The do-it-yourself (DIY) sector of the home improvement/hardware market will become a critical one during 2017 and 2018.
Two linked events - the exit of Masters from home improvement retail, and the sale of Home Timber and Hardware Group (HTH) - details of which should be finalised by 24 August 2016 - will see the home improvement industry change sharply during 2017. So defining will these changes be, that they will take until the third calendar quarter of 2017 to sort out.
The Masters effect
In terms of strategy, the biggest single change we are likely to see is a harder push by many current Mitre 10 and HTH stores into the DIY market - along with, potentially, a new competitor which might acquire some of the Masters store fleet.
Two forces will drive that push. The major strategic push is, simply, opportunity. While Masters did fail, it also dragged in around $1 billion in sales a year, and much of that (estimated at 75%) was DIY consumer. Even if a competitor emerges to replace Masters, that expenditure is still going to be "in play", providing a unique market opportunity for other retailers to grow their market share in the industry's most high-margin, profitable sector.
The second, compound reason relates to competing with Bunnings. Bunnings today seems unbeatable, but it will become even more so if it manages to capture an additional $500 million in consumer spending from ex-Masters customers.
Bunnings is well-positioned to do that, not just in market terms (as the only competing big-box), but also geographically. Many Masters stores are located close to Bunnings, and Bunnings is itself seeking to take over some ex-Masters locations. Customers could drive up to "their" Masters store, find it closed (or even converted to a Bunnings) and probably find a Bunnings less than a kilometre away.
The retreat from DIY
Beyond that, HTH and Mitre 10 stores as a whole simply need to take back some of the DIY market if they are to fully secure their future. Historically, from 2005 to 2008 the then powerhouse in the DIY market, Mitre 10, essentially surrendered much of its DIY market to Bunnings. This was formalised when, as a failing company, Mitre 10 was acquired by Metcash. Metcash immediately established that it would concentrate on trade sales rather than DIY.
That was certainly the right decision at the time. While there is still something uncertain about the modern Mitre 10's market position, there is no doubt that, particularly under the stewardship of CEO Mark Laidlaw and his team, Mitre 10 has been steadily improving its situation. Focusing on trade sales as a strong base to its ongoing growth has been a good tactic.
However today, seven or eight years later, the situation has changed. While the building, construction and renovation markets will no doubt remain active enough to ensure that trade sales continue to be healthy, the most obvious area for real growth (in the sense of expanding into under-serviced markets) will be DIY.
If Metcash acquires HTH, it is likely it will seek to spin out its hardware operations in an Australian Stock Exchange listing within two to three years. If Anchorage Capital Partners acquires HTH, it will also seek to eventually list those operations on the ASX -- though it is likely to take at least four years to turn it around. In either case, to produce good results, it is necessary to grow the business. The only really available avenue for that is in DIY sales. This growth is likely to be concentrated in inner-urban areas, where HTH is under-represented, and where less-skilled DIYers are over-represented.
Additionally, every trade-based hardware business should be aware that Bunnings is likely to start putting pressure on trade sales in 2018.
One of the "thought experiments" Bunnings CEO John Gillam has mentioned several times at analysts' briefings is that he can see Bunnings supplying every toilet in the building where those briefings are held. As Mr Gillam has said: "Why not?".
Those "why nots" have turned out to be the forerunner of strong market moves in the past. The effect on overall trade sales of Bunnings moving to displace Reece in the plumbing market, as an example, could be very strong.
Just to add additional motivation to that, there is also the fact that the new Bunnings Australia managing director, Michael Schneider, will want to demonstrate the retailer's Australian business is in good hands. He will be doing that in a market where standard renovation spending is expected to contract over 2017 and 2018 (according to the Housing Industry Association, and other sources). Mr Schneider is an intelligent, driven man, and has a reputation as a very strong negotiator. Given all that, it is unlikely he will pass up many opportunities for growth.
Following the basic principle of how you win asymmetric competitions - never try to directly match what the major competitor does - the best strategy to limit expansion by Bunnings will be to focus on DIY sales.
