means we can't have stores of the same type as we have got in the town centre. These developments are always subject to the proper planning approvals and we will keep an open mind. We will see if the plans meet the high standards we need and if they fit with the overall economic strategy we have for Ashford.

    Penge launch

    Bunnings also officially opened its doors in Penge, a district of south-east London, recently. The new store is over 40,000 square feet. To celebrate the opening, ex-professional footballer Mark Bright, joined a welcome breakfast for team members. Complex manager, Andy Leontiou, said:

    All our team members have worked really hard to get the store ready for opening and have undertaken many hours of training to make sure we have the expertise to help customers with home or garden projects.

    Cologne Hardware Fair 2018

    The International Hardware Fair in Cologne, Germany recently closed after four days of fully-booked exhibition halls, crowded aisles and a stimulating event program, according to organisers Koelnmesse GmbH.

    This year's show focused on the digitalisation of the industry. EISENforum was a two-day summit with expert talks and lectures that discussed the topic. Companies such as Amazon Business also exhibited.

    A Start-up Village was set up in cooperation with the European Federation of DIY Manufacturers (fediyma) and with the support of Richard van Hooijdonk, a trend scout and futurist from the Netherlands. It showcased their digital know-how.

    There was also an event and exhibit highlighting 3-D printing, specifically additive and spare part production. It featured an overview of additive production for DIY stores, as well as insights into new business models with 3D printing.

    The fair offered opportunities to exchange information and network in the form of the BME Buyers Days, the Hardware Seminar and Trainee Day.

    Growth in numbers

    The main show statistics include 2,770 exhibitors from 58 countries and over 47,000 trade visitors - an increase of 9% - from 143 countries. Katharina C. Hamma, chief operating officer of Koelnmesse GmbH, said:

    Furthermore, the trade fair was able to once again increase its level of internationality. Eighty per cent of exhibitors and over 70% of trade visitors come from abroad. One hundred and forty three countries were represented among the trade visitors, an increase of 19 countries.

    There were more visitor registrations from Asia, especially from Japan, from North and South America, Africa and the Russian Federation. There was a 12% rise in visitors from the USA.

    John W. Herbert, general secretary of the European DIY Retail Association (EDRA) and Global Home Improvement Network (GHIN), provides an explanation for the growth:

    EISENWARENMESSE - Hardware Fair Cologne 2018 was a total success for us. The renewed adaption of the duration of the fair was particularly welcomed by our international guests. The number of buyers, whom we were able to welcome here in Cologne, was correspondingly high. Our major member companies each attended with up to 15 top buyers...That is a very good development and underlines the international significance of the event...

    Awards

    For the fourth time, Koelnmesse and its partners conferred a number of awards on the first evening of the fair. The EISEN CSR Award sponsored by BHB went to Knipex. The Innovation Award 2018 sponsored by ZHH was given to Hazet for its HiPer fine-toothed reversible ratchet 916 HP, Knipex for its 95 62 160 rope cutter and Wiha Werkzeuge for its Wiha SpeedE e-screwdriver.

    The next International Hardware Fair Cologne is scheduled to take place from 1 to 4 March 2020.

    B&Q cutting 200 management roles

    UK home improvement retailer, B&Q is getting rid of 200 senior roles in a bid to cut costs and simplify its operations amid tough conditions in the DIY retail market. The retailer said 130 jobs in its head office would be cut, along with a further 70 travelling "field-based" roles, but no in-store workers would be affected.

    Helena Feltham, B&Q's HR director, said the cuts would "improve efficiency, simplify ways of working, and reflect recent changes in the market and the number of B&Q stores".

    B&Q has closed dozens of stores as UK consumers have turned away from doing DIY due to a fall in home ownership and technical skills. Ms Feltham said in a statement:

    We want to be the leading home improvement company and make home improvement accessible to everyone. That means delivering great quality at prices that are truly affordable. To do that, we must operate differently.

    B&Q's owner Kingfisher employs 2,000 people in its Southampton head office, some at B&Q and others in its buying and IT teams.

    Last year Kingfisher's chief executive Veronique Laury said the firm was feeling "cautious" about Britain's economic prospects.

    Ms Laury has been under pressure to sell-off the firm's better-performing Screwfix division, which caters to tradesmen and whose revenues climbed 16.6% in the company's third quarter.

    Brico Depot

    Another Kingfisher brand, Brico Depot is also reportedly set to cut more jobs in France.

    Brico Depot has over 121 outlets and has an in-store presence in over 100 Castorama shops. News agency Reuters has reported 409 jobs would be cut by Kingfisher in France, while 102 jobs will be created and 164 positions will be transferred.

    Kingfisher is two years into its five year "ONE Kingfisher" project, designed to bring more unity to the business. This includes streamlining the products it offers across its outlets, widespread changes to its IT system and closing B&Q stores.

    Grafton buys decorator stores for GBP80m

    Builders merchanting group, Grafton has acquired decorators' merchant business Leyland SDM for GBP82.4 million.

    Leyland SDM is London's largest independent specialist decorators' merchant. Grafton said it is regarded as one of the "most recognisable and trusted" decorating and DIY brands in central London selling paint, tools, ironmongery and accessories.

    It prides itself on high levels of customer service, maintaining long standing relationships and carrying a strong reputation with both trade professionals and DIY customers.

    Leyland SDM operates through a portfolio of stores which have been built up over the last 30 years during its period of family ownership. Its network of 21 convenience-led and predominantly high street stores, are situated in some of London's most prominent locations including King's Road Chelsea, High Street Kensington, Shaftesbury Avenue, Victoria, Clerkenwell, and Notting Hill.

    In the last two years, it has further expanded its footprint with four new stores in Battersea, Mile End, Clapham High Street and Putney as well as a distribution centre at Wembley.

    The Leyland SDM "small box" convenience trading format is a proven business model in central London that "complements the company's larger Selco branches" located in greater London, according to Grafton.

    Leyland SDM's revenue and underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) was GBP47.8 million and GBP7.3 million respectively for the year ended December 31st, 2017.

    Grafton chief executive Gavin Slark said the acquisition was a "unique opportunity to acquire a leading brand with exceptional locations in central London". It would, he said, expand the company's presence in a "resilient segment of the merchanting market located at the heart of one of the world's leading cities".

    Travis Perkins' second straight profit fall

    Britain's biggest supplier of building materials, Travis Perkins, reported a 7% fall in annual core earnings, a second consecutive decline, and said it remained cautious on the market outlook.

    The group, which trades from over 20 businesses including Travis Perkins, Wickes, BSS, Toolstation and City Plumbing said adjusted operating profit was GBP380 million in the year to December 31.That was below analysts' consensus forecast of GBP384.8 million and GBP409 million made in 2016.

    Travis Perkins said it anticipated the mixed market backdrop would continue in 2018. As a result it would focus capital investment behind its key priorities, and slow investments elsewhere. Chief executive, John Carter, said:

    2017 was a challenging year for the Group, with continuing uncertainty in our end-markets, and declining consumer confidence throughout the year. The main focus for our businesses has been to recover the significant cost price inflation encountered and on the whole, this has been achieved successfully.
    Despite the challenging environment, we have continued to make disciplined investments in our customer proposition for the long term. Both the General Merchanting and Consumer divisions were held back by this investment in a higher cost base which ran ahead of volume growth. The Contracts division delivered another excellent performance, with strong revenue growth generating good operating leverage.
    retailers

    Indie store update

    Closure for Cooper's HTH

    Porter's store transitions to Sapphire and award winning Dipper's HTH celebrates five years

    Cooper's Hardware shuts its doors after 25 years; Porters Mitre 10 in Mackay (QLD) will become a Sapphire store; and Dipper's HTH moves forward after the loss of Anthony "Dipper" Diprose.

    Bundaberg HTH closes due to insurance

    The Bundaberg News Mail reports that a Home Timber & Hardware Group store has been forced to close, mainly because it cannot obtain insurance against flooding.

    Cooper's Hardware has been in business for a reported 25 years. It suffered during the floods that swept through Bundaberg in 2011 and 2013, but managed to recover from those two events. Now, however, the store finds it cannot obtain the necessary insurance, and has little choice but to close down.

    Store owner Stephen Cooper is reported by the community newspaper as saying:

    Trying to sell a property and business, which was highly saleable before because it had insurance cover, is not saleable now because no one is going to buy a business that isn't insured. It has reduced our ability to talk to banks, borrow, all the things you need to do and put a massive amount of pressure on us.

    Mr Cooper is reported as being a strong supporter of flood mitigation efforts in Bundaberg. In particular, he sees the establishment of the East Bundaberg levee as crucial to the town's future.

    Mr Cooper also believes that the entry of Masters Home Improvement into the market (even though he runs an HTH-bannered store) and the ongoing expansion of Bunnings have helped make his business less viable.

    While his own business will cease, Mr Cooper is reported as being enthusiastic about the future of Bundaberg itself, praising in particular the $16 million CBD Revitalisation Project.

    Porter's M10 moves to Sapphire

    In April 2017 the well-known Porter family of Mackay, Queensland, moved to buy most of the equally well-known Woodman family's Mitre 10 stores. This included the stores in Sarina, Marian, Proserpine and Cannonvale, but not the store on Nebo Road, Mackay, which has subsequently been closed. The stores re-opened under the Porter's Mitre 10 banner in early June 2017.

    Since then, Porter's has been busy, and is now most of the way through converting its Mackay store to become part of the Mitre 10 Sapphire program. That work is expected to be completed by mid-January 2018, but the results are already evident in the stores, according to the Mackay Daily Mercury newspaper.

    The Mercury quotes the managing director of Porter's, Gavan Porter Snr, as saying that the new stores will include wider product ranges, and a higher level of amenity. Included in the changes will be showrooms for the Principal DIY/trade kitchens.

    The Sapphire program now has 28 converted stores across Australia. It introduces a standardised way of presenting products, which is customised to each unique store. Independent Hardware Group/Mitre 10 also uses the program to encourage store owners to range specific products, the "core range". Metcash quotes an average retail sales of uplift of more than 15% for converted stores.

    Joy, sadness as Dipper's HTH turns 5

    The day of 1 November 2017 was greeted with joy tinged with some sadness at Dipper's Home Timber & Hardware in Moree, NSW. It was a joyful occasion because it marked the five year anniversary of when Anthony "Dipper" Diprose and wife Rebecca first opened their store. It was also somewhat sad as Mr Diprose passed away recently, in September 2017.

    The store did not take long after opening to become one of the stars in the HTH fleet. Just two years after opening, in 2014, the store won the prestigious Home Timber & Hardware National Store of the Year award for stores larger than 1000 square metres. Recently, Dipper's found out it had won yet another award, the 2017 Northern NSW Home Timber & Hardware Store of the Year, again in the over 1000 square metres category.

    Speaking to the Moree Champion newspaper, Ms Diprose reflected on the hard work that had made the store possible.

    When Dipper and I embarked on this business we knew the early years would be hard work - long hours and steep learning curves - and they were, particularly with a young family.
    But we knew that for all that hard work we were building a brand and a fantastic local business that could withstand any challenges - and one that would eventually afford us more family time, and, of course, give Dipper more time on the golf course!

    Ms Diprose is determined to continue running the store. The Moree Champion reports that she has long been involved in its management, and has the benefit of a strong supporting team of managers in the store itself.

    retailers

    USA update

    Comparable sales fuel growth for Ace

    Home Depot is retail's bright spot and hurricanes lift Lowe's revenue growth in Q3

    Ace Hardware reports third quarter results; Home Depot sees growth through efficiency, not more stores; Lowe's gets a hurricane boost; Menards plans a robotic warehouse; and True Value Company announces its third quarter results.

    Ace Hardware sales up 9% in Q3

    In a third quarter highlighted by its acquisition of The Grommet, Ace Hardware benefited from a strong comparable store sales increase.

    Comparable store sales advanced 7.1% in the quarter year over year, as reported by the approximately 3,000 Ace retailers who share daily financial data. The comps gain is the result of a 4.3% increase in average ticket and a 2.7% increase in same-store transactions. John Venhuizen, Ace president and CEO, said:

    A retail same-store sales increase of 7.1% was the predominant fuel behind our strong 9.1% overall sales increase and record setting third quarter revenue.

    Third quarter net revenues were USD1.34 billion versus USD1.23 billion in the year-previous period. Wholesale revenues coming in at USD1.28 billion versus USD1.17 billion and retail revenues coming in at USD65.5 million versus USD59.9 million in the fiscal year earlier.

    For the third quarter ended September 30, Ace Hardware posted net income of USD53.8 million versus USD50.2 million in the period the year before.

    In the third quarter, the company acquired a majority stake in The Grommet, an e-commerce operator that sells new and innovative products created by independent entrepreneurs.

    Ace Hardware also added 43 new domestic stores in the third quarter of 2017 and cancelled 34 stores. This brought the company's total US store count to 4,366 at the end of the third quarter of 2017, an increase of 31 stores from the third quarter of 2016.

    On a worldwide basis, it added 57 stores in the third quarter of 2017 and cancelled 34, bringing the global store count to 5,047 at the end of the third quarter of 2017.

    Home Depot grows without adding stores

    Home Depot has turned to efficiency and strategy for growth. Retail losses and store closures are a logical response to many years of building too many malls and retail outlets, according to chief financial officer Carol B. Tome. She said:

    Retail is over-stored.

    In the mid-1990s, there were 75,000 households in the US for every large home improvement store, compared to about 30,000 households for every store now as the number of stores increased faster than the population, she said.

    The home improvement chain - which expanded dramatically for several decades after its founding in the late 1970s - has nearly 2,300 stores. At one point before the recession of 2007-09, Home Depot was averaging a new store every 36 hours. Ms Tome told The Atlanta Journal-Constitution:

    We will open one more store this quarter. We have enough stores.

    The company's latest earnings report easily exceeded analyst expectations. For its third quarter, the company reported:

  • revenues of USD25.03 billion, 8% higher than a year ago
  • net income of USD2.17 billion, 10% above last year
  • an increase of 7.9% in same-store sales compared to last year
  • Prospects are rosy, company officials said, predicting that sales during the current fiscal year will come in 6.3% higher than a year ago.

    To build a bigger business without building stores means becoming more efficient with both the online and physical world of business, Ms Tome said.

    The web site is becoming the front door of our stores. It is really an interconnected experience.

    More than 40% of online orders, for example, are picked up in a store, she said.

    At the same time, Home Depot has been managing inventory better - trimming the time that items are being unproductively held, getting items to the stores quickly and selling them faster. Generally, the more rapid the "inventory turn," the better for the business, she said.

    Really, it's a measure of health.

    Home Depot emerged from the recent hurricane season with both increased revenues and higher costs. The chain had to temporarily close 236 stores in the path of one storm or another, but has also sold more storm-related materials. The result was USD282 million more in sales and USD104 million more in expenses.

    With storm related higher costs mostly in the rear-view mirror, Home Depot expects to see a surge of sales during the holiday season, Ms Tome said.

    Appliances do well during the season, but also lights, decorations and various hardware-flavoured gifts. The company sells about four million Christmas trees. Ms Tome said:

    We sell more Christmas trees than anyone on the planet.

    Reinvestment

    Home Depot has authorised a USD15 billion share repurchase program and said it plans to invest in its stores, staff, supply chain and delivery capabilities. Craig Menear, chairman, CEO and president, said:

    The retail landscape is changing at unprecedented rates and we plan to invest for the future to address the evolving needs of our customers. We will accelerate our investments, while continuing to focus on delivering the value our shareholders expect from The Home Depot.

    The company also set fiscal 2020 financial targets that include growing its annual sales from USD114.7 billion to USD119.8 billion, and a compounded annual sales growth rate from the end of fiscal 2017 ranging from 4.5% to 6%. It set annual capital spending at approximately 2.5% of sales.

    Hurricanes boost Lowe's results

    Lowe's has reported better-than-expected earnings for the third quarter, a period when hurricanes Irma and Harvey battered parts of the coastal US and drove up demand for emergency supplies. Heavier store traffic and lower costs are also providing a tailwind for Lowe's.

    CEO Robert Niblock told the Charlotte Observer that staffing efforts made to improve shoppers' experience in stores has helped to boost in-store sales. Specifically, Lowe's has increased the hours of some workers on weekends and peak traffic times during weekdays.

    Lowe's said that for the quarter, same-store sales increased 5.7%. It said the rise was "above the company average," but iwas still slower than the 7.9% increase Home Depot reported for the same quarter. Mr Niblock said:

    We've seen great improvement in our comps as we've progressed through the year. Now what we're focused on is how we optimise those hours to best capitalise on traffic trends in the store.

    Lowe's reported a profit of USD872 million, up from USD379 million a year prior, which included USD462 million in non-cash pre-tax charges. Excluding certain items, earnings were USD1.05 a share, above the consensus estimate of USD1.02 a share from analysts surveyed by Zacks Investment Research.

    Bolstered by above-average sales of items such as appliances and timber, revenue for the quarter rose to USD16.77 billion, up from USD15.74 billion a year ago and above the Wall Street estimate of USD16.57 billion.

    Lowe's said sales for hurricane-related purchases were approximately USD200 million. Rebuilding efforts from the storms should push sales in the fourth quarter slightly higher, the company said.

    In a statement, Mr Niblock also said that the quarter's results were bolstered by improved offerings for pro customers, such as contractors, who tend to spend more than the average do-it-yourself customer.

    Smart home store

    Lowe's is also expanding its in-store smart home concept known as "SmartSpot" to 70 locations across the US, which gives customers the chance to try out high-end smart home gadgets before they buy.

    Produced in collaboration with software-powered retailer b8ta, SmartSpot seeks to demystify and simplify the purchasing process for customers by eliminating some of their anxieties about choosing smart home products given the vast number of options currently on the market.

    The stylised experience offers a streamlined approach to retail where customers can explore a curated collection of innovative products. In addition, consumers gain in-depth product knowledge through digital displays and on-site experts trained on smart home products.

    Central to the SmartSpot experience is that it focuses on presenting whole-home solutions, showing customers how products could potentially work together, from security and energy maintenance to entertainment applications. SmartSpot features several of Lowe's Iris products as well as over 40 of the newest tech products from vendors like Amazon, Lutron, Nest and Ring.

    Related:

    USA update: Lowe's selling tech gadgets - HNN

    Robots for Menards warehouse

    Home improvement centre group, Menards said its newest warehouse will be run by machines. This is part of its plan to keep up with retail innovations that get products into customers' hands faster than ever.

    The retailer has filed plans to build a 121,700-square-foot warehouse with a 60-foot-tall automated system that will organise merchandise and process orders. Jeff Abbott, spokesman for Menards, said in an emailed statement to the Leader Telegram:

    To be more competitive, we are adding a huge machine enclosed in a steel skin that will help us get products to our customers much faster.

    Retail has become an increasingly competitive business, he wrote, calling it a "fight for survival." He added:

    Online companies like Amazon and others would love nothing more than to run Menards out of business.

    The robotic warehouse allows the company not only to speed delivery time but also cut costs and keep prices low. At this stage plans for construction are still seeking approvals.

    One of the first approvals sought for the building project will be to Eau Claire County's Board of Land Use Appeals. It needs to consider a variance for the building's height.

    Zoning laws for the industrial district where Menards is located in the town of Union sets a height limit for buildings close to property lines. In the case of the robotic warehouse, it's about 23 feet taller than the limit.

    However, county code does include a procedure for a variance to exceed those height limits.

    Menards has gotten a letter of support for the project from Eau Claire Cooperative, the owner of land directly north of the proposed warehouse.

    Retail sales up for True Value Q3

    True Value Company reported that retail comparable store sales were up 3.3% for the third quarter. The hardware cooperative's Destination True Value retail formats also posted retail comparable sales growth of 4.2%.

    Gross billings of USD492.2 million and revenue of USD364.4 million in the quarter is up 0.3%, relatively flat to the same period last year.

    True Value achieved increases in eight of its nine product categories, led by hardware, timber and building materials followed by hand and power tools, farm and ranch, auto and pet, and seasonal. President and CEO, John Hartmann, said:

    We are very pleased to see these overall results ... and this reinforces the improved sales seen by retailers that have implemented relevant remodels.

    The international segment continues to experience strong growth with warehouse sales up approximately 12% in the quarter, with paint sales driving a significant portion of the growth. Mr Hartmann said:

    With landfall of three major hurricanes in the quarter, I would like to thank our associates and suppliers for their round-the-clock collaboration ensuring our retailers had what they needed to prepare and then quickly begin recovering from these devastating storms. Our retailers demonstrated that during challenging times, and always, they are there to support the communities they serve.
    retailers

    HBT Business Solutions conference

    HBT hits 670 members

    HBT consolidated its state conferences into a single event this year, held in Melbourne

    Hardware Building Traders (HBT) decided to change up its usual state-based conferences for 2017, and instead host a single conference entitled "HBT Business Solutions" hosted at Melbourne's Etihad Stadium, near the Southern Cross railway station.

    The single event made it easier for suppliers to concentrate their resources, so some 62 suppliers (including 22 of HBT's key suppliers) attended, along with 150 representatives of 92 retail stores. True to its promise, HBT served up a mixture of speakers on subjects ranging from succession planning and internet ecommerce, to insurance planning and better retail space design.

    The state of the group

    To get things going, HBT's group manager, Mike LoRicco gave members an overview of the industry today, followed by HBT's two group buying managers, Gavin Keane and Steve Fatileh, who outlined what the supplier/retailer interface looks set to develop into the future.

    Mike LoRicco: four becomes three

    Mr LoRicco concentrated on providing an overview of how the industry has changed through 2017, especially after the exit of Masters Home Improvement in late 2016, and how that is affecting retailers.

    The main change has been, of course, the move from four different supply chains to just three: Bunnings, the Metcash-owned Independent Hardware Group (IHG), and HBT. While this opens up some new opportunities for HBT, Mr LoRicco is more concerned with its effect on HBT's ongoing development of the key suppliers to the group:

    So, what the reduction in supply chains means is that as the suppliers realign themselves there are going to be some suppliers who will be left out.
    This makes it a good opportunity for us to grow our relationships with our suppliers. What is really important - and I know that we have a lot of suppliers - is that our key suppliers get the support of our members. These guys are the ones that are putting extra effort into supporting our stores. We need to show support for them. Over the next 12 months, my goal is to concentrate on the key suppliers, get our relationship with them to work even better. As part of that, we are working on a list of standards as to what a key supplier should be. And we're going to support them, just like they support us. Obviously, our focus is on both the member and the supplier, and there needs to be a win for both of them in any deal. It is not a one-way street.

    Mr LoRicco also shared more information about HBT's ongoing growth story. From around 240 members in 2014, the buying group has now grown to 670 members. The top 100 stores in the group account for 62% of its purchases by value. A sub-group of HBT, the Industrial & Tool Traders (ITT) has grown rapidly over the past four years, and now accounts for 22% of the group's purchases by value.

    Gavin Keane: value from the second tier

    Mr Keane provided a historical perspective on ITT, the part of the group to which he devotes most of his time. It began, as he describes in his inimitable style, almost by accident back in early 2013, and has now reached 162 stores, or 24% of the store numbers.

    Mr Keane was particularly eager to point out how one of HBT's main strategies, finding high quality suppliers who were held in the second or third tier of the market, and then making them first tier suppliers for HBT, had worked over the years.

    One of his main examples was Haymes Paints.

    Great company, family owned company. Based in Ballarat. They now represent 56% of our paint business, as compared to Dulux [from Australia's DuluxGroup] which has around 16%. It's a good supplier, they work with us, understands us, and are passionate about independents. They are our number one.

    Mr Keane spoke of other suppliers who had also become number one for the group. Macsim was one of the first fastener companies to take HBT seriously. Klingspor, makers of specialty cut-off wheels for grinders, now holds around 50% of the HBT demand for the product. Silicone and adhesive maker Soudal is another HBT success story, beating out other well-known brands such as Bostich and Selleys, to be the number one supplier in its category for the June 2017 quarter.

    Later Mr LoRicco revisited this issue, explaining that, from HBT's view, accepting less valuable deals from top tier suppliers meant that HBT effectively subsidised the exceptionally low prices these suppliers offered the competing supply chains going into Bunnings and IHG.

    One of Mr Keane's ongoing concerns is that the Australian market simply has too many suppliers for its size. As he put it, HBT members have access to around 483 of these, and there are probably almost as many they don't have access to. He expects that the coming years will see a degree of rationalisation, with some companies exiting over-supplied markets. Mr Keane sees this as a further reason why HBT should stand by and support its key suppliers.

    In a rapid overview of the industry, Mr Keane gave some numbers for other buying groups. AIS now has 80 stores, CSS has grown to have 86 stores. Synergy, which was a breakaway group from CSS, now has 52 stores, and Tradesmart has 64 stores.

    In terms of the tool sector, Total Tools now has 66 stores. Mr Keane remarked that this was quite an aggressive group, but they did seem to have higher overheads, with something like 50 head-office staff, in his opinion and estimation. United Tools has 47 stores, Trade Tools has 16 stores. Sydney Tools has just reached 15 stores, with news it is opening a new store in Bayswater, a suburb of Melbourne, Victoria.

    Steve Fatileh: a better deal

    Mr Fatileh began by saying that the acquisition of Home Timber & Hardware (HTH) by Metcash to form IHG had created some anxiety in the hardware retail market. Part of that anxiety was among members of the newly formed IHG, who face changed conditions, but it was also a fact for the suppliers to that group. As IHG uses more of its buying power to narrow its supplier base so as to improve individual supplier volumes and crack down on supply prices, more suppliers are turning to HBT as a means of securing future retail outlets.

    This has opened up new opportunities for HBT, according to Mr Fatileh.

    This gives us a position of power when we are negotiating. Never before have Gavin and I been in this position. We are not accepting every deal that a supplier presents to us. We are their next option. If they have been kicked out, or they have been hit "with a big stick" by IHG, they are coming to us. As a consequence you will find that the new deals that are coming through have higher than usual rebates attached to them.

    This isn't just smaller suppliers either, according to Mr Fatileh. Among newly acquired suppliers is global lighting company Philips.

    Mr Fatileh's special passion has been HBT's move into "H" branded hardware stores. These stores provide fully independent retailers with a brand identity. In 2017, in addition to expanding the number of branded stores, the H has also been active in launching special H branded products, and starting to distribute a catalogue for participating stores as well.

    There are currently eight H branded products that we have put out there. The products that we have introduced have had a very good success rate. The H paint itself from Duralex has turned over $200,000 worth of purchases, just in that product. The Soudal H Brand silicone and adhesive package has taken off really well, and the branded measuring tape is doing great.

    The catalogue has been as much an experiment as a commercial venture during 2017.

    We dipped our toes this year into a new catalogue program, it is the first time we have ever done it, a little bit of teething problems, it is a lot of work, but we thought let's just do it, and if it is going to have some problems, or things that we can learn from, we will do it better next year.

    Meanwhile, the H Hardware push itself has been going well. Mr Fatileh set himself the goal of ending calendar 2017 with 40 bannered stores, up from 26 at the start of the year. He just concluded a deal to secure the 39th store, and is "pretty confident" he will hit 40 before the end of December 2017.

    Detail Retail

    While many of the presentations given at the conference were impressive, one of the most interesting was provided by Melissa Guthrie of Detail Retail, a Melbourne-based firm specialising in store fitout.

    Detail Retail is very much a full-service company, that is ideally sized to help provide small hardware retailers with improved store premises that generate a better return.

    Ms Guthrie has a background in industrial design, and she is backed up by a fellow retail designer, Melanie Spinucci, architect and 3D modeller Manuel Perez, and 3D artist, animator and architectural modeller Simon Bolivar.

    The company relies on advanced, modern techniques of digital rendering to both assist them in their design, and, just as importantly, to communicate their ideas to customers.

    The company doesn't stop at just designing stores, but also helps retailers build them as well. It supplies retailers with shelvings, fittings and cabinetry. The company can arrange for these to be installed, or they can be designed so that retailers can install the elements themselves.

    Ms Guthrie's industrial design skills means she understands "buildability", and she can help retailers combine all the aspects of helpful visuals with the practical needs of product display, stocking, cleaning and light maintenance.

    Ms Guthrie emphasises that the company is very practical in its approach. While it remains focussed on delivering the best (and most profitable) experience to the customer while in the shop, they also work to make sure that dollars are spent wisely on aspects of store design that are going to deliver results. As Ms Guthrie put it in her presentation:

    We have a really good understanding of marketing, of customer movement within the store, of product merchandising, how the customer will go through the store, what they will see when they first walk into the store, what catches their attention, and so forth.
    We understand what messages you should have at what location in your store, how to orientate your fixtures correctly, and how to move your customers through, to the counter and to the sale, which is the most important thing.

    The problem is, of course, that for retailers who spend more time in their stores than anywhere else, it is often difficult to return to the customers' perspective. As Ms Guthrie puts it:

    It is very hard for store owners, because most retailers are so busy trading, to step back and see what the customer sees when they walk in the doors of your store.

    It is this sense of new perspective that Detail Retail can bring to store design.

    Design considerations

    The company begins by looking at exterior signage, asking if it is at the right height, and if it is conveying messages that communicate what the store is about.

    Some of the key questions that Detail Retail help retailers answer about their stores are:

  • What about the location of the checkout counter? While this seems simple, it is in many ways one of the most important centres of the store. Can it be seen easily, so customers can locate it when they have product in hand? Does it function as an additional sales area, with discount and impulse buys readily to hand?
  • What about supply stands? These often present retailers with something of a dilemma. While many stands are very well designed, and present product in an informative and encouraging way, they don't always play nicely with each other. Sometimes stores will have three or four of these stands jammed all together, with different shelf heights, radically different colour schemes, so that they present a kind of visual cacophony. Sometimes going with something simpler might actually improve sales.
  • Is a product a brand choice, or a price/use choice? A common mistake is to separate a particular line of items based on its branding, when really customers are more interested in a broad range and selection. If too much branding takes over a store, customers will wander about slightly bewildered as to where they can locate some of the simplest items.
  • Store navigation is a key item for stores to consider. This relates in part to signage, but also the relationship between the height and width of aisles is important. If really tall modules are used to form an aisle (2200mm to 2400mm), it is necessary to make the aisles wider - as wide as two metres in some cases. This is partly to avoid a "maze-like" feeling on the part of the customer, but it also relates to lines of sight. Standing in the middle of a 2400mm high aisle that is only 1200mm wide, it might be impossible to see the sign over the adjacent aisles indicating what is located there.
  • Use bright colours to emphasise what is important, wall colours to fade out what doesn't matter. Painting the door to the stockroom bright orange will make people want to open it. The same applies to stairs that lead to the administrative area.
  • Lighting. While fixing lighting has something of a bad reputation for being expensive, nothing is so expensive as a customer not buying a product because they can't see it properly. Ms Guthrie points out that there are some creative solutions that don't cost as much as many retailers think, such as embedding LED strip lighting into racks and shelving. Ms Guthrie is clear about what the goal of this should be: "What we are trying to do with lighting is increase the colour rendering index. Get that as high as possible to match the light."
  • Bulk materials. A persistent problem in many Australian hardware stores is a habit of "dumping" some products on the shop floor with little indication of what they are or how much they cost. Wandering through piles of cement, compost, sand and pool chemicals is not a great retail experience. Detail Retail has designed many systems to display bulk goods in a way where they are easily accessed.
  • Detail Retail website
    retailers

    Indie store update

    Total Tools submits DA in regional NSW

    Lang's new Caloundra store will support the continued growth of the region's building sector

    Total Tools looks to open hardware store in Tamworth (NSW) for local tradies and Lang's Building Supplies launches a $20 million store on the Sunshine Coast (QLD).

    Trade store planned for Tamworth

    Total Tools has submitted a development application (DA) to Tamworth Regional Council, for a $300,000 development in Taminda (NSW), on the corner of Lockheed and Jewry Street. The proposed site is located opposite Bunnings Tamworth on Lockheed Street.

    If the Tamworth development is given the green light, it will be the company's furthest inland store in NSW. Total Tools project manager Mike Lazzaro said Tamworth "ticked all the boxes" in regards to demographics and population. He told the Northern Daily Leader:

    Regional Australia is no different to the high-density areas, it creates a market for us.

    Mr Lazzaro said Total Tools had no problem being located across the road from home-improvement giant Bunnings. He said:

    In fact, we rather destination-type centres, it provides the focus for a lot of customers to come to us. It suits our footprint if you like. It's all about providing competition and being able to promote the brand.

    If approved, Mr Lazzaro said the store would "be looking to open in December", with at least six staff working at any one time.

    The development application indicates a Total Tools store can serve up to 100 customers a day, with an average of 55 customers a day.

    Langs store opens in Caloundra

    A $20 million drive-through trade store was unveiled recently on the Sunshine Coast (QLD). Langs Building Supplies has opened its second store in the state and is expected to inject an annual economic contribution of $193 million. Along with a trade store, it will provide the local community with a bulk building supplies and on-site manufacturing of roof trusses, wall frames and floor trusses.