What's so hard about DIY?
When it comes to analysing why Mitre 10 and other independents have not done well in the DIY market, most retailers lay the blame on two factors: the lower prices on some major DIY items at Bunnings, and the fact that DIY customers don't appreciate reliable, knowledgeable customer service - the area where independents seem themselves as excelling - the way that trade customers do.
There is some validity to both these claims. Some DIYers are real price "mavens", who are determined to spend as little as possible on certain purchases. Others either feel a bit embarrassed by their lack of knowledge, and still others have difficulty explaining to anyone what they want to do. This makes the attention provided by independents difficult to use well. Inexperienced DIYers often prefer to prowl the aisles of Bunnings until they come across the products they need, or, by trial and error, to solve their problems themselves.
However, when you speak to many individual DIY customers, across the spectrum, often what emerges as the major reason they prefer to shop at Bunnings (or even, in some cases, to simply not shop at all) is that the service they do receive is not really appropriate to their needs. It's not bad service, it's not unfriendly service, but it doesn't answer to the requirements they really need to solve in their DIY tasks.
Adjusting to DIY
The main reason behind this is a very simple one: DIY hardware retailers in Australia (including, even, Bunnings with its success in this area) tend to view DIY home improvement as being a kind of "subset" of trade hardware. Frequently, the attitude is that the way tradies do things is the "correct" way, and that DIYers should be trying to emulate this.
That might not be the best attitude. To explain why this is the case, it's helpful to look at quite a different industry, but one where there is also a mixture of professionals and amateurs doing the same things.
If you pick up a recipe book written by a well-known chef, such as Gordon Ramsay, you will find any number of elaborate and delicate recipes. Many of these will take one or two hours to prepare.
Go to a restaurant run by the same chef, however, and you will not see a single one of those dishes on the menu. Why? Because that is not what restaurant food is all about. The ideal restaurant dish has three elements: exotic/special ingredients, the need for excellent technique -- and very quick preparation. The average amount of actual attention required in preparing a restaurant dish is about five minutes (though the total cooking time might be longer).
In the home improvement world, tradies are like restaurant chefs, while over 60% of DIYers are like home cooks. Like chefs, the tradie is looking for solutions that provide results that are a little special, that require solid technique, and that are very quick. Time is money. Tradies save time by using their skill, experience and training.
For inexperienced DIYers, time is not so important. A short list of their priorities would look something like this:Is it safe? Can I harm myself or others?If I make a mistake, how bad are the consequences? Can I fix it later?Is it within my capabilities?Will the result "pass inspection" (from friends, family, a partner)?Does it take longer than a long weekend to finish?
With this in mind, let's consider a simple, but very revealing question: What is the single most successful DIY product/tool of all time?
To even start to answer it, we have to work out what that question actually means. Successful in terms of all-time sales? Current popularity? As something that transformed the industry? The best designed? The most used? The most liked? The toughest? The most powerful? The most reliable? Best value?
It's a tough question. Though one person HNN poised this question to had an almost immediate answer. A relatively experienced DIYer who is married to a partner known for having somewhat high standards, he sighed heavily, shrugged his shoulders, and said "The excuse".
So, that makes it a little easier to define what we mean by the most successful DIY product/tool of all time.
It's something that is even better than the excuse.
A hard call that -- but HNN does believe there is actually a contender. It's a product that is known to sometimes cause marital stress, but has healed more rifts with partners than chocolate fudge brownies and backrubs combined. In the hands of a skilled master, it can produce amazing results, but even the most duff of DIYers can pull off results -- with time, effort and care -- that are passable, and worth the expense and time.
More than any other product, it makes a house, a flat, an apartment a home, something "owned" in a sense which is way beyond a mortgage, a title deed or lease contract.
The answer (which is obvious when you really think about it) is paint.
Everyone who has ever done any kind of DIY has done some kind of painting. It might be a bookcase, a single bedroom, a kitchen, a bathroom, on up to an entire house, inside and outside. What's remarkable about this is that painting is far from an easy task. It's messy, it takes specialised equipment which can't be used for anything else. It's not dangerous (except, possibly, when it comes to ladders), but it takes a big commitment of time, and it can be, frankly, pretty tedious.