    Sunshine Coast Mayor Mark Jamieson opened the store. He said:

    It will support local building and construction industry as well as providing great employment opportunities for locals. It's the investment shown by companies such as Langs, along with the growth existing in our region, that helps to support positive business confidence ... Langs plan to double their existing staff numbers in the next 12-18 months, followed by an additional 50 jobs when the company starts on-site aluminium window frame manufacturing.

    A decade of planning has culminated in the centre's opening, with the Caloundra-based store doing battle with southern rival Ipswich. But for Langs general manager David Wuiske, the move here was one full of confidence. He said:

    We had two choices, a site at Ipswich and here, we did our research and thought there was a lot of growth potential here. From the coast we can easily service the north side of Brisbane and right up which made us very confident. The sheer scale of the place is exciting. Bob Lang hasn't built this business by halves.
    retailers

    USA update

    Maker Movement gets boost from Ace Hardware

    Lowe's launches augmented reality apps and Craftsman will be stocked at Lowe's stores

    Ace Hardware is betting on the on growing Maker Movement where inventors create new products to fulfill emerging needs and the consumers in search of them; Lowe's continues to explore new technologies that have advanced uses for retail; and Stanley Black & Decker has chosen Lowe's as a channel partner to sell the Craftsman tool brand.

    Ace Hardware invests in e-commerce startup

    Ace Hardware has acquired a majority stake in The Grommet, an e-commerce startup that brings to market products from independent entrepreneurs and emerging companies.

    Launched in 2008, The Grommet has worked with more than 2,500 inventors, entrepreneurs and small businesses to launch dozens of household products and brands on its website. FitBit, IdeaPaint and SodaStream are among the items that were showcased on The Grommet as they were launching. Co-founder Jules Pieri explains:

    We've both been duking it out for the little guy. Ace has been doing it for 93 years and we've been doing it for just under nine years. There's a lot of heart and soul and passion for helping people realize their dreams.

    Ace Hardware is now the controlling owner of The Grommet but will not alter the company's strategic direction, according to a company statement. Employees will continue to have some equity ownership of the company and will remain autonomous. Terms of the deal were not disclosed. John Venhuizen, president and CEO of Ace Hardware said:

    We both stand as strong advocates for the underdog. From the very beginning we have appreciated our alignment in support for and advancement of the independent maker. Under Ace's ownership, I believe The Grommet can offer our customers more of that which fuels global economies and makes America special - the unbridled creativity of the local entrepreneur.

    The Grommet evaluates and selects products called "Grommets" across 16 categories and promotes them on its network by telling the stories behind each product. Only 3% of all products submitted and evaluated are launched on the site.

    Ms Pieri said they took a gamble by establishing the company in 2008, during the height of the economic crisis. Now, the company has grown to 85 employees and boasts more than 3 million subscribers.

    In 2016, The Grommet partnered with Ace for a pilot program called Innovation Incubators - a freestanding Grommet display in Ace's bricks-and-mortar stores that holds about 40 different products they test each quarter, Ms Pieri said.

    About 20 products have graduated from the incubator program into "the big leagues" and are being stocked in all 5,000 Ace stores, according to Ms Pieri.

    It's a way for us to really expand the opportunities for the companies we work with into a really healthy and long term relationship with Ace.

    Ms Pieri said the goal of the incubator program was to bring new, unique and otherwise undiscovered products from entrepreneurs into select Ace stores. Products range from traditional hardware to personal accessories and pet products.

    The Grommet helps emerging companies and entrepreneurs market their products in the "post-Kickstarter phase," explains Ms Pieri, adding that retail was the company's "next natural step."

    The deal aligns with Ace's focus on being a champion for small business and bringing locally relevant, innovative products to its independently owned stores, according to Ms Pieri.

    While we get a lot of data and interaction from our e-commerce site, the reality is that over 90% of retail is still physical. So we're living up to our promise to our makers by making them realise their business potential.

    Lowe's has two augmented reality apps

    Lowe's Companies is launching two apps leveraging Apple's new ARKit capabilities - Measured by Lowe's and Envisioned by The Mine - to transform smartphones into measurement and design aides.

    Unlike other apps, Measured by Lowe's allows users to get instant measurements and share measured moments on social media, straight from the app. It is one of the first accessible apps using augmented reality to turn any iPhone model 6S or newer into a visualisation tool to measure an object or distance within the phone's camera view. It can be done quickly and easily, and saved it for later.

    Envisioned by The Mine (a Lowe's company) allows users to view high fidelity digital images of furnishings at scale, in their own home or a commercial space. Customers begin their journey by navigating through The Mine's designer-inspired product catalogue.

    Once an item is selected, users can immediately place a high-quality, accurate-to-scale 3D version into their room, and modify, rotate or duplicate. The app's photo mode then allows users to capture images, share and purchase.

    The app also integrates with TheMine.com to provide a seamless shopping experience with existing, high fidelity 3D models that are generated by Lowe's Innovation Labs proprietary 3D content creation and distribution technology called LIL 3D. According to Michelle Newbery, president of The Mine:

    Our customers come to The Mine for a seamless, high-touch shopping experience that combines design-inspired home furnishings with a personal concierge level of service. With our new app, we're taking this virtual showroom a step further to build customer confidence before they buy.

    Lowe's to sell Craftsman tools

    Lowe's is betting the Craftsman name, once linked to Sears, will give it an advantage over Home Depot Inc.

    Starting in the second half of 2018, Lowe's will offer the 90-year-old tool brand. Almost as important, this means Home Depot won't, giving Lowe's a way to differentiate from its top rival. The deal also includes developing exclusive Craftsman-branded products for Lowe's. Jackie Pardini Hartzell, a spokeswoman for Lowe's, said:

    We always try to have a wide breadth of brands that people know and trust, and Craftsman is certainly one that will help us deliver on that.

    Stanley Black & Decker bought Craftsman from Sears Holdings Corp. earlier this year for USD900 million, part of a years-long run of asset sales by the struggling retailer. Sears had kept distribution of the tool brand tight with only about 10% of purchases coming at other chains.

    In buying Craftsman, Stanley aimed to revive it by investing in product development and expanding distribution. It has chosen Lowe's as the next retail destination for its Craftsman brand.

    Lowe's will also sell the products online. Orchard Supply Hardware, a small retailer Lowe's bought in 2013, was already offering Craftsman items. They are also sold at Ace Hardware, which has more than 5,000 stores.

    Craftsman is still sold in Sears stores and on its website. The purchase by Stanley Black & Decker provided Sears the right to sell Craftsman products made by its existing suppliers, royalty-free, for up to 15 years.

    Related:

    Craftsman sold to Stanley Black & Decker - HNN
    retailers

    Europe update

    Multi-format stores UK Bunnings stores

    Travis Perkins is on track to for the full year and its Toolstation stores are expected to grow in 2018

    Bunnings in the UK has confirmed plans to open 20 stores in Britain by the end of this year and is exploring a number of formats. Travis Perkins said it faced an "increasingly difficult market environment" in the third quarter but its Toolstation achieved "excellent" like-for-like and overall sales growth.

    BUKI looks at different format stores

    According to UK trade journal Property Week, Bunnings United Kingdom & Ireland (BUKI) could trial smaller format stores. This would see stores ranging from 30,000sqft to 80,000sqft open in central city areas as part of the expansion drive, directly targeting the millennial market. BUKI managing director Peter (PJ) Davis said:

    We would love to have a network of 80,000sqft stores, but the reality is not like that. We will be opening Bunnings stores before Christmas to test how that smaller format will work in the UK.
    We are happy to buy property and turn it over as we go through the investment cycle. Our investment (in the UK) in future is going to be quite big. We will continue our test, learn and improve approach through our Bunnings pilot store programme in the UK and Ireland, which includes many varied formats, including smaller stores and larger warehouses.

    Mr Davis added that it would also be seeking warehouse sites between 50,000 and 200,000sqft in high-footfall areas.

    Michael Schneider, CEO of Bunnings Group, has also stated that previous reports of 100 stores opening the UK were incorrect. He said:

    We have no current plans for network expansion in the UK. Our absolute priority is on proving up the Bunnings pilot concept and improving execution in the Homebase stores. While we will always look to optimise locations of our stores, references to plans for large scale store openings are completely incorrect.

    In a sign that it will target built-up areas as well, Bunnings says it is weighing up developing multi-level stores where it will operate on the ground floor and units could be built above its stores.

    Store openings and plans

    BUKI officially opened its first Homebase conversion in Essex in early October 2017. It measures 57,000sq.ft. Basildon complex manager, Neil Potter, said the team helped with projects in the local area ahead of the opening.

    BUKI also launched a 76,000sqft store in Worle, a large village in North Somerset. The outlet is on the site of the former Homebase at Queensway Centre. former British number one tennis player Andrew Castle was part of the opening.

    Another Homebase conversion store opened in Harlow, west of Essex. The new store is 78,000sqft and managed by complex manager Joanne Broadhurst.

    A smaller store in Bicester will open in December.

    BUKI also announced plans to open a store on Twickenham Road in Hanworth, early next year. Hanworth is an urban and suburban London district on its south-west edge. Historically in Middlesex, it now forms part of the London Borough of Hounslow.

    A Bunnings Warehouse has been proposed for Loudwater in 2018. It will open in place of Homebase - which is in the process of shutting down - in Knaves Beech Retail Park.

    In addition, a new store on Oaks Drive in Newmarket is being planned for next year. Newmarket a market town in the English county of Suffolk, approximately 65 miles north of London.

    Travis Perkins sales up despite uncertainty

    Builders' merchant and DIY supplier, Travis Perkins, recorded a 3.5% year on year increase in revenues in the three months to the end of September despite what it described as "market volatility".

    On a like-for-like basis, the rise was 4.1%, though it noted that the results were in part boosted by a "weak comparable" in 2016. Like-for-like sales in the group's consumer division, which includes the Wickes DIY chain, slowed to 2.4% from 4.7% at the half year.

    The past year has been a difficult one for Travis Perkins with economic uncertainty intensifying concerns about the group's prospects. John Carter, Travis Perkins' chief executive, said:

    We have delivered a good like-for-like sales performance across the Group in the third quarter against a challenging market backdrop of input cost inflation and market volatility...Trading conditions in our markets continue to be mixed, with consumer discretionary spending under pressure from rising inflation and on-going uncertainty in the UK economy.

    The results come after the latest survey of purchasing managers in the construction sector suggested activity in September declined for the first time in 15 months, off the back of "fragile confidence and subdued risk appetite" in the commercial building sector.

    Toolstation accelerates expansion

    Travis Perkins-owned Toolstation is ramping up its property portfolio with ambitions to accelerate its number of store openings per year. It is looking for a range of sites, including small units measuring 2,800sqft and standard units measuring between 3,750 and 6,000sqft, to add to its existing 280-branch network.

    The retailer is also on the lookout for London high street locations measuring 4,000sqft with parking in close proximity.

    retailers

    Retail update

    Tradelink store targets tradies and renovators

    Mitre 10 CEO Neil Cowie is "cautiously optimistic" following the retail co-op's annual results

    Housing and renovation hubs are the ideal location for Tradelink, according to its management team; and Mitre 10 New Zealand continues to operate in "a highly competitive market" as it presents its latest results.

    Tradelink branch opens in Ipswich

    A Tradelink store has opened in Bundamba (QLD), less than a kilometre from the newly opened Bunnings.

    Next door is a paint store, over the road is a bathroom design store, a carpet store, and just down the road is a Dulux paint store, plus work is nearing completion on a new Taubmans store. It is now a highly concentrated area for those keen to do some home renovations.

    Tradelink has added to its 220 branch network with this location which currently employs three local staff.

    Manager Shannon Ryan from Springfield made the move from assistant manager at the Underwood store to take the reins at the Bundamba location, and loves the fact that he is bringing his 15 years of experience to those who live and work in his own town. He told the Queensland Times:

    I think people are renovating more than ever. They are improving what they have. Instead of buying brand new homes people are choosing to improve the homes they already have, and it's always only going to improve the value of your property.
    There is a definite opportunity in this area. We have three paint stores within 500 metres of each other and the Bunnings up the road has helped...it's a hub for tradies and people with the renovation bug.

    This is the seventh store Tradelink has opened across Australia this year, and plans are under way for another 13.

    Tradelink's general manager Tim Broxham said that the new store was another example of how the business was identifying opportunities to continue improving their service offering to the trade community by positioning stores in convenient locations.

    We know that plumbers prefer not to travel more than 15 minutes from a job to get parts, so no matter where our customers are working, we want to make sure that there is a Tradelink branch nearby.

    Mitre 10 NZ posts gain in full-year profit

    Mitre 10 New Zealand posted a 38% gain in full-year profit after reining in some expenses including wages, helping to offset some margin pressure on seasonal products.

    Profit was NZD4.4 million in the 12 months ended June 30 from NZD3.2 million a year earlier, the Auckland-based company said in a statement. Revenue from the sale of goods rose to NZD818 million from NZD767 million.

    The hardware retail co-operative, whose shares are held by its store-owning members, supplies goods and services to the 81 outlets in the group. Chief executive Neil Cowie said:

    We're cautiously optimistic. There's been some softening around the edges through the 2017 election but people will still be investing in their homes and there will still be homes being built. If you look at construction, the new coalition is looking like investing in houses and having a push on infrastructure.

    Mitre 10 Chairman Martin Dippie also said a number of external and internal factors its drove growth over the past year.

    Our members are continually investing in their stores, upgrading, expanding and finding new ways to deliver the best in-store experience for our customers. Complementing this in-store growth is our commitment to create a complete online experience for our customers as well...

    Reflecting this, Mitre 10's online sales grew 48% compared to last year, and the company added another 7,000 SKUs (stock keeping units) to its online product range.

    Mr Cowie said the omnichannel approach has strong appeal with customers in both the retail and trade segments because they can easily buy online, and it offers the freedom to get inspiration and advice and compare products and prices, 24/7.

    Having done their homework online, our customers then have the option to visit their local Mitre 10 store and take advantage of our showrooms, range, product knowledge and advice. Our recent kitchen showroom rollout helped drive a strong increase in kitchen sales, compared to 2016, and we are also rolling out our new bathroom showrooms which we expect will perform well.

    Total stores fell by one during the year as a result of the earthquake-related close of the Kaikoura outlet. The aggregate of Mitre 10 store sales rose to NZD1.36 billion in the latest year, from NZD1.24 billion.

    Cost of sales rose to NZD747 million in the latest year from NZD692 million. Margins were squeezed after a mild winter last year, which saw the chain forced to mark down heating products. This year, Mitre 10 has faced a wet spring season. Mr Cowie said:

    It's still early days so hopefully there's a bit of pent-up demand. Seasonal categories can be under pressure. But we're picking that it's still going to be a strong year for our business.

    Mr Cowie said as part of Mitre 10's restructuring it moved to paying member rebates by installment rather than at the end of each year, which helped its members manage their cash flow and reduced the financing "bulge" it previously faced.

    Unlike rivals such at Fletcher Building's Placemakers and ITM, the Mitre 10 outlets rely less on trade sales and the split is currently 70% retail and 30% trade, Mr Cowie said. Mitre 10 stores are currently rolling out revamped bathroom departments having spruced up its kitchens departments in a move that led to a 30% increase in kitchen sales, he said.

    Our trade strategy is to not just to sell concrete and Pink Batts - we're happy to sell them (builders) the kitchens and bathrooms as well.
    retailers

    Murphy's Mitre 10 Monbulk, Victoria

    Julie Murphy shows mighty potential

    Tucked away in the Dandenong Ranges, Murphy's Mitre 10 has inherited a long history, and is breaking new ground under its owner

    There is something a little mystical about the journey through the steep-sided hills that lead up to the low mountains that make up Victoria's Dandenong Ranges. One moment you are driving through what seems like dense bushland, and the next it is as though you have entered a different realm, one of tall trees and low, spreading tree ferns. Early tales tell of trees that were far taller and wider than the giant redwoods of California. All gone now, of course, but there remains something a little primordial about this place.

    Monbulk sits on the edge of this area, surrounded by a patchwork of small properties, cleared 100 or more years ago by those early settlers. It's the kind of place that has a main street named "Main Road" lined with all the usual suspects: a great bakery, a Chinese restaurant, a couple of banks, the fancy cafe where the "in" crowd of teenagers and twenty-somethings go, a cafe for the older or less hip, a big Woolworths supermarket, a primary school, and, clustered around that, a bowls club, playing field and recreational centre.

    And at the very top of Main Road, where it intersects via a giant roundabout, at the point where the Monbulk-Olinda Road becomes just plain Monbulk Road as it turns away north into the nearby area of Silvan, sits Murphy's Mitre 10.

    Potential, real potential, is something you don't see too often in retail - not even in home improvement retail. But if you want to see what it looks like, then Murphy's Mitre 10 could prove to be a good example.

    Potential is seldom made up of one element. It is more likely, as in the case of Murphy's, to come from a range of sources. One element is certainly the premises themselves, which have a great location, with both room for expansion and a built-in diversity of retail space. A second element is the community of Monbulk itself. Unlike modern suburbs, Monbulk is not just a line on a statistical map somewhere. It's a real and genuine community, with a unique history, and many personal and family links.

    The third element is that Monbulk is poised on the brink of a likely change in its demography, as the increasing house price pressure of the Melbourne suburbs converts it into a more viable "dormitory" suburb.

    All that counts, but the main source of this potential is, without doubt, the current owner and manager of Murphy's, Julie Murphy herself. It is a potential that is already reaching beyond her Monbulk store, which she has been managing full-time since 2016, into the home improvement retail industry itself, as she has become one of the driving forces behind the launch of the "Women in Hardware" movement.

    This potential is a consequence not only of the evident abilities of Julie herself, but also because she brings with her one of the things the Australian home improvement industry is in urgent need of: cross-fertilisation from other industries and areas.

    To get an understanding of how all this could come together, we need first to look at the history of the Monbulk area (including its economics), the legacy effect this has had on town-planning, the shift in the region's demographics over the past five years, as well as how all this plays into some of the effects-at-a-distance generated by Victoria's capital city, Melbourne, some 45km away to the west.

    The Store

    On entering Murphy's Mitre 10 your first impression is that Julie and her floor manager Nick have managed to create a space that feels bigger than its nominal 2800 square metres of floorspace. That is quite a feat in hardware retail, where both very small and very large products are featured, and part of the name of the game is to have as broad a range as possible. Many hardware stores, even those larger than Murphy's, manage something you might call the "reverse Tardis effect": they make a big space seem much smaller than it really is.

    What Julie has done with the space is to clearly follow through on three basics of good retail design: "staging" of the customer journey through the store, the application of appropriate scale to the displays, and a good understanding of how to manage standard sales displays of typical merchandise, and the display of more "impulse" buys.

    [Text omitted]

    Staging

    Of the three, the one that Julie and her team excel at, and which is, for a smaller store, of key importance, is staging. Staging really refers to tracking the progress of customers through the store, and providing them with a set "view" at each stage of that journey.

    In Murphy's Mitre 10 this begins with the first thing the customer sees when coming in the front entrance: a long, wide discount table, with two levels of discounted goods. Immediately to the right of this are two aisles of power tools.

    These aisles and the adjacent aisles are kept low, providing a clear view of the back walls, and promoting the open, spacious aspect of the store. Turning right and facing towards them, behind to the right are power tool accessories, such as cutting wheels. Along to the left, are the more specialised power tools, such as nailguns.

    The endcaps on the power tool aisles are used for a mixture of seasonal sales, in spring barbecue charcoal and storage containers (spring cleaning), along with more discount stock, such as the last of the winter's electric heaters. Turning back to the main direction of entry, the endcaps of the aisles just beyond the big discount table are a mixture of more seasonal goods, in this case axes, along with "specials" that hint at the products on the aisle shelving, such as fasteners, in this case for nailguns. This meshes nicely with what customers looking at the nailguns along the back wall will see these when they turn back towards the centre of the store.

    One of the important elements to creating successful staging is the colour palette used in the store. All too often stores tend to use a dominant darker colour (in Mitre 10 usually the brand's darker blue). That can work in larger spaces, such as the dominant red that runs through Bunnings stores (dark green is actually the brand's foreground colour). In smaller stores, the dark colours tend to add to the reverse Tardis effect, shrinking the space.

    Universally, you really need to go with a light colour, accented with darker colours. Murphy's has a very tightly controlled palette, with the main background in a softer white, outlined with racking and shelving in a "clay" colour, which splits the difference between a soft grey and an off-white. This is accented with the three shades of Mitre 10 blue, which contrasts with the whites to produce a sense of crispness and liveliness.

    There is a lot going on in this entryway space, but it's not annoying because underlying the displays is a form of "narrative" that helps to make sense of what is seen. The discounts are enticing, and, like the "pods" of specials in a Bunnings warehouse, they provide the drama of "surprise", resetting customer expectations of what they can afford. The seasonal goods trigger the "oh, that's right, I'm going to need that now" buying behaviour, which can turn a $10 pick-up-a-lightbulb shopping trip into a $100 buying-the-essentials shopping trip.

    While she has been very inventive, Julie has some concerns about the displays, and the ways in which she has changed the store. As she explains:

    I like the merchandising side of it. When I first started here full-time last year, I spent a lot of time cleaning up what was done, changing areas. We re-jigged the paint area and changed where plumbing and housewares were placed, as previously this was stuck in the corner. But I wonder if that's because we have got a few females on staff, and females look at it a bit differently.
    Sometimes I find I put my views across more than probably what I should, I should probably be thinking more of the customer. I often think I like it like that so that's the way it should be. But then I wonder if the customer likes it like that. Is a male customer going to look at it and think, "That's not the way to do it"?

    If there is something that could be identified as "feminine" about the layout of the store, it's that it is borrowing heavily from the way that women's fashion and homewares retailers design the shopping experience. That design, however, has as much to do with male designers as women, so what Julie is doing here is very far from the idea of a "woman/s touch" and more to do with a cross-fertilisation from forms of retail that are considerably ahead of home improvement retail in this regards.

    "Traditional" home improvement retail design relies primarily on defined categories that are laid out in an understandable way, like an indexed collection for the customer to browse, with the odd impulse-buy, cross-category display thrown in. This is, essentially, the way goods for the building trades get displayed, because tradies (mostly) know what they want, and need to get in and get out and back to the job as quickly as possible. Particularly when it comes to Mitre 10, this has been (unfortunately) a little cross-fertilised with supermarket-style displays.

    The kind of display that Julie and her team are promoting at Murphy's Mitre 10 is actually needs-based. Good fashion retailers are not just putting goods out for sale, they are also informing and assisting their clients, reminding them what is in style, and showing how they can follow those styles in a way that suits their body shape and the rest of their wardrobe.

    The entryway at Murphy's is showing off what is new, what is discounted, and what the customer will be needing this season. It is prompting, reminding and enticing. This enticement takes place at both ends of customer expectations: this is going cheap, and this over here is brand new and different.

    One area that Murphy's Mitre 10 really shows up as lacking industry-wide for many independent hardware stores is power tool ranging. Julie mentions this as one of the areas that she and Nick are concentrating on developing.

    We fixed that [the power tool display] about six months ago. Mitre 10 do an HSA , they come through the store and critique you, in a way. They say this area needs doing or improving, and they do it once or twice a year. And they did it not long after I started in the chair full-time. The first results were not really good. One of the things they mentioned were the power tools. It was pretty messy, so we decided to focus on the power tools. Nick and I did the power tools.
    We did the first bay of power tools that features Rockwell/Worx and that is nice and bright. But the next bay we are still working out what to put there. It's hard for me at the moment know which power tool sells. It's really hard to know what will sell up here.
    It's getting to know your demographics. At the moment, we have Makita and DeWalt and Bosch. So with got a bit of everything at the moment to trial it but we're trying to streamline it now. And now I'm looking at the Makita MT series which is slightly cheaper, but still has the name. But you get to know what sits there on the shelves for a while.

    While Julie, in typical good retailer fashion, looks to herself and her store's own practices in relation to fixing the power tool range problem, the reality is that most of the power tool manufacturers distributing in Australia are really letting down independent retailers in terms of the ranges they offer. Instead of providing clear "hero" tools that consumers and the handyman trades can buy with confidence, they've presented a bewildering range of possibilities, that only an online-based retailer, a specialty shop, or Bunnings could possible begin to stock. For example, Makita alone now offers 18-volt, compact 18-volt, 12-volt (aka 10.8-volt), and the MT Series.

    Julie thus faces the same problem that most smaller independents face: find a way to work with the mainstream brands, or head off into some of the better-suited, but less known alternatives. For example, Hitachi offers just the right kind of range for smaller independents, but it's a lesser-known brand with which consumers are not comfortable. The Bosch Blue 12-volt range is a great choice for consumers as well, but none of the manufacturers have done a decent job in marketing 12-volt.

    There is a lot more that could be said about how Julie and her team have developed staging in Murphy's, including making the back end of the lower level which leads directly on from the entrance into a packed ranging of a wide variety of essentials, including automotive, fasteners and clothing, where it's easy to select goods and the main choices are displayed clearly. It is not universally great everywhere, but the places where attention has been paid, Julie has found some slightly unconventional solutions that really work.

    Download

    The above is an extract from a longer article. To download the full edition of HI News, complete with this article, please click link below:

    HI News Vol. 3 No. 11: Murphy's Mitre 10
    retailers

    Working with Amazon: SRG, Beacon Lighting

    Super Retail Group works on improving its digital options

    Beacon Lighting celebrates 50 years and experiences growth in its online sales

    Super Retail Group (SRG) - owner of Supercheap Auto, Rebel, Amart Sports, BCF and Rays - is tackling the impending arrival of Amazon in Australia head-on, opening up a dialogue with the US retail giant and strengthening its digital offerings.

    Chief executive Peter Birtles confirmed to the Courier Mail the company has had "conversations" with Amazon when asked whether it would consider selling goods through the US online retail behemoth.

    Meanwhile SRG's digital sales have grown substantially. In the last financial year digital sales in the company's auto-division grew by 75%, sports division was up 73%, while the leisure division was up 150%. Mr Birtles said:

    As a company you explore all options. We work with eBay today, and we will explore that (working with Amazon) too. Amazon are a really great organisation who have great capabilities. You have to be open to considering every single option.

    Unlike Harvey Norman founder Gerry Harvey, Mr Birtles remains upbeat about the company's ability to compete with Amazon. He said:

    We recognise that the retail industry is going through unprecedented change as the result of the impact of ever more demanding customer expectations, global competition and digitisation.
    We have been considering these forces for a number of years and our strategy has been developed to ensure that we continue to succeed in this evolving environment.

    SRG's investment into its digital strategy has helped deliver growth in this part of the business. Mr Birtles said much this was largely driven by click-and-collect - a competitive advantage a retailer with a large physical network of stores had over online only businesses. He said:

    The advantage that we have is we can serve the customer in whatever way they want to be served - they can shop with us how ever it is they want to shop.

    Beacon Lighting

    Another retailer that recently listed on the ASX is also looking at Amazon as an opportunity for growth. Beacon Lighting founder and executive director, Ian Robinson told The Australian:

    Our e-commerce model in Australia has been very successful and we have the opportunity to expand that internationally.

    Online now represents more than 4% of sales and was up 54% over the past year.

    Beacon already sell into the US and Europe with Amazon and has registered as a supplier in Australia. Chief executive and son, Glen Robinson said:

    If you have your own brand like we do, we are in a pretty good position. It is another way for us to get to our customers. We will cater a range to suit the Amazon platform for Australian buyers.

    The lighting retailer turns 50 this year and now employs 1000 people worldwide, exporting to 26 countries. Ian Robinson recounts the early days:

    I started with nothing. And we went through many years of really hard times. We went through the '89 recession and really just survived and had to reinvent the business. I still have the memories of difficult times.
    I am still very aware of keeping your feet on the ground and not getting carried away. Tomorrow you could lose the whole lot. You are in business and you have no certainty it will continue forever. I wish the family all the success for the future but businesses do fail and if it fails it fails - do not take it too much to heart if it does happen. But all things being equal it should be very successful.

    Beacon saw its shares rise to dizzy heights in the two years after the float, soaring to three times their issue price before a profit downgrade 15 months ago sent them crashing to earth.

    They have since remained below their listing price and remain down more than 20% over the past year. They fell further after the group reported a 9% fall in net profit to $16.6 million, a result hit by the discounting of lighting lines following the closure of the Masters Home Improvement chain last year.

    The tough times are testing the resolve of the leader of the second generation, Glen Robinson, but he wouldn't have it any other way. He said:

    What a perfect induction, training process you have when you get to work with your old man in the business. We get to discuss things. Some of the things we are discussing are big decisions that need to be made. And you don't need to worry about the Ps and Qs. You just go for it.

    The younger Robinson started on the Beacon shop floor when he was 12 years old. He said:

    The family runs the business, my brother and two sisters work in the business. It is absolutely important for us to grow this business into the second, third and fourth generation.

    Beacon remains one of the larger beneficiaries of ongoing strength in the housing market and soaring energy prices, which are driving demand for more energy efficient lighting.

    Beacon will open 14 new stores this calendar year and its goal is grow to 145 stores from the current 102. It has also taken over six stores owned by three competitors this year.

    And while he may no longer have his hands firmly at the controls, Ian Robinson is adamant the family can continue to grow revenues in the broader business ''at 10 per cent-plus per annum''. He said:

    I have enjoyed building a business over a long period of time. Every day is a challenge in retail, you have to do 1000 things right every day. And it keeps you mentally stimulated. You have your ups and downs along the journey.
    retailers

    Europe update

    Kingfisher H1 results show continuing transformation

    Homebase website being "re-platformed" and Grafton sees a soft UK market to the end of 2017

    Home improvement group Kingfisher said the transformation of its business is on track; Bunnings United Kingdom & Ireland is moving the Homebase website to a new online platform; Grafton Group remains confident about Irish and UK construction despite weaker demand; and French DIY website raises EUR60 million to take on B&Q in the UK.

    Restructure keeps Kingfisher's pre-tax profits down

    UK home improvement group Kingfisher - owner of B&Q, Screwfix in the UK and France's Castorama - made pre-tax profit of GBP402 million in the six months ended July 31, compared with GBP427 million a year earlier. This represents a fall of 5.9%.

    Total group sales rose 4.5% to GBP6.01 billion, but like-for-like sales declined 1.3%.

    The retailer saw solid growth at its Screwfix brand and also in Poland, but this was offset by a 5% fall in sales in France.

    Kingfisher is also investing in digital, with B&Q at 4% online sales, up 17% this year. A mobile platform is launching soon at B&Q.

    The company said it remained comfortable with full-year earnings per share expectations but chief executive Veronique Laury is "cautious on the second half backdrop in the UK and France."

    A recent survey by UBS analysts suggested such caution might be warranted: !Intention to spend on DIY remains weak in the UK and (surprisingly) in France ... In France, Leroy Merlin is continuing to outperform Kingfisher, with Castorama scoring particularly poorly.

    The company is working its way through a five-year plan, which it began 18 months ago. This includes streamlining the products it offers across its outlets. This has meant offering products it planned to phase out at discounted prices. Kingfisher's revamp has also included widespread changes to its IT system as well as closing some B&Q stores.

    Kingfisher said it will deliver a GBP500m "sustainable" annual profit uplift by the end of 2021, which will cost GBP800m, but that until it has finished streamlining the business, it will not be able to expand by much.

    Analysts at Barclays have suggested "the turnaround plan will take longer, will provide substantial disruption to company operation in the next several years and will eventually provide a smaller benefit than is currently expected."

    Some analysts have also suggested the company may work better broken up. Screwfix is growing faster than the rest and France's Castorama is underperforming.

    But Ms Laury said this was "not something we would consider at all". She added:

    The power of the group is to be together.

    BUKI revamps Homebase website, store update

    The home delivery service at Homebase stores has been suspended while Bunnings United Kingdom & Ireland (BUKI) completes its separation from previous owner Home Retail Group and moves to a new web platform. A Bunnings spokeswoman said:

    This is temporary and part of the website re-platform, to make it easier for customers to browse our great ranges, advice and ideas.

    Bunnings said Homebase's home delivery service would return soon after a transitional period is complete.

    It marks another stage of the retailer's journey to transition from Homebase to Bunnings. BUKI continues to convert a string of Homebase stores and plans to have between 15 and 20 Bunnings Warehouse stores fully operational by the end of this year.

    Broadstairs and Chichester stores

    BUKI also officially opened its latest warehouse store at Westwood Gateway Retail Park in Broadstairs, Kent. It measures 67,000 square feet and the second Bunnings store in Kent, following the Folkestone store in July. Broadstairs' complex manager, Simon Woodhall, said:

    It is great to finally open our doors. All our team members have worked really hard to get the store ready for opening and have undertaken many hours of training to make sure we have the expertise to help customers with home or garden projects."

    It has also been announced that the Homebase store on Discovery Park, Barnfield Drive, Chichester will close in November, as work commences on its conversion to a new Bunnings Warehouse store, which will open later this year.