The accessibility of paint is shown in the numbers for the Australian industry. IBISWorld estimates that Australian decorative and specialty paint manufacture is a $2 billion market, with 304 companies participating, which employ 4,150 people. That's excluding, mind you, imported paint.
The most surprising thing, however, is that this industry, in terms of both revenue and profit, is heavily geared towards the DIY market. Sales to trade are important, but that is responsible for only 30% of net profit.
What makes paint different?
How did paint get to be so successful in DIY? One of the first and most obvious things to note is that paint companies, over at least the past 20 years, have worked hard to develop two different categories of paint. One is aimed at the trades and one is aimed directly at the DIY market.
Trade paint tries to achieve three main goals, which are, in order of their importance: good value for money, superior finish, and medium-term durability.
The goals for DIY paint are quite different. The main goals, which share equal importance, are: ease of application, guaranteed results, and long-term durability.
It's clear why there are such differences in these goals. For tradies who have either served an apprenticeship as a painter, or had quite a bit of experience at painting, paying for paint that is easier to apply just doesn't make sense. They would prefer to pay less, and to rely on their own hard-won skills to make sure the end result measures up. The end finish has to be good, to suit the expectations of customers, and it had better last for several years at least, but the rest isn't all that important.
For DIYers, however, the most important thing is getting the job done so that it is at least adequate. With limited painting experience, and probably a gap of two or three years since the last time they painted anything, they can rely on only the most basic skills.
Beyond just getting the paint to stick to the walls and ceiling, their major fear is that somehow when the paint dries it's not going to look good. They need a paint that is going to be as forgiving as possible.
Finally, so difficult is the painting experience, that they need something that is going to last as long as possible. For that alone, they are willing to pay a great deal.
What's interesting about all these aspects of DIY paint is that they have very little to do with the actual retailer. Most DIYers who buy paint arrive at the store pre-disposed, possessing a range of prejudices and judgements. They usually have one or two main preferences in paints, and they will make a choice between them based on perceived quality, and price versus performance.
Those choices will be based mainly on two factors: past experience, and the narrative that has been supplied to them via advertising. The retailer's role is to tint the paint to their preference, to advise - perhaps - on undercoats, but that's about it.
Why only paint?
Let's contrast that situation with the one that is currently present in - to pick a clear category - power tools. Most retailers do make some attempt to split out what they think of as DIY tools from trade tools. However, this is largely done on the basis of quality, durability and price. DIY tools are, for the most part, cheaper, less durable, and less well-designed.
This isn't entirely pointless. It's true that the average DIYer is not going to get full value out of a $350 18-volt Makita impact driver. That's a tool designed to last a professional a good five years or more, no matter how constantly it is used on tough jobs. So the thoughtful and considerate home improvement retailer will direct customers to the "consumer brands", such as Bosch Green, or Black & Decker, and, at Bunnings, Ryobi or Ozito.
Yet, does this really make sense? The paint experience indicates not that DIYers are interested in paying as little as possible for everything, but rather that they are willing to pay a great deal more for products which answer their major problem - which is, typically, that they are not confident in their skills (often with good reason).
To use a concrete example where the "cheaper is better for the DIYer" principle has been shown to not work all that well, let's take the single most common tool out there, the cordless power drill/screwdriver.
The Sweet Home is a US-based website which is regarded as being one of the best "home gadget" sites on the internet. Every year, they review a large number of drills, and select the one which they think will meet the needs of homeowners the very best. In 2016 the reviewers selected six test drills and used these to drive 1,669 three-inch screws and bore 345 one-inch holes in testing to find the best of the bunch.
The winner? It was the Bosch Blue PS31-2A 12-Volt Max Drill/Driver. While that specific model is not sold in Australia, it seems very close in specification to the Bosch Blue Bosch GSR 10.8-2-LI 10.8V (though that drill has a hex chuck). It's a standard drill/driver, but does provide a maximum 30 newton-metres (nm) of torque, up from the more standard 20nm.
Wait a minute - a Bosch Blue "professional" tool, in 12-volt no less, recommended for the average DIY home owner?
It's not just The Sweet Home, either offering this kind of advice. UK newspaper The Independent recommended the Einhell TE-CD 12 Li drill, similar in specifications to the Bosch, but with on 25 nm of torque, as its ideal drill for DIYers who use a drill more than once a month.
That said, this does go against much of the advice that is common in Australia and overseas. Most home improvement retail staff would, without hesitation, probably recommend an 18-volt hammerdrill as being the best all-round drill for home use, probably in one of the cheaper, "DIY" brands.
Typical of this line of thinking is the recommendation made by US online magazine Popular Mechanics, which suggests the Ryobi 18-volt P203 was the ideal drill for DIYers. Business Insider, similarly, doesn't even consider 12-volt in its selection of the top drills available. It's an attitude common from both specialist and non-specialist sources.
The other way
Why does the Bosch 12-volt drill make sense for the 60% of inexperienced DIYers? One main reason has to do with storage. If the drill is used, say, about once a fortnight, and it is kept in the garage or the garden shed, the Rule of Family Storage Drift means it will, at some stage, get lost for a period of time.
A smaller drill, with a single battery, can be kept in a closet or a kitchen drawer, ready to be used instantly. To use another external analogy, it's a bit like cameras. What camera do you use most of the time? You might have a really fancy DSLR, but it's likely most of your photographs get taken with your smartphone. Availability is incredibly important.
What can be learned from paint?
If we go back to the paint example, we can see that what helped make paint so successful has been understanding that DIY and trade users have different priorities and needs. What happens when we apply that same kind of thinking to drills?
Where the tradie is looking for a reliable workhorse, DIYers may be buying their first drill, or even more commonly, their first cordless drill. For them this isn't about a tool that is highly performant, but rather one that will help them to do things they haven't done before.
That's really the key. Without a drill, hanging a picture would come down to guessing where a wall stud was and banging in a nail. Putting up shelves, even simple "floating" shelves, would be impossible. Given the poor level of DIY skills many DIYers have, even screwing in screws can seem a very daunting task with a regular screwdriver, but become easy with a basic drill.
What do DIYers want in a drill? It needs to to powerful enough to get these simple jobs done, but it also needs to be easy to use, lightweight, and comfortable in smaller hands. And, as we mentioned above, something that an be stored near at hand.
Then there is IKEA. For many drill users, the drill becomes the ideal way to take much of the hassle out of assembling IKEA furniture. Fitted with the right hex bit, it flies through assembly processes that otherwise take endless, annoying turning and turning with an Allen key.
For the low-end DIYer, then, power tools really represent an extension of their capabilities. It's not about doing familiar things better and faster, it's about being able to do things they could only dream of doing previously.
Several tool manufacturers really understand the needs of the DIY market. In particular the Worx brand produced by the China-based Positec has long designed unique and interesting tools that make use of this understanding of DIYers.
Take, for example, the Worx WorxSaw. This is a small, one-handed circular saw that makes use (in the smallest, 400-Watt model) of a 85mm diameter saw blade. There are tradie versions of this saw made as well, under Positec's Rockwell brand. For a tradie, this is the kind of saw that would be used in awkward situations, where reaching up a vertical wall to make cuts might be required, or for working in confined spaces such as low attics or the crawlspace under houses.
For the DIYer, however, this is a very different kind of package. What it really does is to provide access to the power and convenience of a full-scale circular saw, in a much smaller package, that is both easier to use, and much safer. Bear in mind that for many DIYers the simple act of using a handsaw to cut through 100mm x 19mm pine board can be really difficult. Handsaws require a surprising amount of skill and experience to use successfully in producing a square cut.
Even the DIYer's favourite cutting tool, the jigsaw, is actually quite difficult to use when it comes to producing a square cut. It requires much less effort than a handsaw, but given it's actually designed for cutting curves and curlicues, it can be difficult for the inexperienced to keep in a consistent, straight line.