    Uncertainty in UK market, says Grafton

    Grafton Group has reported a 9% rise in revenue for the six months to the end of June as its pre-tax profits rose by 16%.

    The building supply company, which includes brands like Heiton Buckley and DIY chain Woodies, made a profit before tax of GBP75.4 million in the six month period, on the back of almost GBP1.34 billion in revenue.

    Looking ahead, Grafton said that recent softer trends in the UK economy are likely to be sustained over the remainder of the year. The company stated:

    The strength of housing starts should support house building activity while the residential RMI (repair, maintenance & improvement) market is expected to be broadly flat with continuing competitive pricing conditions.

    However Grafton Group chief executive Gavin Slark said he expects construction in both Ireland and the UK to grow. He believes fears of a skills shortage, around Brexit and the slow pace of homebuilding in Ireland and the UK would impact the construction sector were premature. He told the Irish Examiner:

    The underlying fundamentals in the UK are relatively strong. There are 60 million people living there and it is a mature economy. The need for housing isn't going to go away and the need for repairs and maintenance isn't going to go away. You might see a few speed bumps along the way but we look at the next three to five years in the UK with a fair degree of confidence.

    Breaking down its divisions, Grafton said that revenues in its merchanting division rose by 8.6% to GBP1.221 billion while adjusted operating profits were up 13.4% to GBP74.6 million. The division makes up 91% of total group revenue.

    Meanwhile revenues at its retail division - which makes up 6% of group revenue - rose by 15.5% to GBP84.4 million while operating profits increased by 53% to GBP4.7 million. Grafton's DIY chain Woodies saw its like-for-like revenue increase by 6.6%.

    French DIY website looks to UK for growth

    Paris-based online DIY marketplace, ManoMano has raised EUR60 million from private equity investors to fuel expansion across Europe, with Britain one of the top markets in its sights.

    Its latest fundraising round was led by General Atlantic, the private equity and venture capital firm. Chris Caulkin, a principal at General Atlantic, said ManoMano has an opportunity to capitalise on the relatively low take up of online sales in DIY and gardening in the UK. He told the Financial Times:

    DIY is one of the last retail categories to start transitioning online. If you compare it to categories like clothes where maybe 20% of sales are already through the online channel, this category is below 5% in many countries. There's a very attractive medium-to-long term growth opportunity in looking to shift DIY online.
    We believe the DIY and gardening category today has low online penetration despite the advantages over traditional retail, including a wider product offering and the ability to search and filter products and drill into technical information.

    This funding injection will be spent on a marketing blitz across all markets, as well as increasing the product range, and hiring more business development staff in the UK and Germany. Christian Raisson, cofounder of ManoMano, said in a statement:

    In the UK, we will be focusing on a number of key issues, notably: implementing new logistics and delivery services for consumers and sellers, facilitating cross-border trading and European expansion for partners, as well as redesigning the website to allow for easier navigation, a simplified purchase funnel and more efficient pre-sales advice.

    In its 18 months of operation in the UK, the company has made GBP9 million in sales. ManoMano co-founder, Philippe de Chanville said:

    In France, the web represents roughly 3-5% of its sales; in the UK, close to 8% of its sales are on the web. We are aiming to get the biggest market share online.

    ManoMano also hopes its Europe-wide supplier network will help it keep costs down. Mr de Chanville said:

    Spain and Italy are well-known for faucets, bathtubs and showers; electricals come from France, power tools from Germany and the UK. Anything can be shipped from anywhere in 24-48 hours so we don't add cost by building huge warehouses.

    Founded in 2013, ManoMano sells DIY tools, products and furniture from a network of merchants, and is on track for overall sales of EUR280 million in 2017, up from EUR89 million last year. It operates in six countries in Europe and Germany is its fastest-growing market.

    The business said it has 1.9 million customers across Europe and has 1.2 million products listed on its platform.

    The company also plans to launch SuperMano, its DIY handyman service, in the UK after trialling it in France with over 1,800 handymen for the past 14 months. 

    Related:

    Europe update: ManoMano hails successful first year in UK - HNN DIY start-up ManoMano to challenge B&Q - HNN
    retailers

    Indie store update

    Kemp & Denning continues to struggle

    Toowoomba Home Hardware owner says changes to retail hours will have a negative impact

    Competitive pressures has forced K&D to tighten its belt and changes to store hours in Queensland will not benefit independent retailers, according to Craig's Highfields Home Hardware.

    Trading conditions lead to K&D's $9.8m loss

    Tasmanian-based hardware retailer Kemp and Denning Limited (K&D) has made cost cutting culture a priority after recording a $9.8 million loss in 2016-17.

    A competitive environment resulted in an 18% reduction in revenue from $89 million to $67 million. The after-tax loss increased from $558,846 to $9.83 million.

    General manager Jason Hutton said it had been a period of particularly tough and adverse conditions for retail and trade. He wrote in his report:

    Both markets have been very competitive with challenges around sales and margin retention. In response, the Board and management determined that in order to remain viable we must simplify our operations and implement an aggressive cost reduction culture.

    Chairman Greg Goodman said directors had taken decisive action to restructure the company with the closure of unprofitable operations in Devonport and Glenorchy and the sale of the trade division to Clennetts Mitre 10. He told The Mercury:

    The sales have significantly strengthened our balance sheet and facilitated the repayment of all outstanding debt [$6.8 million].
    The board decided to sell the trade business to eliminate ongoing operating risk and ensure shareholder value was preserved. Excellent progress has been made in the reduction of operating costs and working capital.

    K&D also closed its Cambridge store, despite an ongoing lease going through until March 2018. It plans to sell the land and buildings at Kingston by the end of September.

    The company's annual report says K&D has a strong balance sheet, assets of $38 million compared with liabilities of $14 million, and a clear strategy to get more value out of its real estate holdings. The directors report to shareholders said:

    To maximise our impact we will increasingly look for opportunities to maximise the benefit of these properties.

    The report also indicates that K&D's continuing operation in Melville Street, Hobart earned $22 million revenue but contributed $4.5 million to the loss.

    The discontinued operations, including Glenorchy and Devonport, earned $44 million in revenue in the year to May but lost $5.2 million.

    Related:

    Indie store update: K&D store closures - HNN

    QLD trading hours changes: Not happy

    Craig's Highfields Home Hardware owner Craig Stibbard has criticised the Queensland Government's changes to trading hours, saying it would put more pressure on small businesses.

    The amendments to opening hours for hardware stores, butchers, shops at international airports and tourist areas were passed through the Queensland Government recently, after Labor secured the LNP's support through extra changes.

    But Mr Stibbard said allowing all hardware stores to open at 6am every day would only benefit large chains like Bunnings. He told The Chronicle:

    I think it's crazy - most of the hardware stores are already open at 7am. It's just ludicrous. The big guys are just trying to squeeze the little guys out, there won't be any small ones left.
    I probably don't think it's achieved a lot - you might be able to attract people outside of the normal trading hours, (but) with your overheads, your electricity prices, labour prices, opening a door is all a cost.

    Toowoomba Chamber of Commerce CEO Jo Sheppard had a mixed reaction to changes which were designed to give small businesses more flexibility with their opening hours to help attract customers.

    She said it was unlikely to be the last time the state government reviewed opening hours, considering the changing nature of business in Australia. Ms Sheppard said:

    A couple of points I'd make is we need flexibility for businesses to have extended trading hours. Customers' expectations are that they are wanting extended hours for those bigger regions.
    Toowoomba is one of the biggest online shoppers in the country, so to compete with that side of shopping traders need to be able to open more often. I don't think any government should look at this and say that's final.

    Mr Stibbard said he was also unlikely to extend his opening hours.

    Related:

    Indie store update: Impact from new QLD retail hours - HNN
    retailers

    Europe update

    Praktiker will be part of Kingfisher

    Travis Perkins warns that British consumers are currently preferring holidays to DIY

    Kingfisher is adding the Praktiker DIY stores operating in Romania to the group and Travis Perkins chief executive John Carter said the company delivered "pleasing" results as it protects its margins through implementing higher prices. He also believes there will be continuing pressure on the business as householders choose overseas holidays instead of weekends at home sweating over time-consuming DIY projects.

    Kingfisher set to buy Praktiker chain

    European DIY retailer Kingfisher will acquire its rival Praktiker in Romania for an undisclosed sum. Kingfisher is the owner of French-based Brico Depot which already operates in Romania. Adela Smeu, CEO of Brico Depot Romania, said the deal will allow the company to expand its market share on the back of a growing market for DIY and interior design.

    Romania is an attractive, growing home improvement market and we have always been clear about our intention to expand our business over the medium term. Subject to competition approval, the strategic acquisition of Praktiker Romania, combined with our existing Brico Depot business, gives us a strong presence right across the country.

    Kingfisher purchased the DIY chain from Turkish businessman Omer Susli who is an active investor in the construction sector. He said:

    We are satisfied that we have managed to grow the business up to this level, where Praktiker is one of the main players on the DIY retail market, reaching a turnover of about EUR140 million in 2016 - up 3% from the previous year - with a network of 27 stores...

    Praktiker has invested EUR1.2 million in the revamp of two of its stores in Ploiesti and Oradea and the company aims to reach 20 redesigned outlets by the end of 2017.

    Brico Depot has 15 stores and around 900 employees in Romania.

    Travis Perkins hikes prices as profits dip

    British builders' merchant and home improvement retailer Travis Perkins has raised prices to help offset rising costs from the weakened sterling as it posted a 4.5% drop in half-year profits.

    For the half-year period ending June 30, the parent company of DIY retailers Wickes and Toolstation reported pre-tax profits of GBP168 million, compared to GBP176 million in the same period last year.

    It said it was also affected by weakening housing transactions and consumer confidence during the period, but group sales grew 3.5% to GBP3.2 billion, and by 2.7% on a like-for-like basis.

    Travis Perkins said trading volumes were impacted by price rises that were implemented to offset soaring costs brought about from the post-Brexit depreciation in the pound and rising commodity prices. Despite this, the company said raising costs has helped protect profit margins (at the expense of volume).

    Its consumer division, which includes 642 Wickes, Toolstation and Tile Giant stores, was also buoyed by a 2.3% increase in underlying earnings to GBP45 million and like-for-like sales increasing by 4.7%. Overall sales in this division rose 7.3% to GBP822 million.

    During the period, Wickes continued with its store refurbishment program, completing a further 18 refits. The retailer also bolstered its online proposition, with range extensions and same-day, one-hour delivery slots.

    Travis Perkins also continued to expand its Toolstation network, opening 19 new UK stores in the period, as well as five in the Netherlands. It said its newly improved digital customer experience, including reduced click-and-collect times, better product reviews and personalised offers, drove a "significant step up" in sales growth.

    However these results were weighed down by the company's plumbing and heating arm, where earnings crashed by 32% to GBP13 million.

    As a result, Travis Perkins revealed a turnaround plan for the division, including integrating its City Plumbing and CTS branches to be run by one management team. The turnaround plan also includes changes to the company's ranges, pricing and online offering, while setting up a dedicated supply chain.

    Chief executive John Carter said the company's overall performance was "solid" against a "challenging market backdrop of pronounced input cost inflation and market volatility".

    Mr Carter also believes British consumers are preferring holidays to DIY. He said:

    With DIY you are competing against holidays, sofas and new cars. In the past few years we have been successful because if they can afford it, consumers want to improve their homes. But with consumer confidence and worries about the economy, they are leaving doing up the kitchen or bathroom because they work hard and definitely want to go on holiday - that's almost a given.

    The core business supplying builders reported revenues 1% higher at GBP1.055 billion, though it is facing similar issues. He said:

    People are looking at repairs, and those have to be done, maintenance, which leads to repairs if not done, so they are spending there, but improvement is being put off.
    retailers

    USA update

    Sale option for True Value

    Ace Hardware launches paint guarantee and Lowe's UpSkill Project teaches DIY skills

    Speculation over True Value sale; Ace Hardware pledges to provide customers with everything they need to tackle paint projects in one trip; Lowe's is teaching DIY skills; A study by Market Force Information reveals America's favourite home improvement retailer; and Home Depot is with working with a digital decorator startup.

    True Value's potential sale attracts interest

    Hardware retail co-operative True Value Co. is weighing up a sale that could value the home improvement chain at about USD800 million, sources told Bloomberg.

    The company said it is working with an investment bank to examine strategic options, including a sale. The process is expected to attract private equity firms. However no final decision has been made and the company may elect not to pursue a sale.

    According to a report in the Chicago Tribune, Ace Hardware is open to making a bid for True Value. In an email to the newspaper, Ace president and CEO John Venhuizen wrote:

    It is our understanding that True Value is evaluating or conducting a formal auction process for the sale of its business. At this point, we have received no contact to participate in that auction process. If contacted, we would have interest in exploring it.

    The Tribune's business columnist Robert Reed believes Ace is signalling it is serious about competing with other suitors, should True Value hit the selling block. Among those he expects to evaluate a True Value deal include private equity groups, national or regional hardware and retail chains and, perhaps, online seller Amazon or another web-based consumer goods company. He writes:

    A buyout of True Value, with nearly 4,400 stores, would almost double Ace's retail store network of about 5,000 stores. Ace has 17 product distribution centres compared with 13 for True Value.

    Another retail chain, Do It Best also said it is interested in acquiring True Value. It told Chicago Business it is "enthusiastic about the many growth opportunities" an acquisition of competitor True Value could provide.

    Do It Best operates nearly 4,000 stores, with 20% of them outside the US. In 2016, the company generated USD671 million (AUD852.8 million) in net income, according to its annual report.

    Spokesman Randy Rusk said the retailer does not break out revenue but that Do It Best is the second-largest home improvement co-op in the world, with Ace first and True Value third.

    Ace generated USD5.13 billion (AUD6.5 billion) in revenue in 2016 and operated 4,994 worldwide stores as of December 31. True Value generated USD1.51 billion (AUD1.9 billion) in 2016 revenue and operates more than 4,000 stores.

    True Value would benefit more from a sale to Do It Best than to Ace because True Value and Do It Best share a company culture focused on keeping stores independent, Mr Rusk said. He said Ace feels more like a franchise, with every store looking the same and stocking the same products despite their different locations. Do It Best President and CEO Dan Starr said in a statement:

    While our top priority is generating sustained growth among our current member base, we're also focused on expanding our business by adding new members from other co-ops like True Value.

    Ace Hardware's latest paint guarantee

    The Extra Mile Promise[tm] is a guarantee that Ace has the expert advice and supplies needed to help consumers successfully tackle any paint project with just one trip to the store.

    It was created to address the frustration they deal with when faced with the proposition of yet another trip to the store as a result of forgotten items or not enough paint. By providing the right products and expert knowledge, Ace said it is committed to helping consumers complete their paint projects successfully the first time.

    The retailer is so confident in their one trip guarantee that they are willing to go "the extra mile" and provide free delivery to consumers who may be in need of additional paint supplies. President and CEO, John Venhuizen, said:

    While it hurt our pride to learn this, the truth is that while consumers trust Ace as the Helpful Place, far too many of them believed that our speedy sized stores didn't have enough product to complete their paint project.
    We know this isn't the case, so to assuage these misperceptions, we decided to stand behind our large paint assortment with the Extra Mile Promise. Our objective is simple: to be known as the #1, best, most convenient, most helpful and most credible store for paint in the neighbourhood.

    The Extra Mile Promise applies to all brands of paint and paint supplies available at Ace, and is only applicable with the original paint purchase receipt showing the purchase of minimum of one gallon (3.78litres) of paint.

    You can see the TV commercial here:

    Link to YouTube video

    Empowering new generation of home improvers

    Lowe's has introduced the UpSkill Project, a program committed to teaching DIY skill-building and helping customers become confident home improvement project-doers. Through the UpSkill Project, more than 200 homeowners across 40 US cities will learn skills from Lowe's teachers and complete a DIY project, combining hands-on expertise, real-world experience and training.

    Lowe's research reveals that while home improvement spending increases, attitudes toward DIY are changing as new and existing generations cite a decline in confidence to complete home projects. With the introduction of The UpSkill Project, Lowe's is addressing the home improvement skills gap.

    The UpSkill Project enlists the help of both Lowe's associates and specialised experts, including designers, general contractors, craftsmen and teachers, to help participants - known as UpSkillers - define their project, plan it, style it, purchase materials and tools, and master the skills necessary to realise it.

    The experts don't do the project for them - they roll up their sleeves and teach and guide as needed. They help participants overcome obstacles by showing them failures are a normal part of the process and by instilling confidence to make the next time, the best time.

    Once an UpSkiller has completed the project, Lowe's will give the homeowner an opportunity to "pay their skills forward" to their friends, family and neighbours.

    Aspiring DIYers in each market apply to become UpSkillers by submitting a video describing their project and skill goals. Winners are selected based on a number of criteria, including passion and excitement for learning home improvement skills.

    Link to video:

    Link to YouTube video

    America's favourite home improvement retailer

    Ace Hardware has beat out its big box competitors to rank as the America's favourite home improvement retailer in a recent study by Market Force Information. It achieved a composite loyalty score of 63%, according to the study.

    Menards ranked second, with a 60% score, followed by Lowe's, with 55%, and Home Depot, with 51%. (In order to be included in the category, a traditional home improvement brand must have been selected by 100 or more respondents representing 2% or more of total. Only Ace, Menards, Lowe's and Home Depot qualified).

    Market Force also looked at how the retailers fared in operational and product attributes that matter most to consumers. Ace Hardware ranked first in most categories, with particularly strong marks for ease of finding merchandise, staff service and knowledge, and speedy checkouts.

    Menards scored highest for merchandise variety and value, while Lowe's earned the top spot for parking availability. Home Depot ranked last of the brands in all service categories, as well as cleanliness and value.

    Market Force's research revealed that 60% of consumers consider themselves "DIY enthusiasts" who not only purchase the materials and products themselves, but also complete their own home improvement projects. Another 22% fall in the "do-it-for-me" group that purchases the materials and products, but outsources the labour.

    In other findings:

  • Home Depot's app is most popular, with 45% using it, followed by Lowe's, Walmart, Ikea and Menards. Of the 18% of consumers who indicated they have used an app, 93% of them said the app was helpful.
  • One-fifth reported that they participate in the loyalty program offered by the retailer they most recently visited. Ace Hardware's program is overwhelmingly the most popular with 67% participation, Lowe's ranked a distant second with 21%, Menards was third with 11% and Home Depot trailed with 8%.
  • Nineteen per cent indicated they have a home improvement store-branded credit card, with most choosing Lowe's (25%) and Home Depot (21%). Just 7% have a Menards card and 3% have an Ace card.
  • For the home improvement rankings, Market Force polled more than 7,800 consumers. The participants were asked to rate their satisfaction with their last experience at a home improvement or furnishings store and their likelihood to recommend it to others. That data was averaged to rate each brand on an aggregation of the two measures - a composite loyalty Index.

    Market Force also looked at the attributes that drive these preferences, analysing factors such as merchandise and brand selection, cleanliness and value.

    Digital decorator partners with Home Depot

    Home Depot has joined with Laurel & Wolf, which describes itself as a "digital decorating platform" to provide customers with a professional designer. Through the Home Depot Pro Referral Service, Laurel & Wolf connects customers with "top designers to transform your space" online through a flat fee - from USD59 to USD259 - using Home Depot supplies.

    The program will integrate Home Depot's existing Pro Referral service into Laurel & Wolf's platform, essentially referring its customers to Laurel & Wolf depending on their project needs.

    Laurel & Wolf is an online startup formed in 2014 that has expanded to a team of more than 60 employees and a marketplace of more than 1,000 interior designers, according to the company's website.

    The video shows an example of how the two companies are working together. You see it here:

    Link to YouTube video
    retailers

    Metcash full-year results FY2016-17

    Flat, but good results for a tough year

    As the supermarket business remains challenging, hardware and liquor sales helped buoy the wholesaling company

    Metcash has released its results for its full-year FY2016/17. Once the results are fully interpreted, it looks like the company had something between a mildly positive and a flat year. However, given the circumstances of its core industry, wholesale distribution of food products to independent grocers and supermarkets, the company has done well.

    Its home improvement retail operations, Independent Hardware Group (IHG), did well in particular. Earnings improved during a turbulent time, as the company acquired Home Timber & Hardware Group (HTH), and coped with the mass discounts dumped into the market during the busiest months of the year, as Masters exited the industry.

    >http://hnn.bz/metcash2017-table1.jpg}Metcash results for FY2016/17}http://hnn.bz/metcash2017-table1.jpg

    The headline results as reported by Metcash were an increase in overall sales revenue by 5.4% on the previous corresponding period (pcp), which was FY2015/16, to $14.12 billion; reported net profit after tax (NPAT) was $171.9 million, down by 20.6% on the pcp; and earnings before interest and taxation (EBIT) rose by 7.7% on the pcp to reach $298.7 million. Metcash also reported what it termed "group underlying profit after tax" (UPAT), which it claimed rose by 9.3% to reach $194.8 million.

    Making allowances for this being a 53-week accounting year rather than a 52-week accounting year decreases some of these gains. However, it is also true that the NPAT decline is largely due both to profit from the sale of its automotive operations, which added close to $40 million to the pcp NPAT, and ongoing costs from the acquisition of HTH, which decreased NPAT in the current period.

    In its hardware operations, the company showed strong gains in EBIT, especially for the Mitre 10 portion of its operations, as well as substantial contribution from the HTH operations Metcash acquired in October 2016. During the second half of FY2016/17, the Mitre 10 operations managed to boost overall EBIT margin to an excellent 4.26%, largely through efficiencies gained.

    Metcash CEO Ian Morrice was balanced in his remarks on the result release, in contrast to early, enthusiastic press reports. In the press release announcing the results he stated:

    Our initiatives focused on supporting Independent Retailers be [sic] "The Best Store in Town", together with our Working Smarter program aimed at simplifying the way we operate and reducing costs, have helped mitigate the impact of difficult trading conditions.
    Significant progress has been made on the integration of Home Timber & Hardware, and we remain excited about the opportunities this acquisition presents.
    The strength of our financial position has us well placed for future investment, and the Board was pleased to announce it is bringing forward the recommencement of dividends for shareholders.

    He was equally measured in his statements at the conference with investment analysts to introduce the results. He said in part:

    I think we've got some results to present this morning that from our perspective really highlight and underpin continued progress against our purpose and vision ... the components of our vision being best store in town, partner of choice, passion for independents and thriving communities.

    Reassessing the results by excluding the additional EBIT from HTH, and adjusting for this year being a 53-week accounting year, growth in operational EBIT from the company's food, liquor and hardware operations essentially kept pace with general inflation at around 1.5%.

    However, the results did show substantial gains from Metcash's Working Smarter efficiency program, and the HTH acquisition promises to be a good source of future growth.

    As a result, the stock market broadly welcomed the results, especially as they were accompanied by a reinstatement of a regular dividend of $0.045 per share for the reported financial year. This led to the share price going up from $2.19 prior to the release, to $2.41 a week later, an increase of 9.1%.

    New CEO

    Prior to the results announcement, Metcash indicated that Mr Morrice would be stepping down from his role as CEO in 2018. Metcash announced on 11 July 2017 that it will replace him with a former executive from the UK-based supermarket chain, Tesco, Jeff Adams. The announcement read, in part:

    Mr Adams will join Metcash in September and, following a comprehensive orientation of the business, will work with Mr Morrice to ensure a smooth transition into the role. He will succeed Mr Morrice as Group Chief Executive Officer following completion of the transition in December. Mr Morrice will then act as an adviser to Mr Adams and the Board through to June 2018.

    Mr Adams has something of a mixed background. He was successful at growing the Tesco business in Thailand, but was one of several executives who struck out when trying to get the company's expansion into the US past first base.

    Mr Adams is slated to begin his role on 4 September 2017, on a four-year contract, with a total employment cost of $1.8 million per year. Additional short-term and long-term incentives also apply.

    End of the transformation plan

    The Transformation Plan, launched initially as a one-year project in March 2014, expanded in June 2015 into into a three-year project, and for a brief time in 2016 apparently a four- or five-year project, has seemingly come to an end, as a three-year project, with these FY2016/17 results. Where it would normally appear as an item under "Strategic objectives" in the report documents, it is absent this year, while the company's ongoing efficiency drive, "Working Smarter", continues.

    It is difficult to say how successful the plan was in reaching its goals, but it is fair to acknowledge that it was successful in parts. The appointment of some key personnel at Metcash in mid-July 2015, including Steven Cain as CEO Supermarkets, and Mark Hewlett as executive general manager of new channels, arguably came out of the transformation plan.

    Equally, though, the way the company managed a major divestment and a major acquisition - the sale of Metcash's automotive division to Burson Auto Parts, and its acquisition of the HTH from the Woolworths controlled Hydrox Holdings - were key to the company holding its own in an increasingly difficult marketplace.

    Results

    Analysis of the results has been complicated by several factors, including the acquisition of HTH from Woolworths, and Metcash's sale of its automotive operations to Burson's in FY2015/16. Additionally, for accounting purposes, Metcash's FY2016/17 consists of 53 weeks instead of the usual 52.

    Metcash Group

    Metcash has been called to task for what a few analysts see as an unusual treatment of some results, especially the number it produced for UPAT. This matter is covered in some depth in our Comment section for this issue.

    To try to make these performance numbers more accessible, HNN has put together some different comparisons. Table 1 presents the results represented in the company's accounting, as well as an estimation of the sales and EBIT to represent an equivalent 52-week year, with the contribution of the HTH acquisition omitted.

    In overall terms, Metcash's food operations, which include its IGA independent grocer brand, had sales of $9.18 billion, up by 0.6% on the pcp. Sales at supermarkets rose by 1.3% while sales at convenience outlets fell by 2.7%.

    Excluding the 53rd week, sales at supermarkets fell by 0.6%, and convenience outlet sales fell by 4.5%. Like-for-like (comp) sales at Metcash grocery banner IGA lifted by 0.1%.

    EBIT was virtually flat at $180 million, though would have declined when accounting for the 53 week year. Poor economic conditions in Western Australia, and stronger competition in that state and South Australia brought the number down, while eastern seaboard states performed more strongly.

    Metcash's liquor operations' sales rose by 3.5% to $3,333 million, and by 1.8% when adjusting for the 53 weeks. EBIT for the unadjusted year increased by 7.9% on the pcp, to reach $67 million.

    Independent Hardware Group

    Mr Morrice made direct reference to the IHG result in his opening remarks at the presentation of the results to analysts:

    So [total Metcash] sales are up 5.4% and EBIT is up 8%. However, both of those numbers include a 53rd trading week and also the acquisition of Home Timber & Hardware. So when you flow that through into Hardware's EBIT increase there, yes, there's an element from HTH, but the good news underneath that is that the continued strong performance of Mitre 10 was also a big feature. This is all given the amount of disruption with the closure of Masters during the course of the year. So I'm very pleased with that hardware result.

    Mr Morrice returned to this theme later in his remarks, in the section specifically devoted to IHG:

    So sales obviously increased significantly without acquisitions. So some of you will want to also focus on how Mitre 10's going. And as you can see, up 2.9%, 1.4% on a 52-week like-for-like basis. And given all that happened in the market, we're pretty pleased with that. And earnings, we've pulled out the $12 million that we've seen from HTH to the second half. So as you back solve that, you will see an increased earnings rate from Mitre 10 due to both sales volumes and cost efficiencies.

    Table 2 sets out the performance figures for IHG, broken down into Mitre 10 and HTH, with estimated accounting for the 53rd week.

    >http://hnn.bz/metcash2017-table2.jpg}Metcash results for IHG division}http://hnn.bz/metcash2017-table2.jpg

    This shows that, on a 52-week basis, Mitre 10 grew its revenue by 1.39%, but increased EBIT by over 9%. This resulted in an EBIT margin for the year of 3.34%. Metcash notes that its EBIT margin on wholesale retail activities was 2.4%, which means that around 0.9% or around 37% of total EBIT came from other sources, amounting to over $13 million. Other sources would include the retail portion of company-owned store revenue, and income from sources such as the 2017 Tradeshow/Expo (which is rumoured to have earned over $1 million for the company).

    HTH EBIT margin was lower at 2.37%, and overall EBIT margin was 3.03%.

    Table 3 sets out the performance of IHG on a half-by-half basis, using estimated 52-week year numbers.

    >http://hnn.bz/metcash2017-table3.jpg}Metcash 52-week year results by half}http://hnn.bz/metcash2017-table3.jpg

    Mitre 10 sales revenue slipped a bit in the first half, but increased by over 2.9% in the second. EBIT, however showed a healthy gain in both halves, rising by 7.8% in the first half, and 13.7% in the second half. First half EBIT margin for Mitre 10 was 2.36% in the first half, and a very hefty 4.26% in the second half, up by 0.4% on the second half of FY2015/16.

    HTH estimated EBIT margin was much lower than Mitre 10's, at 2.68% in the second half. HTH is estimated to have returned $12.2 million in EBIT, which means that, if store numbers remain stable, it is on track to earn mid-range in Metcash's $15 million to $20 million estimation for FY2017/18 EBIT.

    There are some apparent anomalies in these numbers, in particular a higher than expected EBIT margin for Mitre 10, and a lower than expected EBIT margin for HTH. At a best guess what may be happening is that IHG has obtained very favourable rates from suppliers based on future volume of sales, but these suppliers are more broadly featured in Mitre 10 stores than HTH stores. As the numbers show, sales at Mitre 10 were basically flat.

    Another possibility is that, with the changes brought through the Working Smarter program providing real benefits, the HTH stores may not be "best practice" at the moment, in IHG terms. Hard won efficiencies in the supply chain may be boosting the margin for Mitre 10 operations.

    This conclusion is partially backed-up by a statement from Metcash CFO, Brad Soller:

    In relation to FY2017, there's about $4 million of synergies that have been realised in the results. Some of them, importantly, have been realised within Mitre 10 itself and not in all HTH. Some of the savings are in Mitre 10.

    Chart 1 shows the general progression of Mitre 10's EBIT margin for the past seven years. No mention was made this year of like-for-like (comp) sales, which have been provided in past years.

    Store numbers

    In terms of store numbers, Metcash has chosen to report these as consisting of 305 Mitre 10 stores, down from 310 in the pcp, and 67 True Value Hardware stores, down from 68 in the pcp. It provides a single number for all HTH stores, including Home Timber and Thrifty-Link banners, of 368, without a comparative number.

    The IHG Investor Day briefing from 23 March 2017 lists 246 Home branded stores, and 126 Thrifty-Link stores, for a total of 372.

    One of the concerns that have been voiced is the extent to which there will be competition between the Mitre 10 and HTH stores. Mr Laidlaw has stated that the networks are very complementary, in that there is only limited competition. HNN has delved further into this matter in our Statistics section for this issue, where we use Google Maps to determine driving time between stores as a proxy to network concentration.

    This is summary of the main article. To read the main article, please download our pdf publication, HI News, from the following link:

    hnn.bz/HI News Vol.3 No.8: Metcash reports
    retailers

    Indie store update

    Metcash wants to keep its hardware stores

    Sam's Hardware says good-bye and a Total Tools store launches in the Cairns market

    Metcash has said no to an offer to buy Hardings Hardware, according to Fairfax Media; a hardware store in Blacktown (NSW) has shut its doors for the last time; Cairns has got a new Total Tools store; Reece is planning an outlet for Toowoomba; and a PlastaMasta branch has opened in Ipswich (QLD).

    Metcash rejects offer to sell hardware stores

    Fairfax Media reports that Metcash has knocked back a $25 million offer from plumbing supplies retailer Reece for Hardings Hardware. It has also ruled out selling its company-owned hardware stores.

    Metcash acquired Hardings Hardware last year as part of its purchase of Home Timber & Hardware from Woolworths. Woolworths' Danks division had bought the former privately owned group of stores in 2013 to strengthen its hardware wholesaling operations.

    It is understood that Reece offered about $25 million for Hardings, which has six outlets in Victoria, Queensland and South Australia and sells bathroom, kitchen and building products to the trade sector.

    Metcash chief executive Ian Morrice and Mitre 10 boss Mark Laidlaw turned down the unsolicited offer, telling Reece the price was too low and it was not ready to sell.

    Analysts said the sale of Hardings would have dented Metcash sales and earnings, because the stores turn over about $100 million a year and are said to be profitable.

    Metcash declined to confirm if it had received an offer for Hardings, but doused hopes that it would at some stage sell company-owned hardware stores. A spokesman told Fairfax:

    We have consistently said we are not looking to sell our company-owned stores in hardware. We have made it clear when asked and in investor meetings that Hardings provides significant growth opportunities for the Independent Hardware Group going forward.

    The report goes on to day Metcash is under pressure from Mitre 10 and HTH store owners to sell company-owned stores to avoid competing directly with independent retailers. A source said:

    They're wholesalers and don't really like to own their own stores. They're not good at running stores.

    Blacktown hardware store closes after 23 years

    The Lebanon-born Jabbour brothers closed the doors at their Sam's Hardware store in Blacktown (NSW) for the last time recently.

    Owner Sam Jabbour opened the store in 1994, after deciding he was "too old to keep driving trucks". He was inspired by his older brother, who had a hardware store in Lidcombe in western Sydney. That store closed down six years ago after losing business to a nearby Bunnings.

    Mr Jabbour said he would miss talking to the locals and helping people. He told the Blacktown Sun:

    Most of the customers are friends. They're part of the furniture over the years.

    With five children and now three grandchildren, Mr Jabbour said he was looking forward to taking a break and reclaiming his weekends. He and his wife are about to embark on an eight-week European holiday gifted by their children.

    Mr Jabbour was visited by Boral sales representatives Jason Townsend and Peter Lindsay on the final day, who brought pizza to farewell their loyal client. Mr Townsend said Sam's Hardware was his first account when he moved into sales in 1994.

    Total Tools store opens in Cairns

    Darwin man Damien Gorton has opened a Cairns branch of Total Tools in the suburb of Portsmith (QLD). He told the Cairns Post the response has been fantastic so far.

    There had been franchise availability in Cairns for some time, but finding a site to accommodate the size of the store had been difficult.

    Mr Gorton said he had been the nominated Cairns franchisee for about 16 months before the Aumuller Sreet site was settled and Total Tools Cairns opened.

    It's the perfect location. That southern corridor down to Gordonvale is going to be a huge growth area. Being at the southern end of Cairns close to Comport Road poses well for us...

    He said his store offers between 60,000 and 70,000 items on the shelves with availability to many more.

    Mr Gorton's background includes being the manager at Port of Darwin and prior to that, he had been an oil and gas engineer. He said:

    I love tools and I'm very into buying tools. I had been looking for something like this for a long time ... We're here for local tradesmen and women.

    Reece gains approval for Toowoomba suburb

    Toowoomba Regional Council has granted approval for Reece to build a hardware and plumbing supplies warehouse for trade customers in the suburb of Wilsonton (QLD).

    The company's new branch will provide a wide range of products to support the water, gas, sewer, fire service and telecommunication sectors. It will supply bulk items and designate large areas of the site for storing outdoor items.

    Reece will predominately store supplies for delivery but this outlet will also include a small counter for pick-ups ordered by trade account customers.

    There will be no display or showroom component in the single-storey warehouse and no walk-in retail sales to the general public.

    Reece has more than 450 stores across the country and employs about 4000 staff.

    The site at 198-200 McDougall Street is in the medium impact industry zone as defined by the Toowoomba Regional Council.

    Building supplies outlet opens in Ipswich

    A PlastaMasta branch officially launched in Ipswich (QLD) in early July to serve local tradies and home handymen. Manager Wayne Knight told the Queensland Times:

    PlastaMasta Brisbane West is the next logical addition to our stores around the Greater Brisbane area.

    PlastaMasta has operated in Underwood, Toowoomba, Brisbane's northside, and the Gold Coast for 25 years. Mr Knight explains:

    PlastaMasta was established as a franchise; we own all of the stores. We are distributors of Knauf products and have an exclusive partnership with them.

    The business offers products such as wall and ceiling linings, using Knauf plasterboard, acoustic linings, cornice, compounds and plaster, metal profile, primer, sealants and a range of accessories.

    PlastaMasta works closely with builders and construction firms. It recently supplied products for the new state government building in William Street, Brisbane. Mr Knight said:

    There is a massive growth in the western corridor. Having a store in Ipswich makes sense, so that the product is close by. We have supplied product to local builders for years so this adds convenience for them.
    retailers

    Indie store update

    Clennett's Mitre 10 acquires K&D's trade business

    Long-standing tools specialist store, Toolies in Newcastle (NSW) is shutting up shop

    Kemp & Denning's trade stores are now owned by Clennett's Mitre 10 in Tasmania and Newcastle's oldest tools and hardware store is closing down.

    K&D trade sold to Clennett's Mitre 10

    Clennett's Mitre 10 has bought the trade division of Kemp & Denning (K&D) Limited, expanding its trade store network in southern Tasmania.

    It leaves K&D with retail sites in Hobart and Cambridge. In recent months the company has closed its warehouse in Devonport and sold its Glenorchy site to developer Errol Stewart.

    Clennett's will take over three of the K&D trade sites - in Glenorchy, Cambridge and Kingston - and continue to serve all K&D trade account holders.

    The hardware retailer, which has sold timber and building supplies since 1885, presently operates at Mornington, Kingston and Huonville.

    The K&D operation at Kingston will be closed with the Clennett's site in Kingston being retained as the centre of operations for the region.

    A number of K&D employees will transfer with the businesses, adding to the Clennett's Mitre 10 trade teams.

    Clennett's Mitre 10 general manager Will Clennett said the venture would deliver benefits to customers and fitted with the company's vision to expand its trade business. He said:

    Relationships form a large part of our business and our absolute priority is to ensure we continue to service our existing and new customers to the same high standards that we're known for. We are also committed to working together with K&D management to recognise the significant contribution of the current K&D employees.

    K&D chairman, Greg Goodman added: "This opportunity follows a strategic review by K&D management to consolidate our business. Clennett's is a successful service-oriented business and has become synonymous with trade excellence. The team has built a remarkable reputation in servicing the trade and we're thrilled to come to this agreement and ensure continuity of supply for our trade customers. I'm excited for the ongoing opportunities for many of our employees to join a thriving trade business."

    Related:

    K&D loses CEO amid ongoing changes - HI News, page 14 Indie store update: K&D store closures - HNN

    Newcastle's Toolies closes down

    Toolies Tool Specialists is the oldest independent hardware store in Newcastle (NSW), operating for 44 years. However owner Rob Chambers has made the difficult decision to close the business in the face of tough economic conditions.

    The store has been at its current site for 30 years, after Mr Chambers rescued it from liquidation in 2013.

    At the time, he was its general manager and couldn't bear to see it close, so he made the decision to buy it. He told SmartCompany:

    The process has been long and arduous - you can understand, as a business goes into liquidation or receivership there's not much left in it. But I had to try to rescue it, it really is an iconic business in Newcastle.

    The decision bought Toolies another four years serving the region's locals and customers from around the country who've made purchases from the Toolies online store.

    Mr Chambers said one of the big most important differences between independent hardware retailers and big box stores is that businesses like Toolies are focused on actually solving a customer's problem, rather than selling them a solution. He explains:

    I sent a guy home the other day with a way of solving his problem that didn't involve us selling him anything.

    Toolies is in the process of selling off stock before a June 30 exit date and Newcastle locals have been popping in to reminisce about the characters who have been involved with the business since it started in 1973.

    The business has faced a number of hurdles over the past decade, including being hit hard by the global financial crisis and a sliding coal price, which had a big impact on the region. In the years leading up to 2012, the business had annual turnover of more than $8 million and 15,000 "loyalty customers" on the books.

    Mr Chambers said a key lesson he's learned through the process of trying to save Toolies is that you need a significant amount of [money] try to turn around a business.

    The owner prior to me just didn't have the capacity to weather the storm when it came, because of the level of debt that was being carried. You can't have a business that just relies on the good times. You need to come into something like this with a lot of capital.

    While Mr Chambers says this has been a "very painful experience", he believes he has bought the business more time and continued to help customers in a way that no other hardware competitor will now be able to achieve.

    None of the others ... seem to do that. This is a problem, with the rush to sale [from big players] and all that sort of thing.
    retailers

    USA update

    Layoffs and exoskeletons at Lowe's

    True Value reports Q1 results and Ace Hardware tops customer service study again

    Lowe's outsources some tech jobs to India; unfavourable weather affects True Value's Q1 results; Ace Hardware customers are highly satisfied; Sears files another lawsuit; Danik Hook product voted most innovative by independent retailers; MiTek's award winning merchandising for building products; TreeHouse opens another location in Dallas; Houzz attracts additional funds; and Kohler launches new retail concept in New York.

    Lowe's moves some tech jobs to India

    As a way to improve its profitability, Lowe's has laid off about 125 tech workers, primarily at its headquarters in Mooresville, North Carolina.

    Many of the affected information technology job functions are being sent to Bangalore, India, where Lowe's employs approximately 1,000 people in information and technology and analytics.

    The layoffs are the latest in several rounds of reductions over the last year.

    Lowe's eliminated 96 tech jobs in October, then in January cut another 2,400 full-time jobs, mostly at store level. In February, it followed with more than 500 corporate layoffs, including 430 at its headquarters and 70 support staffers.

    In a memo to IT workers, chief information officer Paul Ramsay said the staffing reductions are part of planning effort that began "several years ago" to build a more diverse, global team to respond better "in this highly competitive 24/7 retail environment" and more quickly to "evolving consumer needs."

    Mr Ramsay added that the company will be providing a competitive severance package and outplacement services, including a job fair with local IT employers.

    Wearing exoskeletons

    Other Lowe's employees have been wearing exoskeletons to work. Lowe's is testing exoskeletons on four employees at a Christiansburg, Virginia, store to make it easier to lift objects and stock shelves. Some Lowe's employees spend 90% of their time moving and lifting everything from bags of cement to huge buckets of paint.

    Wearing the exoskeleton is somewhat similar to putting on a rock climbing harness and a backpack. The suit also includes attached carbon-fibre shafts that run down a person's back and thighs. The shafts flex and store energy as a person bends over to pick something up.

    When the employee stands, the rods straighten and the energy releases, making the task easier. The process is similar to how a bow releases energy when an arrow is launched.

    Lowe's developed the exoskeleton in partnership with Virginia Tech engineering professor Alan Asbeck. For years, engineers have tinkered with exoskeletons as a way to augment human abilities with extra mechanical powers.

    Kyle Nel, executive director of Lowe's Innovation Labs, describes the suits as a way to better recruit potential employees and make their workdays easier.

    Weather impacts True Value Q1 results

    True Value pointed to bad weather as a key factor for a sales decline in its first quarter.

    The retailer reported gross billings of USD502 million for the first quarter ending April 1, down 1.6% from the same period a year ago. Revenue was USD347.6 million, a decrease of 2.6%. Relative to the prior year, net margin remained essentially flat.

    Retail comparable store sales were down 1.9% for the same period. Unfavourable weather patterns across the US led to a decline in retail traffic and drove lower volume resulting in decreased warehouse replenishment, the company said.

    However True Value's international business continued to see strong growth with gross billings up 13% and handled sales up 18%.

    The company's top three performing categories for the quarter were hand and power tools, hardware, timber, building supplies as well as plumbing and heating products.

    Although weather trends affected quarterly sales, True Value asserted that it made progress in the execution of its multi-year strategic plan. John Hartmann, president and CEO, said:

    We continue to put the independent hardware dealer at the centre of everything we do. Coming off a year of record growth including new stores and remodels, stores that have implemented the Destination True Value (DTV) format consistently see increased returns, experiencing comp store sales 200 basis points greater than overall retail comp.

    During the first quarter, the company added 534,930 square feet of relevant retail space through the DTV format.

    True Value is based in Chicago and has about 4,400 independently owned and operated retail stores in its network throughout the world.

    Customers satisfied with Ace Hardware, again

    The J.D. Power 2017 U.S. Home Improvement Retailer Satisfaction Study has ranked Ace Hardware "Highest in Customer Satisfaction among Home Improvement Retail Stores" for the eleventh year in a row. Ace has been awarded this ranking by J.D. Power every year since the inception of the survey in 2006.

    The 2017 J.D. Power study is based on responses from 2,751 consumers who purchased home improvement products or services over the past 12 months. Ace ranked highest among major retailers with an overall satisfaction index score of 835 on a 1,000-point scale.

    According to surveyed consumers, Ace performs particularly well in the categories of staff and service, as well as store facility.

    This year's score is based on overall performance in the following five areas: merchandise, price, sales and promotion, staff and service, and store facility. Ace Hardware president and CEO, John Venhuizen said:

    We are truly honoured and humbled to receive this prestigious award for the eleventh consecutive year. We could have never done it without the loyalty of our neighbours, the entrepreneurialism of our local owners and servant hearts of the 100,000 red-vested heroes upon whose back these awards stand.

    Sears sues second Craftsman vendor

    Sears has filed its second lawsuit in less than a month against one of its Craftsman hand tools suppliers, alleging that the vendor is abruptly ending its relationship and agreeing to resume it only on terms "onerous" to the struggling retailer.

    It also announced that it has settled its dispute with the first supplier, One World Technologies, which it sued in Cook County Circuit Court in May. Sears will continue its relationship with One World, which makes power tools under the Craftsman brand.

    For more than 50 years, Western Forge supplied Craftsman tools for Sears to sell in its bricks-and-mortar stores and online. In 2010, Western Forge was acquired by Ideal Industries, and since July 2011, the relationship continued - until now, according to the latest lawsuit.

    Up until the end of April - when the agreement was set to expire - Ideal and Sears discussed extending the deal, the lawsuit says.

    But "after several weeks of assurances by Ideal intended to lull Sears into the belief that Ideal would agree to extend the agreement, Ideal abruptly informed Sears that it will not agree to extend the contract beyond its term," according to the lawsuit.

    Sears said in its suit that it told Ideal in late February that it wanted to extend the deal another year.

    "Despite giving Sears numerous written and verbal assurances over the ensuing eight weeks that an extension was forthcoming, Ideal waited until April 28 to tell Sears that it wouldn't extend the contract, Sears alleges.

    Ideal, under a "transition" period in the contract, however, is supposed to continue to supply products for six months, through the end of October, but Ideal did so for only one month, Sears alleges.

    Sears wants the court to force Ideal to continue providing the products through the end of October. The retailer said in court documents that it has been seeking a new supplier.

    "Ideal now refuses to provide Sears with transition assistance and has informed Sears that it will not fulfill any existing purchase orders," Sears said in its lawsuit. !Furthermore, Ideal has informed Sears that it will fulfill Sears' orders only if Sears agrees to onerous payment terms that were not part of the agreement and that were unilaterally imposed by Ideal.

    Ideal's refusal "has left Sears without the ability to sell certain of its Craftsman brand tools without supply interruption and constitutes a material breach of the agreement," the lawsuit argues.

    Sears spokesman Howard Riefs said the company "will take the steps necessary to hold vendors to honour our agreements." Sears also wants to recover damages, though no dollar figure was given in the lawsuit over what the company characterizes as a breach of contract.

    Retailers choose Danik Hook

    Independent retailers from around the US have selected the Danik Hook as the 2017 winner of the National Hardware Show's Retailers' Choice Award.

    The Danik Hook is tool that can be used to quickly tie-down anything. It was selected from approximately 500 new products as one of the most innovative at this year's event. The award means the Retailers' Choice selection panel believes the Danik Hook is unique and has the potential to be a home improvement industry best seller.

    Talks are underway with retailers from six countries, said national sales manager Greg Spangler.

    The response at the National Hardware Show tells us the Danik Hook is something different, something special. We're not just another screwdriver.

    Inventor, Daniel Austin is an avid boater and water skier, and originally created the Danik Hook to quickly and easily secure anchor or boat lines without ever having to tie a cumbersome knot. It soon became apparent, however, the Danik Hook could be used any time something needed to be tied-down.

    Customers use the Danik Hook to tie-down a tarp on the truck or trailer or to secure an awning. Outdoors enthusiasts find the Danik Hook makes it fast and easy to tie-off a tent or hammock. If a rope or bungee cord is needed to tie-down something, it can make the task easy.

    The quick release lever is the heart of all Danik Hooks. The Danik Hook Mini accepts Paracord, bungee cord or rope ranging from 5/32 to 3/8 inch diameter. The integrated ring makes securing a second line effortless. It is made of a non-corrosive, glass-filled thermoplastic which can lift and hold up to 300lbs (136kgs) under laboratory conditions.

    For bigger jobs, the stainless steel Danik Hook can attach any 3/8 to 5/8 inch diameter anchor rope line to secure any size boat or anything else up to 8000lbs (3629kgs).

    The slightly smaller composite, non-scratching Danik Hook can handle any 3/8 to 7/16 inch diameter line for items up to 500lbs (227kgs).

    MiTek reworks building products display

    MiTek USA said its award-winning "retail sets" (newly designed aisle signage, product bins, and colour-coded packaging) have recently been installed at Roadside Lumber and Hardware in Agoura Hills, California.

    The new retail sets are part of a national effort by MiTek to redefine in-store displays of building products. The company's displays and packaging recently won three awards from the North American Retail Hardware Association (NRHA). MiTek won a gold award for its bin display, a silver for carton display, and an honourable mention for packaging.

    At Roadside Lumber and Hardware, MiTek's retail sets showcase 650 products including fasteners, hangers, connectors, embedments, epoxies, and more. In addition to the aisle signage, product bins, and packaging, the retail sets also include end-cap graphic displays and colour-coded header boards, all designed to enhance and simplify the retail buying experience. Owen Nostrant, Roadside's general manager, said:

    Effective display of 650 products, many of which must be correlated to specific code requirements in the field, is no small task. MiTek's new retail sets not only help buyers sort through their choices using colour-coded shelving systems, its displays are uniquely eye-catching.

    Eco-friendly retailer practices what it preaches

    TreeHouse, which specialises in supplies and services that promote healthy and sustainable spaces, has expanded beyond its Austin, Texas home base, and opened in Dallas. Its new 35,000sqft outpost is billed as the nation's first energy-positive (ie. it will generate more energy than it uses) big box store. Co-founder and CEO, Jason Ballard, said:

    This building sets a completely new standard for ecological and human health and is an embodiment of what our company hopes to accomplish for homes as well. This store is a signpost to what the future will be like for both homes and retail.

    TreeHouse, dubbed the "Whole Foods of home improvement," offers shoppers a curated selection of green products, materials and technologies - some of which are not available elsewhere. It also offers turn-key services and programs, including kitchen and bath design. solar energy kits, home insulation and "smart" home installation.

    San Antonio-based architectural firm Lake/Flato used TreeHouse's approach to products and materials selection, in combination with sustainable design practices, to create the store. Mr Ballard said:

    For so long, net-zero energy was this magical aspirational goal. This building is beyond net-zero...completely new territory.

    The architecture of the store is crucial to its energy efficiency. It boasts saw-tooth roofs that are positioned to maximize the effectiveness of its giant, ultra high-efficiency SunPower solar rooftop solar array. (This feature solved the need for extra space for solar panels). The standing-seam metal roof collects rainwater and reflects heat.

    In addition, the north facing clerestory windows allow for indirect sunlight to effectively illuminate the interior without the impact of direct heat. This allows for a cooler baseline temperature in the store and minimising the use of electricity.

    A Tesla Powerpack (a rechargeable battery storage system for utility and commercial applications) is located at the centre of the store. It stores the power produced by the rooftop solar array, deploying it for evening use and allowing the building to return excess renewable energy to the city's grid.

    TreeHouse Dallas is the anchor tenant in The Hill, a North Dallas shopping centre.

    Related:

    TreeHouse, green home improvement retailer - HNN

    Houzz goes fund raising

    Home improvement online platform Houzz continues is in the process of raising another round of funding. The company confirms that it is raising USD400 million in new financing, at a valuation that multiple reports peg at around USD4 billion.

    Founded in 2009, Houzz provides a platform to help users renovate and remodel their homes, as well as providing tools for finding furniture and fixtures they might want to purchase. The company operates in markets that include the US, UK, Australia, France, Germany, Russia, Japan, Italy, Spain, Sweden and Denmark.

    It makes money mostly through paid listings for local home professionals and service providers. But it has been delving more deeply into direct commerce through the augmented reality (AR) products it has added to its website and mobile apps.

    Houzz has introduced a deep learning tool that analyses home photos added to the site and enables users to search for and purchase comparable products directly from the page. It has added an AR feature to its mobile app that allows users to preview what new pieces of furniture might look like in a certain place in their home.

    Trade program

    The Houzz Trade Program has also been launched to provide industry professionals with discounts.

    All professionals working in the home improvement industry with a valid business - including designers, architects and contractors - can apply for the program.

    Program benefits include trade-only discounts up to 50% on products, access to a support staff and free shipping on most orders of more than USD49.

    Vendors providing discounts include Baldwin, Emerson, Feiss, Flos, Kraus, Missoni Home, Safavieh and Swarovski.

    Related:

    Houzz satisfies Australians' digital needs - HNN

    Kohler debuts experiential retail concept

    The first-ever Kohler Experience Centre (KEC), located in Manhattan, New York (USA) houses fully-functioning displays of Kohler's product line - including showers, tubs, sinks and "intelligent" toilets - in what is a first for the brand. The centre is open to trade design professionals and the general public.

    The 10,000sqft. store has more than 20 kitchen and bath vignettes. It includes a private "bathing space" in which customers can experience Kohler products such as its digital showering system and showerheads.

    The centre offers a new Kohler global specification service, which allows architects and designers to have instant, hands-on access to all products across the company's entire product portfolio. A Kohler team of experts will be stationed on-site to help source and resolve plumbing projects both in the United States and around the world.

    Kohler plans to open nine KECs over the next year, with London to open soon. Additional locations include Los Angeles, Singapore, Shanghai, Hong Kong, Bangkok, New Delhi and Taipei.

    Related:

    Supplier update: Kohler's digital content strategy - HNN
    retailers

    Retail update

    Increased home improvement sales at Amazon

    Aussies visit Bunnings website the most and Ruralco posts strongest half year profit

    More US shoppers are buying home improvement goods on Amazon; new study shows Bunnings is the most visited Australian retail website; and Ruralco's core business helps to deliver its best ever half year profit.

    Amazon making inroads in home improvement

    According to research from One Click Retail, American shoppers are increasingly turning to Amazon to buy tools and home improvement, outdoor and sporting goods, and home appliances.

    In the tools and home improvement category, Amazon had an overall growth rate in 2016 of 35% over the previous year, compared to the US domestic market's total growth of 6%. Sales of woodworking items rose 30%, while sales of garage storage products increased 35%.

    Nathan Rigby, vice-president, One Click Retail, which specialises in eCommerce data measurement, sales analytics and search, said:

    Though often seen as an Amazon-proof industry, the old-fashioned American hardware store is not untouchable. Amazon has all the same advantages in the tools and home improvement sector that it has in grocery, beauty products and health care - and we've seen plenty of evidence of those industries feeling the Amazon Effect. As more uber-connected millennials enter home ownership, Amazon's share of this product group, like many others, will continue to grow at a disruptive rate.

    In the outdoor and sporting goods category, Amazon's 20% year-over-year growth in 2016 was four times the rate of the overall market, according to One Click Retail. Mr Rigby said:

    Amazon understands that it's the consumer driving the company's success. The ways they are innovating new services and offerings, they are doing so with one thing in mind: is this what the consumer wants?

    E-commerce sales near USD11bn

    Global information company, The NPD Group also finds that online sales of home improvement products have grown 41% in the 12 months ending March 2017.

    The e-commerce home improvement market reached USD10.9 billion in sales for the year, according to NPD's receipt mining service, Checkout TrackingSM.

    With the exception of outdoor living, online sales of each major segment of the home improvement market grew in the 12 months ending March 2017, and almost every category tracked within those segments experienced double-digit online dollar growth.

    The fastest growing categories last year were plumbing pipes and fittings, light bulbs, and ceiling fans, and the categories with the largest online sales gains were home decor, light fixtures and lamps, and rugs. Joe Derochowski, executive director and home industry analyst at NPD, said:

    The pace at which e-commerce is gaining acceptance among home improvement consumers emphasises the need to understand how consumers are utilising online and in-store shopping options, and how to make them work together.
    Marketers can capture the replenishment of commodity products, like light bulbs and air filters, by offering online convenience, but there are also opportunities to benefit from consumer showrooming for bigger ticket items, like bathtubs and vanities, with the in-store experience.

    NPD's Checkout Tracking E-commerce information illustrates that the online sales growth reaches across a variety of home improvement categories and consumer age groups.

    Millennials are a driving force behind this online growth, with the younger segment growing at the fastest pace, and the older portion accounting for the largest share of dollar gains. However, gen X and the baby boomer generation are also very active in online home improvement spending, representing almost two-thirds of industry sales for the year. Mr Derochowski said:

    The current demographic changes are driving increases in the number of people entering life stages that are important to home improvement categories, from first-time home-buyers to downsizing empty-nesters, the industry is in a prime position to help consumers today and develop new shopping habits that will last for decades to come.

    Related:

    On Amazon now you can add tradies to shopping cart - HNN Retail industry development in 2017 - HNN

    Bunnings is most visited Australian retail site

    A new study into the visitation of Australian retail websites has seen Bunnings beat JB Hi-Fi for the number one spot.

    The research, by global discount platform Cuponation, found that Bunnings had 25.58 million hits to its site between January to March 2017. However, when international sites were added into the mix, Ebay was the clear winner with 215.38 million hits in the same period.

    Amazon came in at second spot, an indication that Aussies are comfortable with online behemoth.

    It follows on from reports that Amazon will "disrupt" traditional retailers such as JB Hi-Fi and Harvey Norman when it finally arrives in Australia and another study that found searches for anything "Amazon" in Australia had jumped 93% since July last year. In the research, Cuponation also noted:

    Users from Australia are big consumers of foreign webshops...It's a big challenge for domestic webshops to keep up with the foreign ones. The competition is hitting hard and consumers tend to find alternatives in other markets and through other e-commerce channels.

    The top 10 Aussie sites were the following:

    1) Bunnings.com.au: 25.58 million

    2) Jbhifi.com.au: 25.06 million

    3) Woolworths.com.au: 19.28 million

    4) Officeworks.com.au: 15.90 million

    5) Coles.com.au: 14.61 million

    6) Kmart.com.au: 14.54 million

    7) Harveynorman.com.au: 13.99 million

    8) Kogan.com: 12.37 million

    9) Bigw.com.au: 11.07 million

    10) Catchoftheday.com.au: 8.98 million

    The top 10 most visited retail sites (when overseas sites are included):

    1) Ebay.com.au: 215.38 million

    2) Amazon.com: 62.13 million

    3) Ebay.com: 36.11 million

    4) Bunnings.com.au: 25.58 million

    5) Jbhifi.com.au: 25.06 million

    6) Woolworths.com.au: 19.28 million

    7) Officeworks.com.au: 15.90 million

    8) Coles.com.au: 14.61 million

    9) Kmart.com.au: 14.54 million

    10) Harveynorman.com.au: 13.99 million

    Record half-year profit for Ruralco

    Ruralco, owner of the CRT group of independent rural retailers, reported net profit after tax for the first half of the year jumped 15% to $12.4 million, up from $10.8 million in the previous corresponding period.

    Revenue of $841.4 million was up 4% on first half 2016.

    Ruralco Holdings managing director and chief executive officer Travis Dillon is pleased with the "core business" performance that delivered record half-year profits on the back of good seasonal conditions across regional Australia.

    Strong sales growth in rural merchandise, fertiliser and crop protection chemicals, high average livestock prices, recovery in the wool market and increased real estate sales volumes at higher average prices drove a strong performance by its rural services division, Ruralco said.

    Gross half-year profit for the division was $132.7 million from revenue of $697.1 million compared to $118.4 million from $694.3 million for the same period last year, it told the Australian Securities Exchange recently.

    But while higher than average rains across agricultural regions boosted rural services, it had the opposite effect on the company's water services division. Gross division profit slipped $2 million in the half to $27.5 million on revenue up from $96.7 million to $102.3 million.

    Geographical concentration of its irrigation supplies and water trading businesses in above average rainfall areas in the west and south of the country contributed to the impact of the rains, Ruralco said.

    But completed acquisitions of 14 new businesses during the half year - including Great Northern Rural Service, Geraldton (WA) - in key catchment areas and agricultural centres was expected to diversify the division's earnings base for the future, the company said.

    Company focus in the second half of the year will be to optimise operational and financial performance of its newly integrated business acquisitions and the Ausure Consolidated Brokers joint venture in its insurance business.

    It would also continue to the commercialisation of an unmanned aviation vehicle (UAV) with PrecisionHawk and UAV flight services expert The Ripper Group.

    retailers

    Indie store update

    Porters takes on Mitre 10 banner

    Media strategy may change at Home Timber & Hardware and J.A. Berry returns to independent retail roots

    Porters acquires Woodman's Mitre 10 stores; Home Timber & Hardware's media account has gone to a different agency; and Hardware & Building Traders gains Gunnedah store, J.A. Berry.

    Store consolidation in Mackay

    Prominent Mackay-based hardware business, Porters has acquired four Woodman's Mitre 10 stores.

    Managing director Gavan Porter Snr said the company purchased the stores located in Sarina, Marian, Proserpine and Cannonvale (QLD). He and his brothers, director Paul Porter and chairman of the board Barry Porter, said their family would retain total control over all stores.

    Woodman's Mitre 10 on Nebo Road in Mackay is not part of the deal and will close to customers on May 31, according to owner Kerry Woodman. But it will remain a head office for Mr Woodman's businesses.

    Gavan Porter Snr said the company will now be part of Mitre 10's network of stores. Its existing Porters Building Supplies, Hardware and Lifestyle and Whitsunday stores will operate under the new Porter's Mitre 10 banner from June 1. He said Mitre 10 is "a buying and marketing group and they've got nothing to do with ownership". He told the Daily Mercury:

    It's all still under the Charles Porter and Sons' banner.

    Barry Porter said the trio still "want Porters to be family owned in 175 years".

    We've got fifth and six generations working in the business now and we don't want that to change.

    Gavan Porter said customers could expect "newly reinvigorated teams, wider product ranges, new loyalty programs and in-store services under the new Porter's Mitre 10 banner". He said:

    We are excited to be joining the Mitre 10 group as Australia's largest independent home improvement and hardware wholesaler to the industry; this will allow the Porters business to continue to thrive and grow for many years to come.

    The move to Mitre 10 could also see the establishment of dedicated Trade Centres in Mackay and Cannonvale.

    The Porter brothers said their company and Woodman's Mitre 10 shared similar core values. Paul Porter said:

    It's great to take over the Woodman's business, they've been a great business here in Mackay for so many years. They've decided to exit the market and we decided it was a great opportunity to take it on. It gives us a lot of strength in our buying. They (the stores) will all still be totally owned by the Porter family.

    Established in 1883 by Charles Porter, originally as a timber yard, Porters is today run by fourth and fifth generation descendants.

    Porters already employs 150 staff and once the acquisition is complete, there will be about 50 more.

    Woodman exits

    Mr Woodman said while it was "heart-wrenching" to reach the decision, he had "acted in the best interests of our staff".

    They were primary in our consideration. Some staff (at Nebo Road) will transition to Porters, some will stay with the business. We've been in business here since 1939 and our family has a long association with the industry.

    Other businesses owned by Mr Woodman will continue including the Bristol Decorator Centre, Mackay Timber and Truss, Mackay Glass & Aluminium, Woodman's Roofing Centre and Mackay Brick Sales. He said:

    It's only a partial sale of some of our stores to the Porters organisation. It was an extensive negotiation. It wasn't a simple transaction because it was only part of our business.

    Mr Woodman hopes to build up and invest in his other businesses, including his role as a distributor for Trailers 2000 and his paver and brick business.

    Related:

    Indie store update: Jobs to go at Porters - HNN Indie store update: Mackay's Porters closes a store - HNN

    Home Timber & Hardware changes media agency

    The Home Timber & Hardware (HTH) media account has moved to Starcom Melbourne from Dentsu Aegis without the companies having to pitch for the business.

    The account includes media buying and planning and follows the acquisition of HTH by Metcash, a Starcom client, last year.

    Starcom has been the media agency of record for Metcash for more than a decade, which has Mitre10 since 2010. Metcash Independent Hardware Group general manager - marketing, Karen Fahey said:

    We've had a great relationship with the Melbourne team for a number of years, and are looking forward to extending the relationship further. As Australia's leading independent home improvement and hardware wholesaler to the industry, the quality of our partners is paramount.

    Starcom Melbourne managing director Peter Toone adds:

    To be able to work with not one but two leading hardware brands is a rare opportunity, and one we are very excited to be able to fulfil. Both Mitre 10 and Home Timber & Hardware have a strong track record in building their brands and giving them a unique role in Australia's hardware landscape.

    J.A. Berry changes to HBT

    Catalogues are dead and the future is in direct sales, according to Dave Berry owner-operator of the J.A. Berry hardware store in Gunnedah (NSW). From June 2017, it will return to its independent retail roots and become a member of Hardware & Building Traders (HBT).

    The store will no longer be part of Home Timber & Hardware (HTH) and deal directly with suppliers. Driving the change is a loss in faith in the catalogue industry. Mr Berry told the Namoi Valley Independent:

    We don't feel there is a future in catalogues anymore. There's too many people in that game now. We don't think it's financially viable.

    He said the overhead costs in the franchise were too great in today's market and the change in name will make life "a lot easier".

    We're reinventing JA Berry as a true independent.

    But it's not the first time the trader has run his own ship. The business was independent in the early days even before it was a Thrifty Link store that changed to HTH in 2011.

    retailers

    Europe update

    Bunnings reveals its fifth UK store location

    B&Q has finally found success in China and online retailer "disrupts" UK home improvement market

    A Bunnings Warehouse will replace a Homebase store in Folkestone; e-commerce delivers profit for B&Q in China; and ManoMano targets Kingfisher's home improvement sales in the UK.

    Folkestone next location for Bunnings UK

    Bunnings United Kingdom & Ireland (BUKI) is set to transform a Homebase store in Folkestone, a port town on the English Channel, in Kent, south-east England.

    The Homebase store is currently located in the Park Farm Retail Park and will move just down the road, according to Kent Online. The site formerly housed B&Q which left Folkestone altogether earlier this year. It will be the fifth Bunnings store to open in the UK. A spokesperson for BUKI said:

    We can confirm that the fifth Bunnings Warehouse pilot store will open in Folkestone. We expect [it] to open in July at a nearby site formally occupied by B&Q.

    A planning application for the relevant signage has been submitted to Shepway District Council for approval. The new store will span 75,000sqft.

    The Homebase store has been in Folkestone since the mid-80s, with planning permission first granted in May 1984. The spokesperson:

    Our team in the existing Homebase store in Folkestone have been made aware and we will be shutting the doors in July. This is an exciting development for us as our pilot programme builds momentum extending the Bunnings Warehouse offer to a new area of the UK.

    BUKI also has plans for store rebrands in Milton Keynes and Hemel Hempstead before 30 June.

    Q1 results

    Homebase/Bunnings stores in the UK saw transactions increase 2.2% in its first quarter in results.

    Total sales for the quarter (a 12 week period from 2 January 2017 to 26 March 2017) were GBP245 million ((AUD428 million). On a like-for-like trading basis across the third quarter, customer participation, as measured by retail transactions (both in-store and online), increased by 2.2%.

    For the financial year to date, total sales were GBP851 million (AUD1,489 million). Customer participation for the financial year to date increased by 6.9%.

    BUKI managing director PJ Davis said trading during the quarter was negatively affected by the continued repositioning of the kitchen and bathroom offer, while the performance across other core home improvement and garden products was pleasing.

    There were 254 Homebase stores as at the end of March 2017.

    B&Q finds China sales through ecommerce

    After operating in China for almost a decade and several strategic changes later, B&Q said it has turned a profit after nine years of losses. Home improvement sales are now largely driven through B&Q's storefront on Alibaba's Tmall online platform launched in late 2015. Shi Jun, director of strategy at B&Q China explains:

    To be frank, we are already a little bit late to the Internet. Each offline store can typically only cover the adjoining 10kms, or 20kms, at most. Customers outside the coverage area aren't aware of the store at all. Tmall helps us reach many more customers, particularly the internet-savvy, post-80s generation.

    B&Q simplified its offerings online, locking in three price points for the customer segments it was able to identify through Tmall.

    Overall, the company believes the successful marriage of its online and offline operations is behind B&Q's reversal of fortune.

    Tmall's "home" business unit includes home appliances and home improvement verticals and has partnered with 500 brands, connecting consumers with some 60,000 offline stores to facilitate omnichannel sales.

    B&Q's Chinese history

    Back in 1999, B&Q's China operations were very different when it opened shop in Shanghai. In addition to selling home building supplies, the retailer offered home decoration services.

    That was the start of an on-again, off-again relationship with Chinese consumers, who wanted value-for-money DIY prices, but preferred that somebody else do the actual renovation project for them, leaving them as little work to do as possible. With a reliance on physical stores for sales, B&Q's growth was hindered by geography.

    Traffic and sales in physical stores started to dwindle from 2007, and B&Q shut down 20 stores. In late 2014, B&Q's owner Kingfisher, sold 70% share of its Chinese business to a local partner, supermarket operator Wumart Stores Inc.

    Seeking a way forward, the retailer turned onto Tmall, offering a RMB699 (AUD136.52) per-square-metre home improvement solution for young people on a tight budget. For RMB999 (AUD195.11) per-square-metre, customers can select from four home-decoration styles: modern, European, American country-style and modern Chinese.

    At the high end, a RMB1799 (AUD351.36) per-square-metre solution targets more affluent, tech-savvy customers, providing options such as rooms equipped with smart devices.

    B&Q's online storefront makes the ordering process easy and expands its reach to more customers and cities in China. It allows customers to make their selections online before driving them to brick-and-mortar stores to complete the sale.

    Customers can view photos on the website, make their choices and pay a deposit as low as one yuan (20 cents). Then, they either head to nearby physical stores to finalise their purchases, or a B&Q store associate makes a house call. B&Q also offers Tmall shoppers an installment plan, and allows them to oversee the construction via the Tmall app.

    Customers can leave reviews online after construction or answer questions from potential customers who are curious about B&Q's service. Mr Shi said:

    ...Online and offline channels play their roles, respectively. We communicate and acquire customers online, while offering physical experiences offline to reinforce customers' confidence to shop. There is no boundary between online and offline.

    B&Q's Tmall storefront also provides a new business model for the company. Margins are tighter, but volume is higher. And, at least in its first year, it seems to be working.

    Last year, B&Q sold over 10,000 of the RMB999 (AUD195.11) design solution. Online sales of home improvement services reached RMB600 million (AUD117 million), approximately 30% of its total business in China.

    It helped B&Q's Chinese market to grow over 20% and achieve its first-ever annual profit in the country since 2007.

    B&Q is now exploring a renovation service to meet the growing sales of "second hand" apartments in China. In addition, the company plans to meet the demand from consumers in smaller cities by opening 200sqm "studios" where homeowners can connect with B&Q designers who can handle their remodelling projects.

    The company's Tmall store will be supported with physical mini-stores to display merchandise.

    Related:

    B&Q owner Kingfisher exits China - HNN

    ManoMano hails successful first year in UK

    France-based online DIY marketplace, ManoMano said its first year of trading in the UK has been a success. Since entering the UK market in April 2016, it has partnered with over 100 local DIY merchants with 185,000 new products entering its listings.

    In the UK, total revenues for the year hit GBP4.4 million (AUD7.7 million), with sales volumes of over GBP214 million (AUD374 million) and over one million listings.

    Since its launch three years ago, the pure-play online retailer believes it has begun to disrupt larger players such as Kingfisher.

    ManoMano has laid out ambitious plans to triple its product offering and reach a turnover of GBP10 million (AUD17.5 million) by the end of 2017, and projecting a GBP85 million (AUD148 million) turnover by 2019. Co-founder Philippe de Chanville said:

    To disrupt such a competitive market like the UK and build a community for the long term, you need to stand out by the quality of your offer, not just by the quantity of products available or the low prices advertised on the website.

    Related:

    DIY start-up ManoMano to challenge B&Q - HNN
    retailers

    Inverell H Hardware: The big re-brand

    The Art Of The Local

    In a regional town in the New England area of New South Wales, an HBT member places a confident bet on the future

    One thing that HNN's visit to Inverell, New South Wales (NSW) for the re-branding of Inverell Building Supplies as an Hardware and Building Traders (HBT) "H" branded hardware store firmly brought home to us was the isolation of some rural regions. After much scrolling around Google Maps, and rattling of printouts of train and bus timetables, we ended up doing what probably most business travellers do - paying Rex Airways more than you might expect for a ride in a twin-propeller airplane (which, fortunately, remained a twin-propeller airplane, at least for the duration of that flight).

    Yet, as it turned out, it was certainly worth it. Not just because Inverell is a lovely town well deserving of a visit for any reason, and the rebranded store - now Inverell H Hardware - is a good store, and that the owners, Leigh and Erin Muggleton, are one of those interesting, fun couples you meet in the hardware retail industry. That mattered, but what also showed up was a sense of what the future might really hold for regional areas and hardware.

    It's a future where a sense of history, the community memory and community ties continue to matter, and where, rather than inhibiting change and adaptation, they enable it, helping to promote new growth, and better prospects.

    Not, of course, that this is all a story of "plain sailing". As with almost all independent hardware retailers, the Muggleton's story is one of survival as well, getting through an event that almost certainly should have terminated their business, but ended up strengthening it instead. That's important for many reasons, not least because the store carries a staff of 16 floor reps, many of them under 30 years old.

    Opening events

    HNN had come to Inverell for the actual launch of the H branded store on 24 March 2017. The night before the launch, the store's owners, Leigh and Erin, hosted a dinner at a local Thai restaurant, mainly to thank suppliers for their support in making the changeover to the new branding. Steve Fatileh and Mike Loricco from HBT were there as well.

    The next morning, bright and early, the real launch was held. There was a large amount of eggs and bacon cooked for the brekkie, and the major suppliers set up stands where they provided advice about their products to some of the store's key customers who attended. The local radio station, Star-FM was also there, giving away doughnuts.

    Leigh made a speech to thank everyone who had participated in making the rebranding possible, and a local councillor, Dianna Baker, who was there coincidentally as a customer, gave a quick speech as well, speaking of the store's place in the community.

    Steve also spoke, highlighting how important the store was to HBT itself, a prominent presence in the New England area, and how glad HBT was to see another large store added to its growing list of H branded hardware stores.

    A little history

    Inverell is in the fabled table highlands area of New England. New England is a region of New South Wales (NSW) that stretches north to the border with Queensland, and takes in the townships of Moree, Boggabilla, Tenterfield, Glen Innes, Armidale, Walcha, Tamworth, Gunnedah and Narrabri, with Inverell a little north and slightly east of its exact centre.

    It is a region that has a long held belief in its own unique identity. In 1915, the New State Movement was launched, with the goal to separate this region from the rest of NSW. In 1934, a Royal Commission affirmed this region as distinct and separate from the rest of the state. This sentiment was revived after World War II, and a gathering in Armidale in 1948 clarified the boundaries of the region.

    Events in the 1970s blurred much of this focus on division. The agricultural sector, on which New England heavily relied, found itself in trouble. Britain joined the European Economic Community in 1973, which saw, for example, Australian butter exports drop by 90%. A bumper wheat crop at the end of the 1960s destabilised world markets. Regional concerns were overridden by national - and even international - ones. Once responsible for 78% of Australia's exports in FY 1952/53, the share of agricultural goods fell to 21% by FY 1995/96.

    The recent economy

    Today, with Australia placing more importance on becoming a "creative" economy, through a focus on developing services as a centre of high growth, the prospects of regional areas such as New England might seem less than hopeful.

    Yet this seems to not really be the case. US urban economists such as Richard Florida have pointed to how "creative cities" enable people from diverse fields to build temporary connections, and rapidly hook-up creative networks. In Australia, academics such as Chris Gibson, who lectures on economic geography at the University of Wollongong, have added to urban creativity the creative processes at work in regional areas.

    The difference between the two is that where in cities businesses and other creative enterprises develop goals, then build networks which can realise these, in regional areas the order is reversed. People begin with networks that have been well-established between people - and between people and institutions - over decades and generations, then develop goals based on the capabilities those networks can provide.

    Just how close the Inverell H Hardware business and Leigh are to the local community was brought home to us on our first afternoon in the town. It had been raining over the week before we got there, but the skies had mostly cleared, leaving a heavy humidity in the air.

    Leigh stood for a moment in the doorway of his store, his eyes searching the heavens above the way only the eyes of country people who live in the drier areas can, as though questioning every single cloud.

    "I like the rain," he told us. "For me, it is like liquid gold. When it rains, I know I will get paid."

    It was a quiet comment, but it spoke volumes about the links between Leigh, the store, and the community around. That willingness to carry people through the tougher times, and the ability to share in the good fortune of all when hard work and simple, enduring toughness finally get their reward.

    The Inverell story

    The story of Leigh and his development of Inverell Building Supplies, now Inverell H Hardware, is one where the presence of these networks - professional, personal and regional - can be clearly seen.

    Leigh's history with Inverell itself goes back close to 25 years ago, in the early 1990s, when he first came to the town. He was working at the time at BK Oliver Frames & Trusses, the Home Hardware store located in Inverell.

    Whatever his ambitions might have been, he didn't have an opportunity to act on them immediately, as a family illness saw him take on a job with BBC Hardware as sales a rep, in the years immediately prior to its acquisition by Bunnings. In fact, during his time there, Leigh left to go work for Bunnings, but only lasted there for three months or so. Against the odds, he managed to get rehired afterwards by BBC. As Leigh explains:

    Apparently I'm the only fella that John Reece who was state manager of BBC had taken back. You could go to work in a different industry but if you went to the opposition that was treason. That was the word he used.
    He heard I wasn't happy [working at Bunnings] so he rang me and said "come back to see me". I spent 30 minutes in this sterile office, the table had to be 12ft long. He sat there and the whole time he spoke in a very quiet whisper so I had to lean forward. John told me succinctly, but not nastily, why he doesn't take people back. Jason O'Hagan, who was state trade manager and is now the managing director of Weathertex is also sitting there. He said, "What, do you want to come back? Talk to Jason." Then he leaves his office. It was the most incredible interview that I had in my life.

    While Leigh was not fired in the general "cull" of BBC staff that took place in 2001 when Bunnings took over, he chose to leave in 2002.

    Inverell, which he had first seen ten years or so before was still in his mind.

    I thought, what can I do in Inverell? Because we wanted to come back. Then someone said, "Why don't you start a trade hardware?" Because 90% of [that business] was going out of town, and the local Home Hardware owner was very expensive. Funny how he came good when we started!
    But that's what we chose to do. And the rest, as they say, is history.

    Starting from scratch, with a minimal investment wasn't the easiest of beginnings.

    We started in about September, 14 and-a-half years ago [end of 2002], and we didn't have a shop to sell stuff. There was just a bit of furniture in the corner. When I came in and looked, my wife said, I thought you are starting a hardware store, not a flipping warehouse!

    Besides the selling space being quite bare, Leigh was also uncertain if the location was exactly right.

    Apparently the space was always here, it was the furniture place in town and it sold out to someone else. They let us rent it and I thought "this is too far out of town". Inverell is funny in that from the Main Street, even for a slow person, it could take less than two minutes to get here, and this is considered a long way to come.

    Leigh was not deterred by the lack of store fitout. In fact, he thought (at first) they might not need much.

    I told my wife it was going to be trade, and you might not need [a lot of fitout], but within two-and-a-half years [the business] went through the roof and we needed more space. At the time, we put in an extension of 8m x 30m at the back, and that's where we are up to.

    The store measures 2100sqm with another 1000sqm for land. And Leigh is pretty clear about why the store was such a success, from the very beginning.

    People drive 30km to come into town, but once they come they know they can park, and there is someone here who can differentiate from a hex bolt and a cup head bolt. [That knowledge] makes a big difference.

    Another critical element to the store's success was that it was one of the early members of the HBT buying group, from its inception. While the store was not able to meet the criteria for eligibility at the time, then HBT group manager, Tim Starkey, after "doing the numbers", realised the store had good potential.

    It turned out, like many of Mr Starkey's "gut" decisions, to be a good one. The store went on to win HBT's coveted Store of the Year award for 2013.

    Trouble

    It wasn't until about six years after its founding, in 2008, when Inverell Building Supplies hit its first major obstacle. And it was a really big one. This is how Leigh tells it:

    Like all things, we've had the good and bad. We had one builder who was a good friend that was buying from us. His word was his bond. But he rang me one day and said he was in a dark place, and he said, "I'll let you know soon".
    In this town everybody knows if you change your shoes, and someone said did you hear that [the builder] had gone broke? I said "You're kidding!". Because they owed $290,000.

    It was an enormous shock. Leigh faced some tough decisions.

    If we had sold up and we would have received 10% on our goods, I could have come out with a couple of thousand, or maybe $10,000 down. I could go somewhere and get a decent job and just pay it off. Yes, that can level you for some time but I am very thankful that we are still here and still going. So you can either trip your lip and carry on about that or keep going.

    In fact, what happened was a fairly astonishing series of events. The people of the town, including his bank, Westpac, and Leigh's customers, all rallied around to help support the business through its tough times.

    At first, I just sat in the chair and thought, what do you do? I called the bank manager and I couldn't believe it. The bank covered the debt within a week.
    You would not believe some of the builders. There were six of them that came in and said "Would you like us to take this to $100,000? And we'll just get that back whenever without interest." Then all the others started paying. Probably had two then 10% of them paying within 35 to 45 days. Now there were at 43% paying within about 40 days properly and 3% within about 30 days.

    On the other end of the cash flow, many suppliers helped out, extending payment terms as much as they could. HBT, hearing of Leigh's troubles, also reached out to offer help and advice.

    You know who helped us? That a fellow at Orange who is on the board, David Kent. He rang me and asked me how I was going. It was such a lovely thing that he reached out, and I think I can mention Tim [Starkey] who we obviously we miss dearly. That day, he rang and said you've got to have an "office Nazi".

    Getting the "office Nazi", who was already a partner in the business, Robin Cameron (who is anything but a "Nazi"), turned out to be just what the business needed to not only get itself out of its problems, but also to increase its growth rate.

    I am a softy although I've tightened a little bit but I didn't want to become a mongrel which is hard. We had to have Robin, our business partner who took over and since then its happy days, as they say.

    As a result, Leigh is pretty sure that the business could weather a similar setback (not that they would let that happen) without having to draw much on outside resources.

    >http://hnn.bz/robin.jpg}Not a Nazi, business partner Robin Cameron looks after accounts}http://hnn.bz/robin.jpg

    Becoming an "H" Hardware

    Part of the store's ongoing growth has been its decision to rebrand itself as an H Hardware store. While Leigh and Erin had been considering the move for a number of years, the trigger was the 2016 HBT Conference in Townsville, Queensland.

    For such a large store, the task of rebranding has absorbed a considerable amount of resources and taken longer than expected. According to Leigh:

    We started at the end of January [2017] and we wanted it done by end of February but the amount of rain that we've had has made it really difficult. It's virtually done now with some paint on arrows that need to be done outside. The timeframe has been about six weeks but it's actually been about three months, to be fair. It's definitely getting there.

    While it is an expensive undertaking, suppliers rallied around, with the encouragement of HBT.

    It was really great to do even though we dragged our feet a bit but with the help of our suppliers, 17 of them really helped. You've got - just to name a few - Koala Nails, Fletchers, Macsim, Gunnersen's, Bluescope Lysaght, Soudal and at the 12th hour Romak came in.
    Haymes really looked after us. They threw in $1000 and have given me the paint [for the store] at half price.
    We got about $16,000 and it will probably cost us about $40,000. I'm just very thankful and we just need to sell a few bolts and nuts and tins of paint to get the other $25,000 back. But you wouldn't do it unless you think you could, and there are a lot of other benefits with the companies involved.

    >http://hnn.bz/store-view-front-closed.JPG}The store before opening}http://hnn.bz/store-view-front-closed.JPG

    Leigh believes that the changes to the store with the rebranding have already had some positive results - though he is a bit bemused about some of them!

    The merchandising is fantastic. It's really bought an awareness, and obviously I think that will just keep growing.
    We had one fellow who came in and said "You're hardware store?" And I said, "Yeah, we've been here about 15 years." He said "You know what? I've never come in because I didn't see any signs or anything."
    He said, "Do you know what made me come in because I didn't see any signs painted?" [The new H Hardware signs were not up yet.] He said, "I saw the wheelbarrows."
    I thought "great" and we've seen him here for repeat business.
    The only thing is that every day, we've always had the wheelbarrows out there. Always.
    So he didn't pick up on the colour. Now we've got hardware in the name; I wasn't sure if it was a good move when we called it Inverell Building Supplies. We agonised over whether we should have hardware and timber in it. But we thought how long do you make the name? I'm glad now that we have H Hardware and Inverell in small because that is still our identity, as building suppliers.

    Merchandising

    Part of the move to the H brand includes a shift a little more towards the DIY enthusiast. As Leigh describes it:

    We were once 90% trade but we are probably now whittling it that down to 80% trade and 20% retail or serious do-it-yourselfers. We are not going to get people who just want to buy one plant, and I don't want to do that. I don't want to compete with Bunnings or the Plants Plus down the road.

    The store has also been constantly expanding how much stock it carries, though the increase sometimes gives Leigh pause.

    We have 15,000 to 16,000 different items; we hit over a million [dollars in stock] the other day and it scared the heck out of me.
    We usually average now $940,000 to $970,000 but we did over $1,000,000 of stock the other day because a new line of wood-fuelled heaters came in. We've been selling heaters almost from the beginning we had mainly the Eureka range from Melbourne. You try to sell to keep Australian made stuff but at the end of the day you have to play the game to keep up and a lot of the Chinese stuff is seriously good (and getting better). I'm not against them, you just have to go the flow. This is a retail business and now it's working well.

    Leigh is particularly proud of the paint section.

    The paint section is pretty good. We've just got to get our tradesmen be more prolific but the retail side is not bad. We're getting there, our rep keeps knocking on doors, so we are trying hard.

    Leigh is particular keen to see suppliers at the upcoming HBT Conference in Sydney, especially those who will be launching new products.

    Competition

    Inverell is "blessed" by the presence of a Bunnings store, though at least it's not a Warehouse, but one of the smaller format units Bunnings has in some regional locations. The nearest full warehouse is a 90-minute drive away, in Armidale.

    One of the biggest lessons other independents could take from Leigh is that he's not all that particularly concerned about competition from the Bunnings.

    It's unbelievable how much [Bunnings] helps us. Every now and again, sure they are pain with gross profit. but overall that's the only way they can sell, they can only sell on price.
    And I'll give you a great example. The other day, an older couple came in and said do you have 10mm ply? Bunnings said they'll have it up there but we said no sorry we haven't. But the boys - I've got the best crew in Australia but I'm a bit biased - they said we've got 9mm ply. The customers said, that would be fantastic. The order would have been worth about $200. And you know what was on Bunnings' shelves - 9mm ply, and they didn't know it.
    I'm not knocking the people there but they just don't have people who know, the staff who have product knowledge. I say to my guys, try not to say no - unless they ask for a Mercedes-Benz! And, with confidence, we could say no then.

    Analysis

    When you look closely at Leigh's really inspirational story about Inverell H Hardware, and its origins, it's clear just how important a role networks have played in its development. On the surface, many of these networks might seem to be purely commercial, linking the business to banking facilities, the supply of goods, customers, and buying group activities through HBT. In fact, though, while there are commercial aspects to all of these networks, they also operate as deep community-based networks as well.

    The main difference between commercial and community networks is that, while both work on something of a "quid pro quo" basis, when it comes to community networks the time between the "quid" and the "quo" - the length of a "pro" - can stretch out over a year, five years, or even, sometimes, 20 years. With commercial networks, the "pro" is generally about 65 days maximum.

    The currency of the community network, in other words, is trust. The currency of a commercial network is utility.

    This is clearly illustrated by Leigh's example of when his store was in trouble through a default. In this case the community network failed - a trusted member defaulted on an obligation. With a community network when that happens, most of the other members of that network are obligated to offer help and assistance, even if this means they end up "taking a hit" in the short term.

    It's easy to see how that works in a regional area. With a comparatively low population, and low resident turnover, there is a finite number of people which a business can serve. Acting inappropriately, or taking a more commercial, short term view, can result in damage to future business and growth. Plus, quite frankly, it is part of the core social values of these regional areas that you just don't do that. You just don't.

    The real question that is at the heart of the struggle of independent retailers in Australia, not only in hardware/home improvement, but also in sectors such as groceries, is whether in less regional areas, with more diverse networks, the benefits of developed community networks can outweigh those of developed commercial networks.

    It seems likely the key to this kind of success will be finding ways to overtly enhance those community networks, to make them relevant in a modern setting, and also to develop the means to effectively package and market them. To the wise people of Inverell, who are no doubt very proud of their hardware store, the benefits of the "art of the local" are evident. That is less the case in modern, urban-based communities.

    retailers

    USA update

    Ace achieves record results

    Logistics are easier for heavyweight goods and Lowe's provides virtual reality experience in-store

    Ace Hardware passes the USD1 billion mark; BuildDirect's supply chain platform is suitable for heavyweight goods; and virtual reality is available in a Lowe's store.

    Record revenues, profit for Ace

    Ace Hardware Corp. reported fourth quarter revenues of USD1.2 billion (AUD1.5 billion), an increase of USD67.6 million (USD87.8 million) or 5.8% from the fourth quarter of 2015.

    Net income was USD21.5 million (AUD27.9 million) for the fourth quarter 2016, an increase of USD9.4 million (AUD12.2 million) or 77.7% from the fourth quarter of 2015.

    For the full year, consolidated fiscal 2016 revenues were USD5.1 billion (AUD6.6 billion), an increase of USD80.5 million (AUD104.6 million) or 1.6% compared to the prior year. Fiscal 2016 net income was USD161.2 million (AUD209.5 million), an increase of USD5.0 million (AUD6.5 million) or 3.2% compared to the prior year.

    The 4.4% increase in retail same-store-sales during the fourth quarter of 2016 reported by the approximately 3,000 Ace retailers who share daily retail sales data was the result of increased customer count and average transaction size.

    Same-store-sales at these stores were up 2.5% for the full year. John Venhuizen, president and CEO, said:

    To give you an idea of the success of our retail strategy, we have seen increases in same-store-sales for seven consecutive years, increases in new store growth for five consecutive years and increases in customer transactions for four consecutive years.

    Retail revenues from Ace Retail Holdings - the corporate-owned Westlake Ace Hardware chain - were USD64.4 million (AUD83.7 million) in the fourth quarter of 2016. This is an increase of 7.7% from the fourth quarter of 2015. Same-store-sales were up 3% versus the prior year with outdoor living and lawn and garden showing the largest increases.

    Ace added 152 new domestic stores in fiscal 2016 and cancelled 100 stores. This brought the company's total domestic store count to 4,363 at the end of fiscal 2016, an increase of 52 stores from the end of fiscal 2015.

    On a worldwide basis, Ace added 207 stores in fiscal 2016 and cancelled 103, bringing the global store count to 4,994 at the end of fiscal 2016.

    Platform for heavyweight goods delivery

    Canadian company, BuildDirect, announced it has become the first in the home improvement industry to open its global supply chain platform for heavyweight goods.

    The BuildDirect Gateway gives any third party the ability to access its network of warehousing services, ground and ocean logistics for any part of the shipping journey, from point of manufacture to last-mile delivery. The scalable platform ensures that parties involved in the order fulfillment process can use the most efficient and affordable options for delivering heavyweight products from anywhere in the world, to homes across North America.

    Gateway was specifically designed to accommodate the needs associated with moving heavyweight products that cause significant issues for traditional shipping providers. The platform has been tested and honed in the past several years. Currently, more than 8.2 million pounds (3.7 million kilograms) of products ship through its platform each month, travelling over 5.9 million miles (9.4 million kilometres). BuildDirect co-founder, president, and CEO, Jeff Booth said:

    The system for shipping heavyweight products has always been complex and overly fragmented, which is why it has taken BuildDirect more than 15 years to completely reinvent it.
    Our global supply chain platform and its scope of services has been rigorously refined by managing imports and exports across 35+ countries...

    Gateway offers end-to-end solutions for heavyweight shipping resulting in fewer touchpoints and less damage to the delivered product. The average consolidated BuildDirect shipment is handled 50% less than those in other heavyweight supply chain networks.

    Suppliers in the network get access to varying levels of data depending on how they have engaged with the platform. At the highest level, suppliers gain real-time access to a dashboard that leverages predictive analytics to show where demand for their products are. Products in the network are easily moved around the country to ensure they are close to customers, which closes the gap on shipping costs and offers more reliable delivery windows.

    Customers are able to choose how they would like their products delivered: white glove (ie. room of choice), first threshold (ie. inside a garage), light or heavy assembly and removal of old product, or garbage. Manufacturers and distributors can select how to manage the movement of their products (ocean and ground logistics, or warehousing services).

    Once a delivery is complete, customers provide feedback on their experiences. These ratings and reviews are funnelled back through the system, and carriers that perform well will get more business while those that receive consistently poor feedback are removed.

    All supply chain services are available to any retailer. Gateway offers flexibility for companies to enter the North American market. Alexandre Decarie, CEO of Power Dekor North America, said:

    With minimal investment, no long-term contracts, and a turn-key infrastructure, BuildDirect's Gateway offers tremendous value, convenience and savings.

    BDPros

    BuildDirect also launched BDPros, a service that offers home improvement professionals access to a personal concierge to help find their ideal products at the best price and ensure that goods arrive where they're needed, on time.

    When users sign up, they are connected with a personal concierge who assists them with product sourcing, special orders, partial and full returns, and more. This service allows BDPros members to benefit from delivery via the company's heavyweight shipping network. BDPros members also earn a rebate on purchases throughout the year. Mr Booth said:

    As a former builder, I know the pressure home improvement professionals are under to deliver superior quality on time for a great price, and so much of that process is completely beyond their control. We want to shift that power, putting it back into the builder's hands, so that they can truly delight homeowners.

    To get started with BDPros, professionals simply establish a customer profile that will enable them to track orders and manage projects. Through an online portal, they can shop a wide selection of products sourced from all over the world and have their concierge work directly with suppliers. This enables BDPros members to benefit from lower prices. BuildDirect is not limited by shelf space so suppliers can add products at any time, which allows it to showcase a large array of styles, materials, and price points.

    Members can compare products, view side-by-side reviews, and receive free, unlimited product samples overnight to help manage customer product expectations.

    Lowe's in-store virtual reality

    The US home improvement retailer is launching a virtual reality experience in one of its stores to give customers hands-on practice with a home improvement project. Lowe's may eventually create more VR tutorials and roll them out to more locations.

    Initially, customers at a Massachusetts store will get a lesson in how to tile a bathroom. A customer will put on a VR headset, be placed in a virtual room, and use an HTC Vive hand controller to simulate mixing mortar and placing tile. Eventually, a broader range of tutorials may be offered in all Lowe's stores.

    In a trial run, Lowe's found that customers had a 36% better recall of how to complete the project when compared with people who watched a YouTube how-to video.

    Kyle Nel, director of Lowe's Innovation Labs, told CNNTech about the advantages of VR as a teaching medium. He pointed to the tactile, immersive nature of virtual reality as allowing for better learning.

    Mr Nel noted the limitations of offering in-store clinics taught by an employee. Such classes have to be given at set times, which may be inconvenient for customers. The virtual reality experience is available anytime the store is open. He said:

    Virtual reality just happens to be the best way to give people what they want, when they want it. This is meant to be available to the entire country and Canada, not just those on the bleeding, cutting edge of tech.

    The VR experience also lends itself to improvement. Lowe's will monitor customers and see where they may be getting stuck. Improvements in the teaching process can be made. If Lowe's scales the experience to all of its stores, updates to the teaching process could be made overnight.

    Lowe's trends team has found that millennials are forgoing DIY projects because they lack home improvement confidence and the free time for a project. For Lowe's, virtual reality might be a way to reverse that trend because it can act as a digital tutorial for customers who want to learn basic do-it-yourself skills.

    retailers

    Indie store update

    Acknowledged and awarded

    Mitre 10 store in Queensland battles Bunnings and Busselton HTH store closing down

    Time for some independent stores to take a bow and receive awards; Bunnings moving into Loganholme Mitre 10 territory; and Home Timber and Hardware in Busselton (WA) is shutting its doors.

    Top stores named and rewarded

    A number of independent stores around the country have been singled out as some of the best in 2016. Here are just a few.

    Thrifty-Link Tenterfield

    Tenterfield Hardware & Garden Centre was awarded the 2016 National Thrifty-Link Store of the Year prize by the Independent Hardware Group (IHG). Co-owner John Roberts said it was an honour to receive the industry accolade and attributed it to the efforts of his passionate and dedicated staff. He told the Tenterfield Star:

    Winning the award is a credit to the tremendous people we have working here. It's a small group of six but we work together and all have a genuine passion for helping locals. The great culture we have plays a pivotal role in the success of our business.
    At the end of the day, it's our customers who are the ultimate judge of what we do, and we're very thankful to the extended Tenterfield community for supporting us over many years.

    The win follows a significant investment by Mr Roberts and his business partners, Geoff and Linda Nye. The store has a strong focus on camping supplies, nursery and outdoor furniture. Tenterfield Hardware & Garden Centre also won the state title.

    MacKenzies Home Timber and Hardware

    Goondiwindi business MacKenzies Home Timber and Hardware has won the 2016 Queensland Store of the Year (over 1,000sqm). The win comes after a period of significant growth, the result of a renewed focus on store presentation, customer service and range selection.

    Owner Clive Quartermaine was on hand to receive the award on behalf of his family and hard working staff at the IHG national awards dinner.

    Margaret River Home Timber and Hardware

    Store manager Paul Brown from Margaret River Home Timber and Hardware collected the trophy for Western Australian Store of the Year (over 1000sqm).

    The win is the latest in a line of successes for the store, which Mr Brown puts down to a solid group of employees working together as a team, with a genuine passion for helping locals. He told Margaret River Mail:

    We have people coming into the shop who have been coming in for twenty years, they come to know the faces and the expertise of the people who work here and rely on their advice.

    The store focuses heavily on local involvement in community groups, proudly displaying a banner above the retail counter listing the various associations and clubs they support. Owners Lloyd and Anne Shepherdson said the community support is reciprocated and represents how the business is run. Mrs Shepherdson said:

    I think it's the culture of the organisation that is important. It is what we hear consistently, that the organisation is well known for having such a strong culture and that's why people keep coming back.
    This is where Paul has been fantastic, he certainly has been a great team leader and together with general manager Noelene Wilcox we have a great leadership team here.

    Cowell Home Timber and Hardware

    Owners Buzz and Hayley Fiegert of Cowell Home Timer and Hardware received the

    SA and NT Store of the Year title, for stores less than 1000sqm. Mrs Fiegert told Eyre Tribune:

    It is an honour to be recognised for the hard work our team have put into growing and improving our business. We honestly had no idea that we would be heading up to the stage.

    The store offers a large variety of building materials and tools to the Eyre Peninsula community in South Australia. It supports the town's football, netball, cricket, bowling and lions clubs, the Franklin Harbour Tennis Association, and the Eastern Eyre Football League and Cricket Association.

    The Fiegerts have owned and operated the store for more than 10 years, and attribute success and growth to their employees. There are currently four staff employed at the store, in addition to the hours Buzz and Hayley put in. Mrs Fiegert added:

    We have a great team who work well together and do whatever needs to be done. We also have the family support to help out with the kids.

    Taree Produce

    Combined Rural Traders (CRT) have awarded Taree Produce as the 2016 NSW Business of the Year. Owner Craig Allport has praised the dedication shown by staff. He told the Manning River Times:

    Being able to service Taree and the surrounding communities over many years has been a privilege. Without the great staff we have at both our Wingham and Taree stores, these kind of awards are not possible.

    Head of the CRT network, on behalf of Ruralco Holdings Limited, Greg O'Neil said the business stood out ahead of other CRTs. He said:

    It has worked hard to ensure its diversified business model covers all rural markets in the region...They continually demonstrate a deep understanding of the needs of the local community.

    The business has won this award five times as well as taking out national honours once.

    Loganholme Mitre 10 prepares for battle

    Development plans revealed that a Bunnings store would open this July at the Hyperdome Home Centre in Loganholme (QLD), where Mitre 10 has been operating for 10 years.

    The news came after Bunnings pulled back from opening at the centre last year and shocked the centre's Mitre 10 owner Ian Gill, according to the Courier Mail.

    Mr Gill's concern followed the closure of two hardware stores in the centre since 2007 and a further five stores shutting shop between Springwood and Beenleigh.

    He said the Home Centre, owned by Queensland Investment Corporation, should support and protect longstanding tenants, in particular after proposals to relax Sunday trading. He told the Courier Mail:

    It's a real concern. We already have three Bunnings located within a 10km radium of us. A store of that size in this area will have big impacts for us and most of the other tenants in the centre. We've already seen so many small businesses struggle to survive when the larger corporates open in their backyard. I'm not against competition - it's a good thing - but a business such as Bunnings has a big leg up and when there's already market saturation.

    Hyperdome Home Centre centre manager Rob Mansfield said the "small-format" Bunnings was needed to cater for the growing demand in the community. He said:

    We are excited by what Bunnings can offer our community, not only in terms of retail but potential jobs, learning and social enterprise.

    Bunnings general manager property Andrew Marks said work would start soon on the new store in Loganholme, which had been an area of interest for some time. He said:

    This tenancy is an opportunity for us to provide local residents access to the latest home improvement and outdoor living products and the best service.

    Busselton store closing after long run

    Father and son team Nick and Brian Wallace are closing the doors of their Home Timber and Hardware business after 30 years of trading in Busselton (WA).

    For the last 13 years, it had been competing against Bunnings, and saw a dramatic loss of customers over the last year which no longer made it viable to run. Brian Wallace told the Busselton Mail:

    The line in the sand got crossed and we decided to call it a day.

    Brian said his father Nick bought the business around 1986. The original store was called Prince Street Hardware. He said the business was so successful that they outgrew the building and had to look for a new location so they could meet demand.

    My father spent two or three years looking for land where he could build a bigger store and ended up buying all the houses along here. He built the building and we had one very successful year trading out of here before Bunnings opened and it has not been easy since. Unfortunately it is the evolution of the industry.

    Brian said the employees at the store were feeling a bit down and that a number of employees had been there since the business started.

    It broke dad's heart, 30 years he has been doing this, I have been in the business for more than 10 years and it has not been an easy thing.

    They expect the store to remain open until mid-April while encouraging the local community to take advantage of the closing down sale.

    retailers

    USA update

    TreeHouse has permission to sell Tesla

    The Home Depot adds to its pro deliveries and Lowe's Canada invests in Ace stores

    The Tesla battery for homes will sold at TreeHouse; more deliveries to pros from The Home Depot; Ace retailers will benefit from additional resources at Lowe's Canada; and a number of Home Depot stores are using renewable energy.

    Tesla battery selling through TreeHouse

    Eco-friendly, home improvement store TreeHouse in Austin, Texas is the first retailer that Tesla has authorised to sell the Powerwall, its battery for residential homes. Co-founder Jason Ballard said:

    We want to show off the Tesla power packs as the beating heart of TreeHouse, and we'll be selling a residential version.

    TreeHouse plans to open its second store in Dallas by June 2017. Its energy-efficient features are a complement to the store's mix of environmentally-friendly and healthy-living products, designs and services.

    More than 500 solar panels on a pitched, saw-toothed roof will store energy in two giant Tesla power packs that will be displayed as a feature behind glass inside the 25,000 square-foot store.

    Tesla is also opening a Supercharger station, the only one inside the city of Dallas, next to TreeHouse's outdoor living display area. Tesla's Superchargers, which are mostly located on major highways for long-distance travellers, recharge its electric car models in minutes rather than hours.

    The almost completed store and another one built inside an existing building will give the five-year-old company a footprint for how it plans to expand to other markets, Mr Ballard said.

    At the new TreeHouse store, windows in the stair-step roof will provide natural light during the day. The walls were made onsite of concrete, which Mr Ballard said, has a high thermal coefficient and holds the cool air inside when it's hot outside.

    The store will have a working kitchen in a healthy home area that will feature cooking, sleeping and lighting products. A mezzanine will house classrooms and a reading lounge area. Non-toxic paints get their own showroom. Mr Ballard said:

    The days of a retail warehouse full of products are over. I think people want a place where they can go dream and consult and create a wish list. We're not your mom's big box store.

    TreeHouse is trying to disrupt home improvement retailing dominated by big box retailers Home Depot and Lowe's. Ballard added:

    There are 100 million homes in America, and we eventually want to be within striking distance of all of them.

    Related:

    TreeHouse, green home improvement retailer - HNN

    Pro delivery service expanded at HD

    The Home Depot expects to offer pros (tradies) delivery service in almost all its markets in early 2017 as it beefs up its outside sales and online capabilities following last year's acquisition of Interline.

    The plan calls for delivery promises to be phased in; first offering same-day service and a four-hour window, and eventually service within a two-hour window. In addition, "hotshot couriers" continue to be offered at 500 Home Depot stores nationwide, according to J.T. Rieves, vice president of The Home Depot's pro business said:

    He also noted that when he used to meet with customers, their number one complaint was delivery.

    Just 4% of Home Depot's customers account for roughly 40% of its USD88.5 billion in annual sales. This group is Mr Rieves' focus, and historically it has focused on maintenance crews, painters, repairmen, and small remodellers (light commercial) more than on the kinds of builders that timber and building materials operations serve.

    Very few get products delivered currently, he said. In fact, even as the delivery service gets ramped up, Home Depot continues to promote a service it calls BOPUS - Buy Online, Pick Up in Store. This system saves time for remodellers, small builders as well as maintenance and repair crews. Mr Rieves said:

    If I can get the average pro to come three more times a year, that's a billion dollars in revenue.

    The Home Depot's efforts to rev up its delivery capabilities got turbocharged in 2015 when it bought Interline Brands for USD1.63 billion and merged it into Mr Rieves' operation. He mentioned four things Interline brought to The Home Depot:

  • Interline's 700 outside sales reps will more than triple the 200-member OSR (Open Space Ratio) team that The Home Depot had been using to sell to pros.
  • Interline has 900 trucks, thus making it easier for The Home Depot to deliver goods to a job site. One of Interline's claims to fame was speed of delivery, Mr Rieves said, and its pricing was based partly on how fast it could deliver goods.
  • Products that Interline had sold via catalogue and the web will be available for order at the Pro desk inside Home Depot stores; heating and ventilation systems is one example.
  • Interline's web offerings are being merged into The Home Depot's online system.
  • The Home Depot also plans to continue the 60-day payment terms on house accounts that it implemented last year. But for the most part, Mr Rieves said, his focus is on getting Interline's staff fully integrated into The Home Depot.

    Related:

    Home Depot buys Interline Brands - HNN

    Lowe's Canada to grow Ace network

    Ace Hardware retailers in Canada are poised to receive more attractive product pricing, marketing support, a dedicated website with a platform for online sales and a broader offering.

    Lowe's Canada said it is investing resources to support and grow the entire independent retailer network and to further leverage the Ace dealer support program.

    After a detailed business review that included customers, products, programs and facilities, a decision has been reached to integrate the Ace Canada distribution and business centres into existing Lowe's Canada facilities. This will allow Ace dealers to benefit from lower cost of goods and to connect to Lowe's Canada retail intelligence. Alain Brisebois, executive vice president of Affiliated Dealers, said:

    The Ace brand has a strong reputation for quality products and services. The purpose of this transition is to drive growth throughout the Ace Canada dealer network. Integrating these operations in the Lowe's Canada facilities and systems is a pre-requisite to offering dealers a dedicated website with a platform for online sales and allowing them to take advantage of an omni-channel strategy.

    Lowe's Canada said it will make every effort to ensure a smooth transition with resources that actively supports employees, dealers, vendors and customers. It will also continue to recruit and grow the Ace dealer network across the country.

    Wind energy project

    The Home Depot has made its first major investment in a wind-powered renewable energy project. The energy purchased from the wind farm is enough to power 100 Home Depot stores for a year while also providing USD150,000 in local community benefits.

    The Los Mirasoles Wind Farm, owned and operated by EDP Renewables North America, is located in Texas. Through a 20-year power purchase agreement (PPA), The Home Depot's annual purchase of 50 megawatts (MW) is a fifth of the wind farm's 250 MW capacity.

    The farm utilises Vestas V110 2.0 MW wind turbines and produces enough power to provide more than 70,000 average US homes with clean electricity each year.

    As a part of its renewable energy initiative, The Home Depot's goal is to procure 135 MW of various renewable energy sources, including solar and wind, by the end of 2020.

    In addition to the wind farm, it also procures energy from solar farms in Delaware and Massachusetts with a combined annual output of 14.5 million kilowatt hours (kWh). More than 150 stores and distribution centre use on-site fuel cells that produce roughly 85% of the electricity each store needs to operate.

    retailers

    Ruralco can acquire TP Jones: ACCC

    Capital raising

    The company has plans to buy additional businesses in farm services and irrigation

    Listed agribusiness, Ruralco, has won the Australian Competition and Consumer Commission (ACCC) approval to buy rural merchandise retailer, TP Jones.

    Tasmanian-based TP Jones is a Combined Rural Traders (CRT) member with three other retail outlets at Longford, Campbell Town, and Latrobe. It will be absorbed into the Ruralco's Roberts livestock agency and merchandising network.

    The ACCC was required to scrutinise the deal, announced in November, because both Tasmanian businesses sell products such as fertiliser, agricultural chemicals, animal health products, and farm merchandise.

    Roberts, a wholly-owned Ruralco subsidiary with 14 outlets in Tasmania, has operations spanning merchandise retailing, wool and livestock marketing, real estate, irrigation and financial services.

    ACCC Commissioner, Roger Featherston, said while Roberts and TP Jones directly competed in all of the affected local areas, farmers in those areas had other market alternatives.

    The ACCC had spoken to farmers, wholesale buying groups, and manufacturers of rural merchandise. Mr Featherston:

    In Campbell Town where Roberts and TP Jones are the only two with retail outlets, the ACCC concluded farmers would likely be able to buy rural merchandise from other retailers located near Launceston. Farmers could also arrange to have merchandise delivered to their farms.

    Other rural merchandise retailers operating in the relevant local areas include Elders, farm services firm Serve-Ag, and various independent rural merchandisers associated with wholesale buying groups such as AIRR and NRI.

    Investment in water and merchandise

    Ruralco said it will raise up to $65 million to pay for about $60.8 million in new water businesses and farm services acquisitions.

    The company is buying Irrigation Tasmania for $19.9 million, Mildura Irrigation Centre in Victoria, and River Rain Irrigation in Renmark, South Australia. The water equipment and advisory services additions to Ruralco's stable follow deals recently locked in for Riverland Irrigation in SA and Hunter Irrigation in NSW.

    The company's retail division will expand with the purchase of CRT business, Sid Newham Rural Supplies, in Bathurst (NSW). Ruralco also recently announced it was buying Great Northern Rural Services in Western Australia.

    Its CRT wholesale business is already a supplier to the CRT member stores being acquired.

    Managing director, Travis Dillon, said by buying existing independent CRT members, Ruralco earnings from each geography would grow from purely wholesale revenue to a vertical margin encompassing wholesale and retail. He told Farm Online:

    We've identified specific geographic gaps in our rural services footprint and aligned growth initiatives to fill these.
    Investment in water business has potential to reduce the cyclical impact of rainfall and drought events on earnings, allowing Ruralco to capture a greater share of wallet in a higher margin category. It represents a significant competitive advantage between us and our peers.

    Related:

    Turnaround quarter for Ruralco - HI News, page 20
    retailers

    Retail update

    IKEA offers e-commerce in Canberra

    Kennards opens in more locations and Mitre 10 NZ has a new MEGA store in Ruakura

    IKEA customers in the nation's capital are the first in Australia to have an e-commerce option; Kennards Hire adds to its retail network; and Mitre 10 New Zealand has established another MEGA store.

    IKEA goes online in ACT

    IKEA has launched online shopping and Canberra customers are the first in the country to get it. They can shop, order and pay online 24/7 and have goods delivered the next day.

    There is also a new click and collect option - where items are collected and available ready for pick up. Click and collect was recently trialled at IKEA in Tasmania, but Canberra is the first store to have both click and collect and home delivery. IKEA spokesman Michael Donath told the Canberra Times:

    We've been shown a lot of love from the Canberrans, I think we've had 1.5 million visitors since we opened. And I guess Canberra's a really good opportunity to test and try as well and learn from the market, understand how the customer experience should be where we have a store and online offering, and really see how we can support the customer best before we produce e-commerce for the rest of the country.

    Almost the entire IKEA range is available for delivery. Costs starts at $79 and is currently available throughout the ACT and Queanbeyan. Mr Donath said:

    In the new year we will look at other regional areas surrounding or a bit further from the ACT, so everywhere from Wagga Wagga through to places like Albury, Wodonga etc..

    The existing loading bay area near the store's exit will become the click and collect area, with the service attracting a $20 fee. Mr Donath explained:

    You come in straight through the exit and your goods will be ready to pick up. When you do order online you can select your day that you prefer and the time slot, so you can actually come in when it suits you. You won't have to wait there and wait for it to be picked, it'll be all ready for you.

    There are future plans is for IKEA to roll online shopping out nationally over the coming years.

    Kennards Hire opens new branches

    Equipment and tool rental company Kennards Hire recently opened its 23rd branch in Victoria following the acquisition of family-owned business, Werribee Trade Hire.

    Kennards Hire is retaining the expert staff from Werribee Trade Hire. Neil Masterson, general manager of Kennards Hire - Victoria identified its local expertise as being crucial to Kennards' success in the area. He said the owners, Miro and Roberta Strmecki have built a great business with their equipment fleet and customer base almost identical to Kennards' core market.

    According to Mr Masterson, the western suburbs are a rapidly expanding part of Melbourne and in growing need of housing and infrastructure development. Though Kennards' branches at Brooklyn and Geelong have been servicing this market, the company thought it necessary to be closer to the action to provide quicker service and a wide range of reliable hire equipment.

    Kennards also opened its 17th branch in New Zealand when it took over Tauranga Hire. Tom Kimber, general manager of Kennards Hire New Zealand said:

    Being the largest city in the Bay of Plenty, Tauranga is an exciting step for our network of hire equipment branches...Infrastructure projects, housing and commercial construction are all projected to see strong growth over the next few years. This is a great opportunity for us to invest in and grow our brand and equipment hire service offering in one of the fastest growing population areas in New Zealand.

    The current staff at Tauranga Hire will join the Kennards Hire team, providing a seamless service for customers.

    Kennards Hire operates almost 170 branches across New Zealand and Australia. Prior to the branch in Tauranga, it opened one in Hamilton in August this year. Tauranga is the neighbouring suburb to Hamilton in New Zealand.

    Mitre 10 NZ launches in Ruakura

    The recent opening of Mitre 10 MEGA Ruakura will serve tradies and DIY enthusiasts in Hamilton, a populous city of the Waikato region, in the North Island of New Zealand.

    Store owner-operators, Terry and Lynne Wilson, have been eager to complete this four-year project for their South-East Hamilton based customers, who previously had to make the journey to the Wilson's other Mitre 10 MEGA store at The Base, Te Rapa. Mr Wilson said:

    The new store will operate as a satellite of our Te Rapa store - offering the same range and store features and allowing our trade customers to use one account across both stores.

    The Mitre 10 MEGA Ruakura store encompasses almost 8,000sqm of retail space, garden area, drive-thru, trade yard with trade supply bulk bins, and a Columbus Cafe.

    The store has been designed with sustainability and efficiency in mind, including new wireless mobile devices that will enable team members to be more productive and responsive to customer requests. Mr Wilson adds:

    Whether they're in the garden area, the drive-thru, trade yard or anywhere else in the store, our team members will be able to check stock location and availability on the spot, as well as process orders without the need for paper, which allows them to deliver a more efficient service for our customers.
    retailers

    Indie store update

    HTH Group GM announces departure

    Beaumont Tiles rewards top store and Mitre 10 New Zealand launched new TV campaign

    James Aylen will be leaving his role as general manager, Home Timber & Hardware Group in early October; Beaumont Tiles Castle Hill generates the most sales for the retail group; and Mitre 10 New Zealand is featuring store owners in its latest TV campaign.

    James Aylen bids adieu

    Sources close to HNN have indicated that James Aylen, general manager, Home Timber & Hardware Group will not be continuing in his role beyond the Metcash acquisition completion date. Mr Aylen writes in an email communication that his final day with the business will be 2 October 2016 after almost 39 years with Woolworths.

    He is thankful to members' support during his three years managing HTH Group and will leave with the friendships he has made during this time. In Mr Aylen's own words:

    I'm proud to have been a part of a talented, passionate and committed group and leave with a far better understanding of the challenges within the independent sector. !I hope that the coming period brings strong growth to all HTH Group stores as part of the united independent hardware network.
    I will take some time to have a well earned rest, go fishing and play some golf, before looking at what the new year may bring.
    Thank you for welcoming & accepting me during my time with HTH Group. All the best.

    Top sales for Castle Hill store

    Beaumont Tiles Castle Hill has been recognised as the retail group's best performing store, taking out the National Award Best Sales Performance 2016.

    The store is owned by husband and wife team Pieter and Kerene Myburgh and their son Jaco, who bought the franchise two years ago.

    Kerene Myburgh said the win, announced at Beaumont Tiles annual national conference and awards in Adelaide recently, reflected the family's service philosophy to help customers create their dream space. She said:

    Our main goal is for our customers to be comfortable and happy with their choices so while we give our customers advice we mostly listen, listen, listen. Renovating can be an expensive exercise so we take the time to show the various products and styles that will complement their space.
    Once customers have made a selection we encourage them to take some tiles home as the light in our showroom is different than what's in their home. That's a real winner. If someone comes in by themselves we encourage them to get a second opinion on their choices.

    Ms Myburgh said many customers come back to the store to have coffee, a chat, and to show their finished rooms. New customers can also see the many "before and after" shots from these renovations to guide their own choices.

    Beaumont Tiles managing director Bob Beaumont said his company was committed to being the best in the market by always aiming to offer Australia's best levels of customer service. He said:

    Our customer philosophy runs across the people we employ, the technologies we deploy, the products we offer and the value we place on our customers. Castle Hill regularly outperforms all other stores and receives great feedback from people. It's this dedication to customers and our brand that really sets them apart.

    Retailers star in Mitre 10 NZ campaign

    Mitre 10 New Zealand pays homage to its store owners located in the regions by featuring them in its latest series of TV commercials. The ad campaign shows rival store owners engaging in some light hearted banter about their favourite rugby teams. The ads are part of its sponsorship of the Mitre 10 Cup.

    The campaign aims to celebrate New Zealand's national game at a grassroots level, as well as Kiwis' tendency to give each other a good ribbing. It shows rugby-mad Mitre 10 New Zealand store owners wearing their team colours at a match having some friendly banter with owners from rival provinces.

    Meanwhile, a tool on Mitre 10's website called BanterMatic allows rugby fans to come up with an insult or picture to send to a friend in a rival region on social media.

    The main message the retailer wants to get across in the "We're from here" campaign is the fact that it is 100% New Zealand owned and operated retailer. Mitre 10 general manager of marketing Dave Elliott said that as each store owner is a staunch supporter of their local rugby teams, it made sense to incorporate them into the ads.

    The genuine passion and pride they have for their province is a core part of who they are, so we saw no better way to support the competition than to have our store owners say it for themselves.
    Simply by saying 'we're from here', stirring up some friendly rivalry and encouraging Kiwis to do the same we hope to help the game at this level get even stronger.
    retailers

    USA update

    Local ownership drives Ace Hardware

    Lowe's installs robots to serve customers and True Value delivers Q2 results

    John Venhuizen always strives for Ace Hardware to be better; Lowe's robots will be able to help customers with simple questions; True Value Company posted a rise in comparable store sales and revenue for its second quarter; and Compact Power Equipment Rental expands its range at The Home Depot.

    Ace CEO speaks

    Ace Hardware president and CEO, John Venhuizen, recently gave two separate interviews where he spoke about why he thinks there is still room for local, neighbourhood stores and the digital challenges for hardware retailers.

    (The interviews have been edited for length and clarity.)

    Mr Venhuizen maintains an underdog mindset despite its claim to be the world's largest hardware cooperative. He told the Chicago Tribune (CT):

    We duke it out with some of the world's best retailers, mostly with small family businesses.

    CT: There's been a lot of talk of hardware stores benefiting from a strong home renovation market. Does Ace also see that?

    JV: A rising tide lifts all boats so it doesn't hurt, but we get less upside [from renovation] since most of our stores do not have the kind of products you could build a home from scratch with. Generally speaking we're much more that convenience-oriented, home preservation place.

    CT: Is that something that's shifted or has Ace always had that different focus?

    JV: If you go back 30 years, pre the onslaught of the big box, it was probably more in our wheelhouse and the truth is the big boxes, particularly Depot and Lowe's, have changed the game with these massive stores. For the last decade, we are to Home Depot and Lowe's what Trader Joe's is to Wal-Mart. Wal-Mart clearly has the market share, Depot clearly has the market share, but if you want a convenient location, you want a lot better service and a little higher quality of goods, that's who we want to be ... We're not trying to be a lesser them, we want to be a better us.

    CT: How does being a co-op of independent stores help you, and how does it make it tougher?

    JV: We have the skill of the locally embraced and highly empowered entrepreneur who knows their community better than anyone ... coupled with the scale of a globally trusted brand. To us it's the best of both worlds. We have a large department that sources and procures product in massive quantities to try to bring locally relevant stuff to the local stores and empowers them to locally curate anything else they think will work in their market.

    Can it be challenging? Yes. When you have owners who are your customer, do they have opinions that we hear regularly? Yes. But we can cry and complain about that like we're "smarty pants know-it-alls", or we can say they're living it on the front lines. I would tell you with no false humility that most of our best ideas started in the stores who tried it on their own.

    Mr Venhuizen also spoke about digital competition to HBS Dealer at the Ace Convention and Exhibits event in Las Vegas.

    On improvements to Ace.com

    JV: There are three things. First, we want our websites to feel more local, so that when you go to Ace.com, it doesn't feel like a corporate site.

    Second is search engine optimisation. A lot of people pay for words on Google, we do too. But the real win is when your site naturally comes into searches. Our performance here is OK, but it needs to be great.

    And third, we intend to integrate more to the local store, adding local pricing that is specific to that store.

    On competition from Amazon

    JV: If someone does USD600 million in one day, they are your competitor. [Amazon] is becoming everyone's competition in almost every category to some degree. But we will go to our grave defending the idea that the local store with actual people serving their neighbours has got to be relevant. We have human beings with empathy -- you can't capture that on a computer.

    Lowe's debuts LoweBot

    Eager to streamline the in-store shopping experience, Lowe's will introduce a fleet of retail service robots through 11 Lowe's hardware stores in the San Francisco Bay area.

    Called LoweBot, customers will be greeted by these autonomous robots. The retail bot can answer questions and find items based on voice and typed queries provided through its rectangular touch screen.

    The robots, made by Fellow Robots, use a 3-D scanner to detect people as they enter stores. Shoppers can search for items by asking the bot what they want or typing items into a touch screen. The bot can guide them to those items using smart laser sensors, similar to the technology used in autonomous vehicles, said Marco Mascorro, chief executive officer of Fellow Robots.

    The kiosk-like robot will help consumers better navigate the store and merchandise, and check stock availability. Employees who use the device as a sales assistant will be armed with real-time information. This will enable them to deliver more personalised customer service.

    As customers follow the bots to find items on store shelves, location-based special offers show up on a second screen on the back of the LoweBot.

    The multilingual robot can also help stores determine if they need more staff with different language capabilities or whether people are asking more for certain items at certain times.

    Some people might call a robot that can perform duties like directing customers to items a "job killer." Not at all, says Kyle Nel, executive director of Lowe's Innovation Labs. He said:

    We designed this to be an assistant to the associate ... [It] is a response to things people wanted since retail began, but up until now there just wasn't the technology to be able to make that happen.

    The LoweBot is not a fancy looking device with a lot of bells and whistles. Its role is to find solutions to consumers' most basic problems, said Mr Nel.

    The LoweBot solves and serves our common cold problems. When I walk into a store and I want to know where something is I want to know right then - I don't want to have to download an app - a robot can really help with that.

    As the robot scans shelves using computer vision to send up-to-date information to store associates, it can show people around the store. Inventory tracking may seem mundane and boring, but is incredibly important to a retailer, said Mr Nel.

    It never calls out sick and doesn't need to take coffee breaks. That said, the goal is to augment the work of store associates and free them up to work on advising customers on products and projects, not replace them, said Mr Nel.

    For example, the LoweBot can serve as a translator, since it is impossible to find store workers who understand every customer, he said.

    Could the LoweBot one day eliminate jobs? "Most definitely not - my phone doesn't make me obsolete," said Mr Nel.

    The LoweBot is the younger sibling of the OSHBot, an earlier version that Lowe's tested in Orchard Supply Hardware stores over the past two years.

    How Lowe's robot serves customers in-store - HNN

    True Value posts increases in Q2

    US-based hardware retail co-operative True Value Company has reported a rise in revenue to USD438.7 million for the second quarter ending July 2, an increase of 1.6% from the same period a year ago.

    Retail comparable store sales were up 2.5% in the quarter, with increases in eight of the co-op's nine product categories, led by farm, ranch, auto and pet, lawn, garden and paint.

    It posted a net margin of USD13 million, up 40.5% from a year ago. The net margin increase for the quarter was primarily driven by improved gross margin in areas such as advertising, freight-in expense as well as higher handled sales volume, according to the retailer.

    During the second quarter, True Value grew its square footage and member base. In the six-month period, the company added 736,000 square feet of relevant retail space, continuing its commitment to grow Destination True Value (DTV) and other relevant formats in its store network.

    The DTV format consistently provides returns for True Value member-retailers with DTV comparable store sales up 2.3% for the quarter. President and CEO, John Hartmann said:

    Last year was the first full year of our significant reinvestment in the company. Our second quarter net margin performance is a strong indication of the upward momentum from where we finished in 2015. We still have important work left to do, but we are clearly heading in the right direction.

    Equipment rental expands at HD

    US rental distributor Compact Power Equipment Rental (CPER) said it was rolling out new equipment from Ausa, Gehl, Genie and Toro at selected Home Depot stores.

    CPER equipment is available at more than 1000 Home Depot locations throughout the US and Canada. Equipment includes skid steers, aerial equipment, tractor loader backhoes, mini excavators, trenchers, aerators, chipper shredders and stump grinders.

    Now, CPER said it would add the Genie GR-20 Runabout aerial lift, the Gehl 3640E skid steer, the Toro TX100 mini skid steer and TX427 Dingo, and the Ausa TH2513 telehandler. Compact Power chief operating officer Richard Porter said:

    As our customers' projects continue to evolve, so must our equipment. With the additions from Genie, Gehl, Toro and AUSA we've expanded our existing equipment partnerships - as well as creating new ones - to ensure Compact Power Equipment Rental remains customers' source for heavy equipment during their renovation and improvement projects.

    Earlier this year, CPER launched a new mobile app (@compactpwrrents) designed to make renting heavy equipment more convenient. The app features a catalogue of all the equipment that's available at nearby Home Depot locations to help tackle both DIY and professional contractor jobs.

    retailers

    Metcash-Mitre 10 buys HTH for $165m

    Sale to complete by October 2016

    Mitre 10 to acquire all HTH assets, except for two corporate stores and the Victorian distribution centre

    Australian wholesaler Metcash has released details of its forthcoming acquisition of hardware retailer and hardware wholesale supplier Home Timber and Hardware Group (HTH) by Metcash's hardware operations, Mitre 10. The sale price was above expectations fostered by most mainstream media stories, coming in at $165 million.

    HTH is currently owned by a joint venture formed between Australian supermarket retailer Woolworths, and US-based home improvement big-box chain Lowe's. The relevant part of that joint venture, with control over HTH is Hydrox Brands Pty Ltd, which is owned by Hydrox Holdings, the primary joint venture vehicle. Lowe's has a 33% ownership of this, while Woolworths controls the remainder.

    The sale is set to complete in early October 2016.

    Masters assets

    In separate news, Woolworths has also announced that it has arranged the potential sale of the remainder of the Hydrox Holdings assets, which consists of the real estate holdings of Masters Home Improvement, as well as the stock inventory held in its Masters operations. According to the press release from Woolworths, GA Australia will "manage the sell-down of the Masters inventory." The expected value is $500 million.

    As the press release states, "subject to Lowe's consent", a consortium which is made up of Aurrum Group, Spotlight Group and Chemist Warehouse will acquire 100% of Hydrox Holdings.

    Should this proceed, Masters will be entirely wound down by 11 December 2016.

    Acquisition value

    The intent of the acquisition is to combine HTH's direct retail and wholesale retail assets with those of Metcash's Mitre 10 hardware operations. This will result in a retail operation with close to $2 billion in annual sales and estimated combined earnings before interest and taxation (EBIT) of $59 million.

    According to statements by the managing director of Metcash, Ian Morrice, made in a press release:

    Both Mitre 10 and HTH are passionate about supporting independent retailers. The combination of the two businesses will mean that Metcash's hardware business will have a turnover of ~$2bn. This increased scale, together with the opportunity to realise significant efficiencies, will enable us to be more competitive and deliver a better outcome for both our hardware retailers and their customers.
    The interests and values of Mitre 10 and HTH retailers are closely aligned. Our objective is to continue to build successful independent retailers and grow a vibrant independent hardware sector, for the long term.

    Metcash will pay for the acquisition through the combination of an additional equity raising for $80 million, and an extension of its current borrowing by $85 million. The company believes that the acquisition will add 4% to its earnings per share in FY 2017/18, exclusive of the operational costs of combining the two hardware businesses. The added debt will increase Metcash's leverage from a 17% ratio to 20%, the company states.

    Metcash will be acquiring most but not all of HTH's assets. Excluded from the acquisition will be HTH's only distribution centre (DC) in Victoria, and two underperforming stores wholly-owned by HTH.

    A major goal of the acquisition is to take advantage of what seem to be synergies between the operations of the two companies. According to Metcash, these synergies include:

  • Reduce supply cost through increased volume through suppliers
  • Consolidation of distribution network
  • Logistics route efficiencies and leverage through scale
  • Combining and using the best from two strong management teams
  • Combining marketing budgets
  • Consolidation of working capital
  • Use of single unified information technology system
  • Acquisition details

    Mitre 10 will acquire 41 of HTH's company-owned stores, as well as supply contracts with its 363 independently-owned bannered stores, and its 865 independently-owned un-bannered stores. In addition it will acquire three DCs, two in New South Wales and one in Western Australia. Some 36% of its stores are in Victoria, 25% are in Western Australia, 20% are in News South Wales, and 10% are in Queensland. HTH also has stores in South Australia, Tasmania and the Northern Territory.

    HTH includes the brands Home Timber & Hardware, Thrifty-Link Hardware, and Hudson Building Supplies. The combined workforce of HTH amounts to 1600 employees.

    Background

    Selling the assets of Hydrox Holdings has taken over seven months to complete. In the final bidding process, there have been several extensions of the deadline. The current deal has closed the day before Woolworths is due to reveal its results for FY 2015/16. The results are expected to provide details of a substantial loss.

    A key part of the bidding process consisted of Metcash approaching the Australian Competition and Consumer Commission (ACCC) in July 2016 for an informal ruling on its proposal to acquire HTH. The ACCC developed an initial undertaking for Metcash to conform to, which was then made public. Public consultation led to a further tightening of restrictions in this undertaking, which was then accepted by Metcash, clearing the way for it to acquire HTH.

    It is believed that as regards HTH, the final bidding war came down to Anchorage Capital Partners and Metcash. Initial estimates had suggested the sale price would be over $200 million, but these estimates were later reduced to around $150 million.

    Risks

    As is required of them in these circumstances, Metcash has detailed a number of risks that relate to this transaction.

    Losing members

    The primary risk, which has not been thoroughly understood by the general media reporting on this matter, is outlined by Metcash in its announcement presentation like this:

    HTH's business relies on its customers. Metcash cannot prevent HTH's customers who operate independent stores from ceasing to use HTH as their supplier or giving its competitors' products higher priority, thereby reducing their efforts to sell HTH's products. Metcash may not be able to quickly replace such customers.

    In more direct terms, it is likely that some of the former HTH stores will consider leaving their arrangements when Mitre 10 takes over. A number of HTH member stores have previously operated under Mitre 10, and decided that they did not care to be directly associated with that company. Seeing 20 to 30 stores leave HTH over the next 18 months would not be surprising.

    Conversely, as Mitre 10 will be engaged in just making things work for the next 18 months, it is unlikely they will be able to attract replacement stores until the conclusion of FY 2017/18.

    Integration costs

    This includes disruptions to the operations of both businesses, difficulty in combining IT, finance and accounting operations, and a possible loss of key personnel.

    Another element that has not been given adequate attention is that the corporate culture between the two companies is quite different. Mitre 10 people tend to be very tough and somewhat aggressive, while HTH people tend to be a little friendlier and more adaptive.

    Mitre 10 are, in particular, known for their difficulties in handling media, while HTH has a good reputation with media.

    A good indication of the difference in cultures can be seen by the advertisements the two organisation run. This is a typical HTH ad:

    Link to YouTube video

    And this is a Mitre 10 ad:

    Link to YouTube video

    It seems highly unlikely that Mitre 10 would consider continuing the more whimsical HTH ad campaigns. That's the difference.

    Counterparty agreements

    The acquisition presentation describes the risk like this:

    As the Acquisition involves, in part, the acquisition of shares in a company, the Acquisition will result in a change of control of that entity. This could have adverse consequences for Metcash. For example, contracts with counterparties may be subject to review or termination in the event of a change of control.
    In particular, a number of leases for corporate stores owned by HTH contain change of control clauses. There is no guarantee landlords will provide their consent to a change of control (although under most leases the landlord will be required to act reasonably in deciding whether to grant or withhold consent).
    If consent is not obtained, HTH may not be able to continue to operate a store at the relevant site and may incur significant costs in connection with its make-good obligations under the lease.

    The consequences of this kind of risk are likely to extend beyond leases. An associated risk will involve contracts that HTH has entered into which are not to Mitre 10's liking.

    The ACCC undertaking

    This is perhaps the most interesting of the risks that Metcash lists. To quote from the presentation:

    Metcash has provided an undertaking to the ACCC, which will be in force for a 10 year period, and is designed to benefit consumers by giving all Combined Entity owned and independent retailers and non-bannered retailers access to hardware and home improvement wholesale supply on a non-exclusive and non-discriminatory basis.
    While this is consistent with Mitre 10's present business practices, should Mitre 10 wish to change those business practices in the future for any reason, its ability to do so may be restricted in the 10 year period of the undertaking.

    There is little doubt that part of Mitre 10's growth strategy will be to continue to increase the number of corporate-owned stores under its control. Where on stores it supplies on a wholesale basis its EBIT to revenue margin is around 2.6%, on corporate-owned stores, where it collects the direct retail margin as well, this is hugely increased. To some extent the ACCC makes this kind of growth more difficult to achieve.

    Bunnings

    This is not a risk that is mentioned by Metcash. In fact, the acquisition document makes it clear that Mitre 10 will become the "number two" in the market, and this will provide some advantages.

    HNN remains concerned that the combination of HTH and Mitre 10 will encourage Bunnings to increase competition, particularly in the trade sector. Where before it might have hesitated to take actions which would eliminate an independent retailer in, say, a regional area, Bunnings might feel less concerned about this in the future. It would not be that surprising if the current combined revenues of $2 billion ended up being more like $1.8 billion in another two to three years.

    Analysis

    One of the more surprising statements in the acquisition presentation was that, as HTH was weighted 38%/62% DIY retail/trade sales, and Mitre 10 is weighted 45%/55% DIY retail/trade sales, HTH would be positive in balancing the combined entity more towards trade sales.

    Mitre 10 has to some extent "sold" this acquisition on the basis of providing an alternative retailer to Bunnings. Yet without seeking to expand more into the much more profitable DIY retail market, it's difficult to see how Mitre 10 can provide a truly effective alternative. Retail sales value does to some extent indicate market shaping control, but EBIT indicates reinvestment potential, and it is the latter that has become so important in forming modern retail markets.

    Will Mitre 10 seek to rebrand HTH stores? It seems highly likely that this will take place, but it's likely that it will be another 20 months or so before that kind of move gains any force.

    The real question, of course, is what attitude the parent company Metcash is going to take to an expanded Mitre 10 operation. Over the past three years, we have seen Mitre 10's marketing budget (among other factors) gradually reduced. Mitre 10 has done well in providing the EBIT Metcash desperately needs to continue funding its supermarket strategy, which consists largely of buying market share by sacrificing profit on low prices.

    Will Metcash, after the initial investment to get things going, continue with this approach? Or will the company instead put Mitre 10 to the path of being spun out in another 30 to 36 months, listed on the ASX as a separate entity and sold to provide ongoing cash for Metcash's supermarket investments?

    While it is too early to tell with any certainty, it seems slightly more likely that the second scenario will win out over the first. Metcash has made a vast investment of time, effort and funding into its supermarket business, and it seems unlikely it will be fully committed to diversification at this stage.

    retailers

    Indie store update

    A Tuckey's Mitre 10 store shuts down

    Metcash assurance for hardware stores and Ripper Hardware is a new store in Mandurah (WA)

    The Tuckey's Mitre 10 located in Halls Head (WA) recently closed; Metcash assures Mitre 10 and Home Timber and Hardware stores; Ripper Hardware caters to the plastering and construction industry in WA; Miami Marine and Hardware is facing tough challenges; the Deniliquin Mitre 10 store is going through the process of being sold; and Hillston Hardware in NSW is up for sale.

    Anger after Halls Head store closure

    Tuckey's Mitre 10 in Halls Head (WA) had been operating for 25 years but shut up shop on July 31. Seventeen staff lost their jobs. Owner John Tuckey places the blame firmly at the feet of the City of Mandurah. He told Mandurah Coastal Times:

    They allowed a Bunnings superstore right on our backdoor step. Trade went down 70% in the first three weeks after Bunnings opened. We had a choice of going broke quickly or slowly. We quit while we could.

    Mr Tuckey did not blame Bunnings, although he did accuse them of being "rotten" by parking an A-frame Bunnings advertising truck on his property during his 10-day closing down sale. But he said:

    I'd like to say thank you to the community though. We had ladies crying...people have been amazing.

    Bunnings operations manager Shelley Begley said Bunnings had opened in many regional centres throughout WA over the past two decades. She said:

    There are many successful businesses located close by to our stores which continue to thrive. We have been part of the Mandurah community since 1998 and our team members live and work here.
    We are committed to always employing from the local communities in which we operate and our Halls Head Warehouse employs 109 team members from the local community.

    The City of Mandurah can "rot in hell, from the CEO down," said Mr Tuckey. "Anger and hatred all built into one," was how Mr Tuckey described his feelings towards council after the demise of his hardware store.

    Wimmera stores will be "unaffected"

    Mitre 10 and Home Timber and Hardware (HTH) customers in the Wimmera region of Victoria will not be negatively affected by one chain's plan to buy the other, according to Metcash.

    If the estimated $250 million deal goes ahead for Mitre 10 owner Metcash to purchase HTH, then around 350 HTH Group stores and 430 Mitre 10 stores will have the same controlling entity.

    The Mail-Times understands the acquisition was driven in part by store owners and managers telling head office that they have been under huge pressure over prices. Managers have complained that Bunnings has been capable of influencing hardware prices with a 100-kilometre radius of each store.

    Horsham has a Bunnings Warehouse. Mitre 10 and HTH would still compete with each other at Nhill, but would be in the same network. HTH also has a store at St Arnaud and Mitre 10 has a store at Horsham. Mitre 10 franchisee, David O. Jones has stores in Stawell and Ararat.

    A Metcash spokeswoman said that nothing would change for customers if the company bought HTH. She told the Mail-Times:

    That's why we spent so much time at the Australian Competition and Consumer Commission. It was to reassure the commission that there would be no effect on competition.

    Ripper Hardware opens in Mandurah

    Ripper Hardware Showroom and Training Centre is a new business based in Mandurah (WA) that caters specifically to the plastering and construction industry. It supplies plastering hardware for sale and offers WASPA (West Australian Solid Plastering Association) accredited training courses.

    It also stocks quality tools and materials endorsed by WASPA. Exclusive products include Nela Trowels from Germany, Trowel Wallets, Ripper Reveals, Safe Steps, Mix M8 and Venetian Plaster.

    The training courses are directly related to installation and application of these products.

    Ripper Hardware Showroom and Training Centre also provides public access to a team of WASPA registered plasterers and their work is fully guaranteed. It is owned by Alex Jones.

    Challenges for WA store

    After 16-years operating in Falcon (WA), Miami Marine and Hardware is struggling to keep afloat. At 65 years old, owner Paul Venables is working six days a week for no wages. He has had to reduce the hours of four staff members to one or two days a week. He told the Mandurah Coastal Times:

    The FIFO have come home, are undercutting the tradies and are no longer spending...It's the recession we never had during the GFC (Global Financial Crisis).

    Mr Venables said the turnover for his business was $40,000 in July last year, compared to a $20,000 turnover in July this year. He said:

    People need to realise the choices they make have a huge impact on the community. If you buy your bait and tackle from big business, locals are going to suffer...The corporatisation of big business takes no prisoners. If we do go under, I want people to know why.

    Exit strategy for Deniliquin Mitre 10

    As the Deniliquin Mitre 10 store undergoes the process of being sold, Terry Friend from Progression Group Finance and Succession highlights the benefits of the business. Mr Friend is an exit strategist and succession planner.

    Deniliquin Mitre 10 owner/manager, Alan Braybon and his wife have been in retail hardware for more than a decade, and are well known in the Deniliquin (NSW) area. They have decided to retire but will be available to advise the new owners to ensure the transition is successful.

    The most serious challenge to the business has been the establishment of the Bunnings store in Echuca (NSW), approximately four years ago. Deniliquin Mitre 10 has withstood the challenge with superior customer and after service, competitive but realistic pricing, and a comprehensive product.

    After many years drought, Deniliquin itself is now back on the map for agricultural production. The Mitre 10 store has managed to survive the drought and grow the business.

    It serves both a town based and rural population including tradies and farmers. The potential of the store has grown with recent re-opening of the local abattoir, and the imminent approval of the Korean ethanol plant on the outskirts of town.

    Deniliquin Mitre 10 is a mature retail business and the current owners have been quite entrepreneurial in the product offering. As an example, in one corner of the store is a bicycle sales and service section - not large, but servicing the town after the owner decided to retire and close up. Similarly, the plant nursery section of the Mitre 10 is effectively a monopoly in the wider area of Deniliquin.

    This business would be ideal for a "tree change" entrepreneur who is seeking to change from city life. Alternatively, it could suit a farmer who is in a position to get off the land.

    The Deniliquin Mitre 10 store could also be a good opportunity for an existing hardware store owner/operator in another town or locality. The staff are mostly long term and remain loyal to the store and the town,

    The most obvious opportunity for expansion of the store is into landscaping supplies such as the bulk supply of sand, soil, mulch etc. With space permitting, it could also expand into general building supplies (given the potential of house building in the area in the next few years).

    To find out more about the sale of Deniliquin Mitre 10, go to:

    Deniliquin Mitre 10 for sale - Edenexchange

    Hillston Hardware for sale

    Hillston Hardware has been an integral part of the Hillston township in NSW since 1955. For the first time in over 25 years, the business is being offered for genuine sale.

    The Thrifty-Link store offers a diverse range of goods and services, including fuel, timber and steel building materials, paints, general hardware and trade supplies.

    For sale by expression of interest, the opportunity exists to acquire the business, land and buildings, plus an additional property across the road that is utilised for offsite storage.

    retailers

    USA update

    Home Depot positive about future

    Lowe's 3D videos suit mobile devices and Do it Best generates over USD3bn in revenue

    Home Depot CEO Craig Menear remains bullish about the retailer's future prospects; Lowe's has launched new 3D videos on its Facebook page; Do it Best Corp.'s sales top USD3 billion; and an environmentally-friendly flagship store is being built for TreeHouse in Dallas.

    More good times, says Home Depot CEO

    With Home Depot shares briefly touching an all-time high of USD139 recently, CEO Craig Menear doesn't see the company's fortunes stalling anytime soon.

    Supported by strength in the US housing market - which is being driven by rising home values and household formation - the chief executive sees opportunities to further grow its business across the millennial and ageing consumer populations, as well as with the professional customer. Mr Menear told CNBC's "Closing Bell" TV program:

    We've been fortunate that we're in a space where customers are willing to spend.

    That's particularly true as owners stay in their homes longer. With roughly 4.6 months' supply of houses on the market (compared with the historical norm of about six months), consumers' lengthier nesting periods are encouraging them to spend additional cash on upgrades, according to Mr Menear.

    If people aren't moving they're clearly investing in their homes. That is a project driver.

    And despite millennials' reluctance to buy homes, Mr Menear said the retailer is starting to see some "positive signs" emerging from the consumer group. Over the past several quarters, about 35% of new household formation has come from the tail end of millennials as it relates to homes, he said. That's despite a US Census Bureau report that said the homeownership rate fell to its lowest level since 1965.

    Mr Menear reiterated that the millennial cohort appears to be on a six-year delayed cycle in terms of household formation. In that vein, UBS analyst Michael Lasser said in a separate interview with CNBC that the generation should start to play a bigger role in Home Depot's revenues over the next five to 10 years.

    And as the baby boomer generation ages, Home Depot is likewise investing in the Do-It-For-Me business. That includes its services unit and the professional customer.

    Home Depot shares are up more than 17% over the past year. But Stifel analyst John Baugh believes they still have room to run. He said:

    The [home improvement] industry is still only in the middle innings of a recovery in home remodelling projects, and Home Depot is well-positioned to exploit this opportunity.

    Lowe's 3D videos target mobile users

    Home improvement retailer Lowe's is testing out Facebook's 360-degree clips, offering viewers step-by-step instructions on how to complete home-improvement projects.

    The initiative, called Made in a Minute, has launched on the brand's Facebook page and will run through August. The company is buying Facebook ads to push the effort, targeting people based on shown interest in home improvement or DIY projects. Lowe's worked with its agency, BBDO, and Facebook to put together the project, which will entail two videos that act like GIFs. Brad Walters, director of social media and content for Lowe's, said:

    Through Facebook 360 technology, viewers can move their phone or interact with the video in-feed and go back and forth between each step [of the project]. Unlike most Facebook 360 videos, which are shot with a 360 camera, Made in a Minute consists of eight individual frames stitched together to show one person completing each step of the project. Each step plays like a looping GIF, allowing the viewer to see the individual step as many times as they'd like.

    Viewers can click through to Lowes.com/DIY, a Tumblr landing page, where the products are listed and can be bought on the retailer's ecommerce site. Mr Walters said:

    We hope viewers will feel inspired and confident to try their hand at the project.

    The videos were directed by Nico Casavecchia and Liz Rowley and sometimes include "Easter eggs" at the end.

    Related:

    Lowe's explores digital tools on Vine, Instagram - HNN

    Do it Best tops USD3 billion

    Hardware, timber and building materials cooperative, Do it Best Corp. said it has surpassed USD3 billion in total sales for its recently ended fiscal year.

    Sales for the co-op's 2016 fiscal year, which ended June 25, totalled USD3.02 billion, up from USD2.99 billion for fiscal year 2015. The milestone reflects a year of strong member growth, supported by retail performance programs and new product introductions. President and CEO, Dan Starr said:

    While we are certainly excited to reach this sales milestone, what continues to be our top priority is providing the right products, programs and services to help our members grow and achieve their dreams.
    Hitting this milestone reinforces that our committed team is executing well to serve our member-owners' needs all around the world. This also means we'll be distributing member rebates in excess of USD100 million for the 13th consecutive year.
    We are proud of what we accomplished on behalf of our members throughout our fiscal year and we are eager to make the coming year an even more successful one.

    Do it Best Corp. has more then 3,800 member-owned locations in the US and in 54 other countries.

    Related:

    Do it Best Corp. marks 70 years - HNN

    Designs for a green hardware store

    As an eco-friendly hardware store, TreeHouse has a business model that extends beyond the goods on its shelves. So for its second location in Dallas, which will become its flagship, TreeHouse wanted a space that was equally extraordinary while sticking to its green-minded mission.

    To achieve that aim, the company called on San Antonio-based firm Lake|Flato for the design, which features a south-facing saw-tooth roof, clerestory windows, and a massive solar array linked to a Tesla battery pack.

    For the Dallas location, the company sought a net-zero-energy building that incorporates passive design features like daylighting, natural shading, and building-axis orientation, to minimise the building's energy load. TreeHouse CEO, president, and co-founder Jason Ballard wrote in an email:

    It was very important for us to create a space that represented the ideas and belief system that the company is built on. If we tell our customers that solar is a smart choice, that this material or that material is a smart choice, we wouldn't have any self-respect or credibility in the community if we built a retail space that was thoughtless.

    While the store will carry some necessities required for building projects, the company's focus is on selling sustainable items that require more than a quick stop in to buy or even just to understand. TreeHouse wanted to create an environment that would encourage people to stick around and discuss what products and systems they were purchasing.

    The 30-foot ceiling and clerestory windows will bring in ample daylight while low shelving will afford clear sight-lines across the space. High-volume, low-speed (HVLS) fans suspend from the ceiling to move air and reduce the thermal load.

    The need to stave off the Texas heat while minimising the building's energy load resulted in a series of design decisions that break from the typical big-box form and instead reflect the local design vernacular.

    Those include the sloped roof with porch overhangs on the south-facing orientation, shading the façade during the summer months; north-facing clerestory windows to bring in daylight, which will reduce the building's energy consumption by 75% alone; a solar array comprising 530 panels that produces 164.3kW; and mechanical systems that perform 60% better than those of a baseline, code-compliant building - all designed around an old-growth oak tree that came with the site.

    Additionally, high-bay LEDs and focused display lighting supplement the daylight when and where necessary, and sub-metering helps the facility managers make informed decisions about energy performance.

    While a typical big-box retail store design would use roughly 550,000 kWh annually, TreeHouse expects that the Dallas location will consume less than half that, at 248,000 kWh, and will generate 252,000 kWh of solar energy per year. Project architect Lewis McNeel said:

    Retail, as a project type, is an extreme energy hog and TreeHouse is all about trying to change the way houses are built and lived in. They wanted to walk the walk as thoroughly as they could, and they figured if they can show how it's working on a really difficult, giant scale of a big-box retail store, then it's a very palatable idea to implement in your own little house.

    Related

    Hipster Hardware Store - HI News number 1.8, page 18
    retailers

    Europe update

    Analysing the B&Q customer experience

    eBay UK gathers data on new homeowners and first half sales at Grafton Group

    B&Q's partnership with Clicktale has provided valuable customer insights; eBay in the UK reveals the shopping habits of potential home buyers; Grafton Group is upbeat about its Irish operations despite UK uncertainty; and a look at a Homebase store that is undergoing the changes to become a Bunnings outlet.

    B&Q studies the customer journey

    Three-quarters of B&Q's 7 million customers use the retailer's website to research products before buying in store. But the home improvement retailer struggled to understand the customer journey from on to offline, and had limited insight into why customers were behaving in certain ways.

    By partnering with Clicktale, B&Q has been able to identify, test and prioritise customer experience improvements, leading to an increase in conversion, average order value and revenues.

    After using Clicktale to prioritise actions over the last five months, the retailer has seen an annual uplift of over GBP5 million as well as a 75% reduction in the time it takes to make changes to the website. Michael Durbridge, director of omnichannel, B&Q, said:

    Home improvement is difficult. The easier we can make our customers' journey by optimising the experience digitally, the better it is for the B&Q brand.

    Mr Durbridge said Clicktale allows the retailer to make decisions and run analyses very quickly and easily. The solution allowed B&Q to accelerate its testing by a factor of four, and the retailer no longer relies on guesswork.

    It's very important for us to cut down on the time it takes to find out what the problem is, run the analysis, and make recommendations for our teams.

    He also noted how the platform integrates with Adobe Analytics, ForeSee and Maxymiser, the other elements of B&Q's analytics ecosystem. Mr Durbridge said:

    Before, we would spend a lot of time in the detailed number analytics, trying to find where there's an issue. Then we'd make some assumptions as to what the problem is, and do lots of testing to try to prove those assumptions or not. Clicktale, coupled with our analytics, helps us really identify that there is a problem. Then it tells us, 'And here is the absolute problem that you need to focus on.' So we can test a specific issue, rather than try and guess.

    Analysing and prioritising changes within B&Q's bathroom suite category alone, apparently led to double conversion rates and an extra GBP1 million over five months. Revenue reportedly increased by 110%, driven by higher average order values coupled with increased conversions.

    The Clicktale platform also provides visualisation tools which helps the digital and customer experience team at B&Q explain the improvements to stakeholders. Durbridge said:

    We've gotten great support from the Clicktale customer experience team and web psychologist to really help us understand customer behaviours and motivation. It's more than just a technical solution.

    Going forward, B&Q intends to continue using the solution to improve its customer journeys, as well as aiding the relaunch of its mobile application later this year. The retailer will use Clicktale for Apps to help gain a deeper understanding of in-app customer behaviour.

    eBay UK reveals home buyer trends

    A Home Mover "Advance Targeting" tool from eBay in the UK has been able to predict the buying behaviour of new homeowners.

    The company claimed its tool can reveal potential home buyers by their online shopping habits several months before they purchase their new home. It contains data from its 19 million monthly users, along with Land Registry information.

    Spend in three eBay categories increased significantly for new home buyers over a three month period: the Home, Furniture and DIY category rose 552%, while sales in the Sound & Vision and Garden & Patio categories increased by 109% and 449%, respectively. Rob Bassett, head of UK and multinational advertising at eBay, said:

    A home purchase is a key life stage and often triggers a change in philosophy, inspiring shoppers to buy new brands. It's a significant milestone and is a golden opportunity for marketers - but historically it has been very difficult to pinpoint this segment and target them with the most relevant advertising at the right time.

    Sales of cookers, ovens and hobs on eBay.co.uk rose by 27% three months before the average home purchase, while sales of fridges and freezes increased by over a third and indoor furniture jumped 28%. Mr Bassett added:

    Our observed insights into how people shop across categories and the huge scope of inventory we deliver mean we're in a unique position to build a holistic view of a shopper. Consequently, we can identify whether they are likely to be purchasing a home, months before they change their address. We launched our Home Movers 'Advanced Targeting' product to allow brands to tap into this opportunity and engage with shoppers in the most relevant way.

    The eBay statistics also suggested there is an opportunity for brands and retailers to engage with new homebuyers post-purchase, when they begin to buy non-essential items again, including clothing and holidays.

    Five months post-house purchase, customers begin on improvement work, as purchase of bricks and stones increased 67% compared with the previous month, and purchases of cabinets and cupboards spiked by 86%. He concluded:

    If ad-blockers have taught us anything, it's that today's shopper is quick to opt out of an experience that feel irrelevant or poorly targeted. It's no longer enough to blanket target huge swathes of consumers online in the hope you'll reach a home mover, or indeed any other relevant audience: we're in the age of precision targeting, and eBay wants to be front and centre of the movement towards hyper-relevance.

    Grafton Group's UK sales dip

    Grafton Group said its UK merchanting sales dipped in June and warned that Brexit is likely to dampen demand for new housing and home improvements for the remainder of the year in its most important market.

    The Dublin-headquartered group has reported first half revenues of GBP1.23 billion, up 13.3% year-on-year in sterling terms, and ahead 11.7% on a constant currency basis.

    Growth in UK merchanting like-for-like sales, which make up more than 70% of group revenues, slowed to an annual 1.6% in the second quarter from 5.3% in the first three months of the year. Sales turned negative in June. Chief executive, Gavin Slark said:

    The referendum decision in the UK to leave the European Union has created uncertainty about the near term outlook and prospects for the economy and this is likely to weigh on demand in the new housing and [repair, maintenance and improvement] markets over the remainder of the year.

    Still, Grafton said its trade-only Selco Builders Warehouse business in the UK "is a proven resilient model and continues to be the focus for development capital in the UK."

    Elsewhere, Irish merchanting like-for-like sales rose by 10% in the second quarter, while Belgian sales declined 9.5%. Dutch retailing sales rose 4.2%, but manufacturing sales dipped 1.8% in the latest quarter. A recovery in retail sales in its Woodies' DIY business in Ireland has continued so far this year, the company said.

    Goodbody Stockbrokers analyst Robert Eason said the 4.2% increase in like-for-like group sales in the first half of the year was broadly in line with his expectations, though weaker-than-expected UK and Belgian performances were offset by strength in the Irish and Dutch businesses.

    We believe the risks to forecasts across the sector lie firmly to the downside and estimates will likely have to incorporate declines in underlying sales for the next 12 to 18 months.

    However, Mr Eason said Grafton will be cushioned somewhat by its Selco business, more favourable Irish and Dutch markets and balance sheet strength.

    Mr Slark said the group's "financial strength and geographic diversity leave it well positioned to take advantage of any opportunities that may emerge across the markets in which it operates."

    Grafton said that growth in the Irish and the Netherlands merchanting markets is expected to continue broadly in line with recent trends.

    Related:

    UK retail update: Strong start for Grafton - HNN

    The changes at Homebase

    Steve Collinge, managing director of UK-based industry website, Insight DIY took a trip to the Homebase St.Albans store in Hertfordshire to see some of the changes that have been made as the store re-brands to become a Bunnings outlet. Here is part of what he wrote about his visit.

    Only one year ago, the inside of this store would have looked immaculate, with perfect product displays, impeccable point of sale and aisles so tidy and free from clutter, you'd have thought you were in a hospital.
    Gone are the tidy displays, the neat merchandising, the perfectly filled point of sale holders and the expensive agency created point of sale.
    In it's place, there are price labels written on toilet roll, cardboard boxes looking like they wouldn't make the journey from the back to the front of the store, never mind from China and far more secondary product locations than would have been allowed just 12 months ago.

    This store re-opened in September 2014, a flagship for Home Retail Group, with a huge showroom department and concessions from Habitat and even Wiggle Cycles. The branch had it's own Homebase coffee shop located inside the store.

    Mr Collinge writes more about the disconnection between the mind of a DIY consumer and how home improvement products are organised and displayed in-store.

    He believes Bunnings has made finding the right products at the right price, a lot easier. To read more on his opinion piece, you can go to the following link:

    Do they know something we don't? - Insight DIY

    The other major change at Homebase is based on its price offering. Instead of having sales that come and go, the stores will always have low prices, all year round. Customers no longer have to wait for a sale to get a good price on what they need. You can see the promotional video here:

    Link to YouTube video
    retailers

    USA update

    Ace takes it up to big box retailers

    Inventory is a priority at The Home Depot and brand extensions for Sears

    Ace Hardware competes effectively against much larger stores; The Home Depot wants to keep inventory levels low; and Sears is considering expanding its tool and appliance brands.

    Ace Hardware beats big boxes in five ways

    Shep Hyken writing in Forbes magazine believes Ace Hardware not only survives but thrives in an intensely competitive environment. The independently owned retail stores go up against big box stores that in some cases are 10 times larger than the typical Ace Hardware store.

    Furthermore, these competitors often spend 30 times more than Ace in advertising dollars. CEO John Venhuizen calls Ace's success a David and Goliath business story. The little guy takes on the big guy and wins.

    Hyken believes customer service provides a true competitive advantage. Often, better service can even trump a lower price. Companies that win with customer service know that their customers buy more, buy more often and share their positive experiences with friends, colleagues and family members.

    He has identified five ways secrets that enable Ace to win in a highly competitive marketplace.

    1. They mystery shop their stores.

    Many companies use mystery shoppers in their stores, but what makes Ace Hardware different is that the stores are independently owned, yet they agree to be mystery shopped by the corporate cooperative that supplies their merchandise. The head office provides customer service training and mystery shopping services that the retailers know will take them to a higher level of customer experience.

    2. They are easy to do business with.

    The Ace Hardware stores are smaller, and that can work to their advantage. While they may not have the largest variety or even the lowest prices, they can compete with convenience. Driving through the parking lot is easier. Navigating through the store doesn't mean a quarter-mile walk from one side of the store to the other. There seems to be more staff to help the customers than in the typical hardware or big box store.

    3. They engage their customers when they enter the store.

    This is more than a friendly greeting. Instead of a traditional greeting like, "Hello, how are you today?" the Ace associates are taught to ask, "What can I help you find today?" And, when they find out, they don't just point the customer in the right direction, they walk the customer to the item. Then, to take the experience to a higher level, they start a conversation to learn more about why the customer needs the item and how it will be used.

    4. They have knowledgeable staff.

    While the same might be said about the competition, Ace associates are taught to use their knowledge in a different way. They ask appropriate questions that give them the opportunity to help the customer by making suggestions that might make the project easier and even less expensive.

    5. They don't just give friendly service, they deliver helpful.

    Ace is known for helping, or being helpful. Engaging the customer is friendly. But, Ace takes it a step further, always making suggestions that help the customer. It is in Ace's corporate DNA to be the most helpful hardware stores on the planet. Helpful is their ultimate competitive advantage.

    Home Depot rethinks inventory

    Instead of filling its warehouse-style racks to the ceiling with drills, rolls of insulation and cans of paint, The Home Depot wants fewer items on its shelves and it wants them to be within customers' reach.

    Tom Shortt, Home Depot's senior vice president of supply chain, relayed the following message going out to stores.

    Get comfortable with days of inventory, not weeks.

    The retailer is targeting sales growth of nearly 15% by 2018, but wants to keep inventory levels flat or slightly down.

    It is a shift happening across the retail sector as companies try to figure out ways to profitably serve the growing needs of online shoppers while making their network of stores less of a financial burden. Chains must predict whether demand will come from the internet or a store visit, and whether they'll ship online orders from a distribution centre or a store. Every move of inventory is an added cost that eats away at already thin margins.

    Online shopping "has forced the industry to rethink not only the math and science behind the inventory pool, but also the strategy," said Scott Fenwick, a senior director at Manhattan Associates, which makes supply-chain software.

    Inventory is one of retailers' highest costs. Any reduction in the level of capital tied up in unsold goods frees up resources to invest elsewhere, such as building out online operations or covering wage increases. But destocking isn't without risk. Bare shelves are a major annoyance to shoppers who take the time to go into stores to shop. Rodney Sides, vice chairman of the retail practice at Deloitte said:

    If I hold too much inventory out of the stores, then it looks like I'm out of business.

    When many chains first started selling online, they set up distribution centres to service their e-commerce operations. But that ran the risk of doubling inventory. Then they tried to make their stores double as online fulfillment centres and merged the systems that manage their online and store inventory pools. While that helps lower shipping costs by storing products closer to customers, it means more work for store employees. Brian Gibson, a supply-chain professor at Auburn University said:

    Ideally, you put less inventory in the stores, but replenish more frequently. You'd rather fulfill based on demand than based on a forecast.

    Home Depot has weathered the shift to online shopping habits better than most, with sales at existing stores up at least 5% in each of the past three years - helped by the continuing rebound in the housing market. Still, its push to lighten inventory levels will be a challenge, especially as it seeks to increase annual revenue to USD101 billion in 2018 - USD12.5 billion higher than last year - without opening more US stores.

    To tackle the issue, Home Depot is overhauling a big part of its brick-and-mortar supply chain. It has instituted "Project Sync," a series of changes that include developing a steadier flow of deliveries from suppliers into its network of 18 sorting centres. Instead of being slammed with five trucks twice a week, for instance, Home Depot now wants to have suppliers send two trucks five days a week.

    The savings from the synchronised inventory flow are a key part of getting Home Depot's operating margin up to 14.5% by 2018, from the current 13%, and also boosting the return on invested capital. The more frequent deliveries also help improve in-stock levels, even as Home Depot tries to keep a lid on inventory growth.

    When the shipments get to stores, workers move them right to the lower shelves, eliminating the need to store and retrieve products from upper shelves using ladders and forklifts. Those activities are some of the most expensive parts of the supply chain, Home Depot executives say. Savings can be used to have more workers on the floor or finding orders for shoppers who are picking them up.

    Sears expanding its brands

    Sears Holdings is looking to generate more cash from its Kenmore, Craftsman and DieHard brands than the sale of tools, washers and dryers, and car batteries in its own stores.

    The retailer recently announced that it was exploring unspecified alternatives for those brands, along with its Sears Home Services business, by expanding their availability beyond the doors of Sears and Kmart.

    While not naming what options were under consideration, they potentially could involve selling the products in other stores, licensing them to other companies or an outright sale.

    Although the Kenmore, Craftsman and DieHard names have faded a bit as the overall Sears brand has diminished, they are still well established brands with strong reputations, according to Neil Stern, senior partner at Chicago-based retail consulting firm McMillanDoolittle.

    Expanding distribution would likely bring in extra revenue, Stern said. But if you can buy Kenmore and Craftsman elsewhere, that's one less reason for shoppers to come to Sears, he said.

    Sears was once a primary destination for appliance sales in the US, largely on the strength of its Kenmore brand, once one of the top two major appliance brands in the US, based on market research firm Euromonitor International.

    Now sales are shifting to home and garden specialty retailers like The Home Depot and Lowe's, which accounted for 34% of major appliance sales in 2015, according to Euromonitor.

    The Stevenson Company's TraQline's quarterly market survey shows that Kenmore's share of the major appliance market dropped to 12.7% for the 12 months ending in March, down from 17.4% four years ago, when it had the largest slice of the market. But it is still the third-biggest player, behind General Electric and Whirlpool.

    Craftsman still accounts for the largest share of the hand tools and accessories market by dollar share, with about 28.5%, and for about 9% of portable power tool sales, with both categories down between 4 and 5% over the last four years.

    DieHard had only about 5.2% of the auto battery market though nearly 30% of people surveyed said they didn't know their car battery brand. The TraQline report said:

    If Craftsman is in independent hardware stores, it's probably not a bad thing for the company to explore. If they do a deal with the Home Depot or Lowe's, that's also heavily into your appliance business; that could really siphon traffic away from stores.

    It's not the first time the retailer has turned to the brands to bolster sales. In 2011, Sears signed deals to sell Craftsman tools at Costco clubs and DieHard car batteries to big box chain Meijer. It also expanded a pilot that put Craftsman at 1,000 Ace Hardware stores and reportedly considered selling certain Kenmore products at Costco.

    The Craftsman pilot marked the first time in the brand's 83-year history shoppers could buy it outside a Sears-owned store.

    Sears had considered such deals before 2011 but worried about cannibalising sales at its own stores. At the time, the Craftsman brand manager said the Costco deal would attract new customers since many Costco shoppers weren't coming to Sears or Kmart.

    Today, more than 2,800 Ace Hardware stores sell Craftsman and some DieHard products, said Sears spokesman Howard Riefs. Blaine's Farm and Fleet and Atwoods Ranch and Home also sell some categories of Craftsman products, and all three brands are available in more than 50 countries.

    But Sears only sells a portion of its branded products through other retailers and believes a partnership or other transaction expanding distribution of its brands and service offerings could help both parties. Riefs said:

    Sears is the only place you can get the full assortment of Craftsman, Kenmore and DieHard products.
    retailers

    Europe update

    B&Q signals a change in direction

    Homebase stores saved from closure and Dobbies Garden Centres sold by Tesco

    A closer look at the new concept B&Q store in Bristol (UK); a number of Homebase stores will no longer be shutting down; and Dobbies Garden Centres has a change of ownership.

    An inside view of B&Q

    UK-based industry publication Retail Week took a tour of the new large-format B&Q in Cribbs Causeway, Bristol.

    This B&Q store has some similarities with Castorama, the DIY retailer that parent company Kingfisher operates in France, Poland and Russia. Elements of what is currently done in the sister DIY company have been deployed in this B&Q. Chief executive Michael Loeve said:

    The intention was to create a best practice store in the four countries [within the Kingfisher empire] that operate big box retail.

    The Cribbs Causeway B&Q big box is the first of these with the other three best practice stores set to follow later this year. It also means that the font that forms the Cribbs Causeway branch logo is the same as that used in Castorama - this also is an exercise in looking at what the synergies between the various Kingfisher operating companies may be.

    Following its refurbishment, the store now measures just shy over 13,006sqm (up from a pre-makeover footprint of 12,405sqm). The exterior is still a combination of B&Q's corporate orange and white colours - and yet it looks different. The font for the logo has changed and there is a more simplified and modern feel to the orange and white areas across the frontage.

    Loeve has made the point that the font being used at Castorama and Cribbs is owned by Kingfisher, while the one used in all other B&Q branches is not and would therefore cost money to use.

    Inside

    The same font throughout the store as has also been used to form the logo. For navigational signage, this means white on grey and more subtle than in other B&Q outposts.

    Moving into the store, the first things that the DIY shopper will encounter are a cafe, light and space. The cafe is to the left of the main door and features, among other things, pendant copper lights and 3D-style wall graphics, created by putting gardening tools on wooden pegboards.

    It's a good-looking introduction to the shop and also serves as a waiting area for those who have ordered in-store or who have clicked and are about to collect, prior to walking away with their purchase from the order collection area, which lies just beyond the cafe.

    The light and space are the outcome of a high ceiling with LED lighting overhead. This delivers higher light levels, lower cost and a longer lamp life. The main point about it, however, is that there is an immediate feel-good factor on entering this store - a trait which is conspicuously absent when entering most DIY establishments.

    Loeve points out that there are two major aisles that run from left to right across the length of the floor, with the one closest to the front of the store allowing shoppers to inspect DIY tools and hardware. The other, deeper into the store, is for more "considered purchases", according to Loeve. Translated, this means that kitchens, bathrooms, tiles and so forh, all of which will involve thought and expenditure, are set away from the hubbub of the row of checkouts at the front of the store.

    B&Q and Castorama are just at the beginning of a programme that will see a lot of the same merchandise sold across the two stores. This makes sense in terms of economies of scale. One of the first departments to benefit is lighting, a key part of every B&Q store, with both retailers now selling the same items.

    Deeper into the store more changes become apparent when set against a standard B&Q. The tile department, for instance, is all about display as "it is quite hard to imagine what tiles look like when they are laid, without seeing them laid out", states Loeve. This means that the tile area has been increased and multiple boards show the range, but there is no stock on the floor. As soon as a shopper makes a decision to purchase, the order is collated in the stockroom, ready for collection at the end of the visit.

    Images courtesy of POS Insights:/http://www.posinsights.co.uk/}UK-based POS Insights make POS as effective as possible, through design, chosen format and delivery.

    Related:

    HI News 2.10: B&Q reveals new concept store, page 26

    Homebase stores get a reprieve

    Wesfarmers plans to make products cheaper at its newly acquired Homebase stores in the UK and will stop shutting them down.

    As reported earlier, it has also appointed retail veteran Archie Norman to the advisory board for Homebase. Mr Norman is a former chairman of supermarket Asda.

    Wesfarmers said it was looking to keep open 18 Homebase stores previously earmarked for closure - a move that could save between 500 and 700 jobs.

    Former owner, Home Retail Group announced plans in October 2014 to shut down a quarter of the 323 Homebase stores by 2019, reducing the total to around 243 stores. But Wesfarmers is hoping to keep 260 shops open, which will then all be converted to the Bunnings brand.

    Critics, however, are worried that the revamp moves will be tough as the DIY market in the UK is shrinking and rival Kingfisher, owner of B&Q, is also embarking on a turnaround plan. A spokesman for Wesfarmers said:

    New management have successfully reversed the closure of seven Homebase stores, saving approximately 200 jobs. It hopes to prevent the closure of 11 more, saving up to 500 jobs.

    Five Homebase stores have closed so far this year, with around 200 employees losing their jobs.

    Wesfarmers said that any employees affected by store closures had been given priority for job opportunities at other stores within a 30-mile radius.

    Related:

    UK's Homebase to close one in four stores - HNN

    Dobbies Garden Centres sold off

    Edinburgh-based Dobbies has been sold by its owner, supermarket group Tesco. It is the UK's second biggest garden chain behind market leader Wyevale,

    The garden centre retailer is being bought by a group of investors led by Midlothian Capital Partners and Hattington Capital for GBP217million.

    Tesco purchased Dobbies for GBP155million in 2007 when Sir Terry Leahy was chief executive as it looked to branch out beyond food to woo shoppers. Current chief executive Dave Lewis is divesting its non-core assets to focus on reviving its grocery operation.

    Dobbies has 35 stores and employs over 2,700 staff. It contributed GBP17million to Tesco's annual pre-tax profit of GBP162million as the supermarket giant returned to the black following a GBP6.3billion loss the previous year.

    The new owners of Dobbies Garden Centres have vowed to add more stores to the chain and boost the retailer's ecommerce offer, according to industry publication Retail Week.

    retailers

    Retail update

    Is Steinhoff buying Big W?

    India-based retail group looks to The Good Guys and Winning Appliances take on new showroom

    South African retail giant, Steinhoff International, is said to be in talks with Woolworths about acquiring the Big W as well as select Masters sites; The Good Guys could be an acquisition target for an Indian retail group; Winning Appliances will be part of a major apartment development in the Fortitude Valley (QLD); and Canadian e-commerce home improvement retailer Build.com enhances its shipping practices.

    An international suitor for Big W?

    Speculation surrounds South African, German-listed, Steinhoff International is looking to acquire Big W, along with a number of Masters sites for its furniture and home improvement brand POCO.

    According to Inside Retail, the chief executive of Steinhoff International, Markus Jooste, has been in Australia recently to discuss with Woolworths CEO Brad Banducci about a potential purchase.

    Steinhoff may be keen to expand in Australia after outlaying $6.7 billion in 2014 for fellow South African-based retailer Pepkor Holdings, which owns Harris Scarfe and Best & Less. In addition, Pepkor South East Asia has Store & Order and Mozi in Australia, as well as Postie in New Zealand.

    Steinhoff also owns furniture chain Freedom Group, franchised bedding chain Snooze along with POCO, which opened its first store in Australia in 2013.

    Fairfax Media reports the acquisition of BIG W would boost Steinhoff's Australian sales by $4 billion to more than $5.5 billion, making it a serious rival for Wesfarmers' Kmart and Target, which have combined sales of $8 billion.

    Steinhoff had annual sales in Australia of almost $1.4 billion in 2015 - $900 million at Pepkor South East Asia and $460 million at Steinhoff Asia Pacific.

    Steinhoff also recently expressed interest in buying home appliances retailer The Good Guys.

    Inside Retail understands that the Masters Home Improvement component of the deal would see Steinhoff International acquire select Masters sites for the rollout of a large format electrical/white goods/homewares chain. This would put some weight behind recent speculation that Steinhoff intends to proceed with an expansion of its POCO chain.

    Steinhoff International's 477-store footprint in Australasia is just a fraction of its 6500 stores across 30 countries, selling furniture, homewares, electronics, clothing and footwear. It is considered to be one of the largest retail corporations in the world and has annual sales of close to $17 billion, generated from 40 retail brands and a manufacturing and logistics base.

    David Gordon, retail expert and business advisor at LZR Partners, told SmartCompany that its supply chain might mean that some Australian businesses could be overlooked if Steinhoff goes ahead with its POCO expansion. He said:

    They will use their international supply chain, they may not need Australian wholesalers. Also, a lot of Bunning's suppliers would not be wanting to repeat what happened with Masters, they picked their sides and the Masters side was the wrong one.

    Brian Walker, chief executive of the Retail Doctor Group, sees Steinhoff's acquisition of the Masters sites as a sensible alternative strategy to acquiring Big W because the group already understands the local furniture market due to its ownership of Freedom Furniture. He told SmartCompany:

    In the furniture market, the margins are slim and it is ultra competitive. Masters will provide the sites, but as the majority of them are in regional Australia, Steinhoff may struggle to grow the business.

    Related:

    POCO in race for Masters' sites - page 4, HI News Retail update: Private equity exploring The Good Guys - HNN

    The Good Guys attract Indian interest

    Sources have told ChannelNews that an Indian-based retail group are discussions with the owners of The Good Guys. The group who own consumer electronics and appliance stores are believed to have hired former JB Hi-Fi executives to consult on the potential acquisition of the appliance retailer.

    An Australian Competition and Consumer Commission (ACCC) executive also told ChannelNews it had been approached by a consultant representing an Indian retail group. The consultant wanted to know how many submissions had been made to the ACCC concerning the proposed acquisition of The Good Guys by JB Hi-Fi.

    Currently the ACCC is taking submissions from parties with an interim ruling set to be made on August 4.

    Several analysts have said that a merger between JB Hi Fi and The Good Guys is not without its risks.

    Citi Equities analysts recently concluded the merger would deliver significant market share for JB Hi-Fi in an extensive appliance industry report. Currently JB Hi-Fi has around 3% of the overall appliance market compared to 21% for The Good Guys and 29% for Harvey Norman.

    The Good Guys is approximately half the size of JB Hi-Fi in terms of sales and store network, with a highly complementary category mix.

    Citi said that as JB Hi-Fi's store roll out has matured, it has continued to pursue growth opportunities. With its HOME operation proving to be a challenging roll out to date, The Good Guys would deliver 45% to 50% sales and EBIT growth upon completion.

    They expect The Good Guys to generate FY17 sales per sqm of $9,400, approximately half that of JB Hi-Fi ($18,900 per sqm) and in line with the broader appliances category ($8,000 - $12,000).

    Most of this differential is explained by category mix, with appliances much less productive than consumer electronics products. Citi analysts said:

    Despite lower sales per sqm, appliances are an attractive category, with stable pricing and demand while also delivering higher gross margins.

    They added that JB Hi-Fi's expansion into appliances is logical and necessary in order to sustain growth.

    Winning Appliances part of FV apartments

    Kitchen and laundry appliance specialists, Winning Appliances has acquired the entire ground floor retail space of the FV development in Fortitude Valley (QLD). It will move into 1770sqm of the residential tower in the $600 million development that is under construction and scheduled to be completed by the middle of next year.

    Industry sources said the retail showroom deal was valued at between $11 million and $13 million.

    A fourth-generation family business, Winning Appliances will move from its existing showroom facility at 209 Brunswick Street and move to the three-tower project. That building will soon be demolished to make way for the third stage of the FV development, due to start construction later this year.

    Winning Appliances will also supply the whitegoods packages into all 651 apartments in the first two towers, Flatiron and Valley House.

    Winning Appliances chief executive David Woollcott said the showroom would be on par with its flagship Redfern showroom in Sydney. He told the Courier Mail:

    We pride ourselves on offering our customers the world's most iconic appliance brands and there's no doubt that the FV building will become an iconic Brisbane building.

    The Elenberg Fraser custom-designed retail space will span two levels. Real estate developer GURNER is behind the project.

    BuildDirect improves shipping

    Without a store base to support any fulfillment, Canadian pure-play, home improvement retailer Build.com lives and dies by efficient product shipping. Further complicating the retailer's efforts to provide quality shipping while maintaining reasonable internal costs is the nature of its product assortment. Marshall Downey, director of direct marketing at Build.com told Chain Store Age:

    We knew for some time there was a huge opportunity for more intelligent determination of customer shipping. A lot of our items are big enough to qualify for free shipping - like tubs and showers.

    In 2015, Build.com decided it wanted to implement an enterprise solution that would manage the end-to-end customer delivery experience in a way that would guarantee customer satisfaction while controlling costs. The online retailer performed an initial pilot implementation of the Convey enterprise SaaS (Software as a Service) customer delivery platform.

    Convey connects carriers to retailers, enabling drop shipments to the consumer. The solution takes product tracking data from retailers and transforms it into shipping APIs (application programming interfaces). Mr Downey explains:

    We sent data to Convey regarding our current shipping choices. They suggested alternate services with cost savings numbers generated specifically for us.

    During a 90-day trial period, Build.com piloted five carriers on the Convey platform. Downey said:

    Convey typically halved our price forecasts and saved 15%-20% per freight. It takes the human element out of deciding what regional companies to use for drop shipments.

    In addition, Convey removes the human element out of decisions made remotely at drop shipment centres. He said:

    Warehouse personnel decided how to ship our products. We had routing guides listing our specs, but they have lots of guides from other companies and may not read ours.

    Now personnel at drop shipment centres are directly informed how to ship Build.com orders, resulting in fewer damaged packages.

    Looking ahead, Build.com plans to use Convey functionality to allow customers to obtain digital updates of the status of orders. Downey said:

    Currently, we can only tell customers when an order is paid or delivered. We can't give updates on physical status. It's not a great brand experience. We will give updates via email or SMS.

    Related:

    The "Amazon" of home improvement - HNN BuildDirect battles Lowe's and Home Depot - HNN
    retailers

    Mitre 10 FY2015-16 results

    On the plus side of average

    Good EBIT numbers, but slow growth in overall sales

    Australian retail wholesaler Metcash has reported its results for its latest financial year (FY), from 1 May 2015 to 30 April 2016. Unusually, while the company has provided presentation slides for a financial analyst briefing, there appears to have been no such briefing as yet, so this report is based on the preliminary results and those slides. Should an actual presentation come to light, HNN will provide a supplemental report.

    For its overall operations, the company has provided results that would be described as poor for most wholesale sectors, but for the grocery sector, which makes up the bulk of Metcash's revenue, the result might best be described as average and acceptable.

    Totals sales for FY 2016 were AUD13,541.3 million, up from AUD 13,369.8 million in the previous corresponding period (pcp), which was FY 2015, a gain of 1.28%. Underlying profit before tax was AUD248.4 million up by 2.56% on the pcp. Earnings before interest and tax (EBIT) in FY2016 were AUD275.4, down 7.37% on the pcp.

    The decline in EBIT reflects increased costs of sales. As Metcash stated in its comments:

    There was continued improvement in both the Liquor and Hardware Pillars, that was more than offset by the decline in Food & Grocery, reflecting the planned investment in price by the Supermarkets business and a deterioration in the performance of the Convenience business.

    The underlying profit numbers benefitted from a decrease in finance costs, which were AUD27.0 million for FY2016, and AUD55.1 million for FY2015. The sale of the automotive assets netted the company AUD242.1 million before tax. Further asset sales provided another AUD57.3 million. This enabled the company to decrease its leveraging.

    The overall profit for FY2016 was AUD216.5 million. The profit for FY2015 was a loss of AUD384.2 million, due to a substantial write-down.

    The only other number that seems particularly significant for Metcash as a whole was an increase in salaries and wages, which reached AUD480.1 million for FY2016, up from AUD453.1 million in FY2015, an increase of 6.0%.

    >http://hnn.bz/metcash-fy2016-results.png}Metcash results for FY2016}http://hnn.bz/metcash-fy2016-results.png

    Metcash announced that it plans to recommence paying half-yearly dividends as of the end of the 2017 financial year.

    Mitre 10

    Mitre 10 managed to produce quite good results. Sales revenue for FY2016 was AUD1056.6 million, up by 0.78% on the pcp. EBIT was AUD32.8 million up 8.97% on the pcp. Growth in like-for-like store revenues was reported as 2.5%.

    >http://hnn.bz/mitre10-fy2016-results.png}Results for Mitre 10 FY2016}http://hnn.bz/mitre10-fy2016-results.png

    As the background growth in retail sales for hardware grew by 7.9% between Metcash's FY2015 and FY2016, the result would tend to indicate that overall Mitre 10 has lost some market share during this past year.

    FY2016 began with 327 stores signed up to Mitre 10. A further 10 stores joined during the year, while 28 chose to leave, so that the year ended with 378 stores attached to the banner. True Value Hardware stores changed little, going from 69 to 68.

    The company intends to intensify its efforts to cut costs, with an end target of taking AUD100 million out of the business, and an interim target for FY2017 of removing over AUD20 million in costs. The goal is to then use these cost saving to fund further expansion in the business itself.

    Marketing

    A new twist in Mitre 10 marketing which shows up in its financial reports is the phrase "Best Store in Town". It is not possible to tell if this is a marketing phrase used to attract potential members to the banner, or if this is destined to replace the retailers' current marketing phrase "Might Helpful Mitre 10".

    Joint ventures

    Appendix B to the financial statements note that Metcash acquired a controlling interest in two hardware retailers during FY2016, Northern Hardware Group and Timberten Pty Ltd. The company now owns 84.7% of Northern Hardware Group, and 100% of Timberten.

    Note 8 to the Metcash financial statements shows that the company no longer has a joint venture with hardware retailer BRJ Pty Ltd. It previously held a 36% share.

    The 2015 financial statements noted Metcash had entered into joint ventures with G Gay Hardware Pty Ltd, and Woody's Timber & Hardware Pty Ltd. These joint ventures (JVs) continue, along with JVs with Waltock Pty Limited and Banner 10 Pty Ltd.

    Analysis

    In terms of Mitre 10 itself, one imagines that the managing director of Metcash, Ian Morrice, must be very pleased with the Mitre 10 CEO Mark Laidlaw and his team. They have managed to deliver just what Metcash, as it faces troubled times in its IGA business, needs: contained costs and a good EBIT result.

    What is less clear is whether this particular role is really what is best for Mitre 10 as a company, and for the members who have signed up to the banner. HNN has noted that marketing efforts seem often to be well-designed, but ultimately so constrained by cost control that they are not as effective as they could be.

    Speculation continues about whether Mitre 10 will be combined with HTH Group stores, either within Metcash, or in an external company, the latter move possibly funded by one or more groups of private capital investors. This result may very well help to encourage those moves, as it is a clear indication of a business that has more potential than is being made use of by its current owner.

    Masters exit

    The exit of Masters from retailing is likely to have some negative effects on sales for Mitre 10 during the first half of its FY2017. Masters would seem to be in the second stage of what will most likely be a four-stage discount sell-out. We can expect further, deeper discounts, likely in around mid-August 2016, followed by very steep discounts probably some time in October 2016.

    During the second half of its FY2017, however, there should be some sales positives, as consumers seek out an alternative to Masters stores. It will be interesting to see if Mitre 10 is able to ramp up its marketing during this period, and so help its member stores grow their sales.

    Related

    Metcash-Mitre 10 H1 results - HNN Metcash full year 2014-15 results - HNN
    retailers

    Retail update

    IKEA Australia bets on digital

    Kogan is preparing for an IPO and warnings of an upcoming millennial "tsunami"

    A number of online stores will be developed by IKEA Australia; Kogan is part of the latest retail revolution; and The Good Guys CEO refers to a millennial "tsunami" for retailers.

    IKEA's online initiative

    IKEA Australia revealed it would start testing an online store by the end of calendar 2016. Fairfax Media reports it will start trialling different fulfilment models in several urban locations.

    IKEA has been trying out small-format stores as click-and-collect points in Spain, Germany and the UK for more than a year now. It appears the rollout of the Aussie online operations will take a similar format to what has been tested in Europe over the past 12 months, according to Power Retail.

    Country manager David Hood believes the online store could eventually be the company's bricks and mortar operations, where sales will rise around 20% this year, passing the $1 billion mark for the first time. He said:

    Over the next few years, we want to create more opportunities for IKEA customers to access the brand in different ways and in new locations.

    In the UK, IKEA's online store has become the largest outlet in the country, without cannibalising sales from existing stores.

    Mr Hood expects similar results in Australia, citing latent demand from consumers who now drive two or three hours to shop at a bricks and mortar store. Australians travel further to visit an IKEA store and are therefore more willing to spend more time and money when they do.

    The new Canberra store, for example, is attracting shoppers from the NSW South Coast, Albury and Wagga. He told Fairfax Media:

    It's a huge growth engine in the UK but it's not taking away from stores.

    IKEA is also opening another five large-format stores as well as between six and eight smaller-format stores and online pick-up points in Australia.

    The small format stores will be around 3000sqm - around one-tenth the size of flagship stores such as Tempe in inner Sydney - and will enable shoppers to browse a limited range of products. But they will also be able to order online from its full range of 9000 products or pick up previous online orders.

    Crucial to IKEA's online ambitions in Australia is a $155 million 70,000sqm multi-function distribution and logistics centre currently under construction at Marsden Park in Sydney's west and due for completion around March or April next year.

    The solar-powered distribution centre, which uses high-bay storage technology with robotic pallet storage and retrieval cranes, has capacity for 100,000 pallets and will enable IKEA to increase the number of products stocked in Australia from 1300 to almost 9000, cutting the time it takes to ship orders to stores, pick up points or directly to online shoppers.

    The new distribution centre will replace the company's existing distribution centre at Moorebank.

    IKEA's online store in Australia will come ahead of a planned global site within the next two years.

    IKEA currently sells online in 13 of the 28 countries in which it operates and generated only EUR1 billion ($A1.5 billion) in online sales last year, 3% of global sales.

    Results

    Same-store sales at IKEA Australia have risen about 8 or 9% this fiscal year - with Melbourne and Brisbane out-pacing Sydney - and topline sales have been boosted by the opening last November of a new store in Canberra, which is trading 20% above expectations.

    There are eight IKEA stores in Australia, including one owned by a franchisee, and a ninth is set to open in North Lakes, north of Brisbane, by the end of 2016. The North Lakes store will be Queensland's second IKEA, adding to the existing location at Logan, south of Brisbane.

    Mr Hood expects sales on the east coast of Australia to reach $1.8 billion or $1.9 billion by 2020 as IKEA opens its new stores and online pick-up points. He said:

    I do believe that sort of figure is more than achievable, especially now we see the online possibilities coming.

    Last year, the retailer celebrated 40 years in Australia. Mr Hood told News Corp. the eventual plan is to make sure there's an IKEA location within an hour's drive of 85% of the eastern seaboard.

    Related:

    IKEA picks up online offering in Australia - HNN IKEA CEO admits online tardiness - HNN

    Kogan going public

    Online retailer Kogan hopes to raise $50 million through its initial public offering, which it priced at $1.80 a share.

    It is known primarily for selling consumer electronics but has a range of hardware and equipment products on the Kogan.com site. It also has a brand of private label tools under the Certa label.

    Kogan, which will have a market capitalisation of $168 million when it starts trading, is challenging existing brick-and-mortar retailers such as JB Hifi and Harvey Norman with its low-cost, online-only business model.

    How it started

    Ruslan Kogan founded Kogan.com in 2006 in his parents' garage, selling private-label televisions sourced directly from Chinese factories and smartphones and tablets sourced from grey markets.

    In recent years it has expanded into general merchandise and services such as mobile and travel.

    The company now claims to be the largest pure-play online retailer in Australia, with 52 million visitors to its website a year, 621,300 unique customers and 3.6 million active subscribers.

    What the prospectus says

    According to the prospectus, Kogan.com expects annual revenues to grow 20% to $241 million in 2017. Earnings before interest, taxes, depreciation and amortisation (EBITDA) is forecast to jump 138% to $6.9 million in 2017 and net profits are expected to rise six-fold to $2.5 million.

    Kogan expects revenue to reach revenue of $201.1 million for FY 2016 from $200.3 million in FY 2015. This represents an increase of only $800,000. But Kogan forecasted revenue for FY 2017 to hit $241.2 million even without its Dick Smith acquisition. This would be an increase of $41.1 million, or close to 20%.

    Its FY 2016 forecast for EBITDA is $2.9 million, up from $1.6 million in FY 2015. (The figures exclude Dick Smith sales.)

    It also reported a net loss after tax of $100,000 in FY 2015, which is forecast to balloon to $2.9 million in FY 2016, ahead of its expected ($2.5 million) profit in FY 2017.

    While past earnings look patchy, Mr Kogan and chief operating officer and chief financial officer David Shafer said the company had been EBITDA positive since day one and blamed last year's loss on problems implementing a new enterprise resource management system. Mr Shafer told Fairfax Media:

    It didn't go seamlessly but we're now in a very good place and now, as part of this IPO, we have the capital to fund our growth plans, which are meticulously thought out.

    The company has never had any external equity funding up until now.

    Buying Dick Smith

    Kogan's prospectus also reveals that the company paid $2.6 million to acquire assets of failed retailer Dick Smith including brands, online website and customer database.

    It estimates that the Dick Smith business will add about $95 million a year to its sales tally. Kogan also gained 1.3 million active subscribers through the acquisition that weren't already in its customer database.

    The prospectus outlines synergies such as cross-marketing between Kogan and Dick Smith email databases, extracting sourcing and operating efficiencies.

    Kogan reopened Dick Smith as an online-only business just two months after the acquisition.

    Where will the money go?

    A majority of the funds raised will be used to fund growth and pursue new verticals like it has with its telecommunications business Kogan Mobile and holiday booking business Kogan Travel. It will also look to expand into higher margin product categories such as private label and third-party branded products.

    The company will be operating in a local online retail market that has grown rapidly, but remains under-served compared to other developed economies. Fairfax Media reports that Euromonitor estimates the value of this market at $17 billion in 2015, and is forecast to grow at an annual 11.5% to 2019 helped by a shift in consumer preferences, technological innovation, increasing internet usage and faster download speeds.

    Kogan's initial offer will not be open to the general public. The newly issued shares will be offered to institutional investors, brokerage firms and nominated investors, as well as eligible Kogan employees.

    Related:

    Bunnings' share of small electrical - HNN

    Preparing for millennials

    Michael Ford, chief executive of appliance chain The Good Guys, said retailers were facing a millennial "tsunami", with the digitally savvy generation expected to account for 30% of discretionary spending by 2020. Mr Ford told an Australia Israel Chamber of Commerce retail forum in Sydney recently: "We need to know how to deal with them".

    Digital technology and data analytics would force retailers to rethink not only what they stocked in bricks and mortar stores and online but how they marketed to, and communicated with customers, and measured productivity. He said:

    Retail has been a pretty sleepy old industry for the last 150 years and it's really now at the technology forefront of change.
    Today most retailers recognise productivity growth on sales per square metre and like-for-like sales - technology will enable retailers to measure customers on like-for-like growth. That's probably one of the most significant changes retailers are going to see.
    Measurements will move away from the box that you operate out of and your labour productivity to your share of wallet from an individual customer and what they generate on a year-on-year basis.

    "Big data" would also shake up customer relationship management (CRM), described by Mr Ford as "the most overspent, over-talked about and often over-capitalised initiative in retail", and clarify the debate between traditional marketing such as catalogues and television and digital marketing. He said:

    Actuating what you derive from big data is going to make your CRM program much more effective. That's going to be critical to growth.

    For example, The Good Guys uses two data insights teams: one that mines point of sale receipts to see what categories and products are selling well and another that analyses how customers shop in its stores and those of other retailers. Mr Ford said:

    Through these data insights ... instead of using all those seasoned cliches of satisfying the needs of the customer they're actually going to be anticipating them - that in itself will be the most influential element of how they spend their marketing dollars.

    He also acknowledged the threat from Amazon, which is preparing to enter the Australian retail sector, but said local retailers had a "home team" advantage. He said:

    Amazon is coming like a tsunami but it has ... struggled in Canada because of the tyranny of distance and Australia is a similar sized country and logistics are challenging in this market.

    At the same forum, Myer chief executive Richard Umbers said:

    Amazon is fascinating and we can all learn from what they do but in our world it's actually domestic bricks and mortar retailers getting online that are getting the biggest growth rates in Australia right now.
    That's because of the home team advantages of established customer connections, your existing supply chain and supplier relationships and your ability to be able to return products in your local market. I don't think domestic bricks and mortar retail is down and out yet.
    retailers

    Indie store update

    A HTH and Mitre 10 merger maintains appeal

    A number of major HTH stores may go their own way and Simon Home makes forward-thinking investment

    Metchash is still keen on Home Timber & Hardware; top HTH retailers may be forming a break-away buying group; Simon Home invests in machinery; and a brief profile of Alan Olsen from Olsens Home Timber and Hardware.

    HTH, Mitre 10 merger still "compelling"

    Speaking to the Financial Review, Metcash chief executive Ian Morrice confirmed that it was still interested in buying Home Timber & Hardware (HTH) from Woolworths amid growing speculation it might be forced to withdraw from the auction due to regulatory concerns and unease among independent retailers. He said:

    Woolworths has declared it's a committed seller, we've declared we're an interested party and we have made a submission to the Australian Competition and Consumer Commission (ACCC). Our position is that independent retailers are under enormous pressure in the hardware sector and have been through a lot of footprint growth from the chain stores in recent years.
    We believe it can strengthen the competitive position of independents to have more buying scale and have one unified buying group. We believe that's