The WorxSaw, for the inexperienced DIYer, transforms the task of a straight cut from several minutes, and likely a few failed attempts, to 20 seconds and almost guaranteed success.
The safety aspect is particularly critical with this tool. Many DIYers really do understand they are not safe with tools. Looking at the jagged blades of a serious circular saw, they can easily imagine what will happen if they miscalculate. The WorxSaw is still a dangerous tool, but it takes a lot more inattention to get into trouble with it.
Beyond this kind of safety and convenience, the other feature DIYers will look for in a tool is versatility. Tools that can be used for more than one function have a high appeal value -- even if those tools actually are a little average at both tasks. Take, for example, the Worx Trans4mer pivoting jigsaw tool. This is a lightweight, 12-volt cordless jigsaw-like tool where the cutting head pivots through 90 degrees. In one position it works something like a traditional jigsaw, and in the other position it works more like a very lightweight reciprocating saw.
It's a good tool for lightweight craft work, as it's very easy to handle. It's not all that good at heavier cutting as it lacks the pendulum action which can help better jigsaws cut faster. In the non-jigsaw configuration, however, it can be used for a wide range of functions. It makes cutting through plastic pipe and dowel rods much easier, and even works quite well as a simple pruner for fruit trees and other smaller plants.
Looking beyond Worx, even more mainline tool manufacturers understand the kind of tools many DIYers are really looking for. For example, Techtronic Industries (TTI) received high praise for its Ridgid brand Stealth Force Brushless 18V 3-Speed Pulse Driver, which it advertises as having twice the power and half the noise of comparable impact drivers. This tool uses a variation in pressure through a sealed, oil-based hydraulic chamber to create impact "pulses", rather than the usually spring-driven high impact anvil system used on most impact drivers. It is both quieter and faster than the mechanical systems.
In bringing this tool technology to its Ryobi consumer brand, TTI has taken a very different tact. It has released the Ryobi QuietStrike, which uses oil-pulse technology tuned for producing a low-level of noise, and around the same performance as a standard impact driver. This is an excellent consumer insight. Standard impact drivers are exceptionally noisy. Working through a Saturday afternoon on installing a deck with a standard impact driver can pretty much wreck that part of the weekend for all the neighbours. HNN believes this tool will be so attractive to many homeowner DIYers, that it will be deciding factor that causes them to adopt the entire Ryobi tool system.
Another tool that fits into this category is the EasyCut 12 with NanoBlade technology developed by Bosch, and set for release in Europe in early 2017. This replaces jigsaws and sabre saws both in the workshop and in the garden (for pruning) with a tool that uses a 4mm wide chainsaw-like blade for cutting. This reduces vibration, makes plunge cuts easy to achieve, and provides a broad, 65mm surface for making cuts.
While so far we've looked only at how tailoring offers directly for DIYers could work well for a few power-tools. It applies much more generally than this. Nail-guns are a good example. While these are often thought of as being "professional" tools, there is a reason why consumer brands such as Ryobi have released their own, lightweight version of nail-guns: hammering in nails is actually very difficult for low-end DIYers. It's physically tough, requires a surprising amount of skill, and frequently results in persistent low-level injuries. Where for the tradie a nail-gun is a lifesaver when it comes to getting certain jobs done quickly, for the DIYer it's often the difference between an agonising, difficult afternoon, and a chore that is actually manageable.
Laser levels are another classic area where this kind of thinking applies. For tradies and experienced DIYers, the task of, say, mounting a shelf on a wall and getting it to be level by using the classic bubble-level doesn't seem all that difficult. For a beginning DIYer, however, it can easily turn into a complex and bewildering task. The result will often be a shelf that isn't level, which means disassembling everything, potentially making a bad patch to the wall paint, and putting it all up again -- and possibly making the same errors once more. Comparing that with spending $90 on a simple laser level makes the purchase seem much more reasonable.
The CEO of US-based big box retailer Lowe's, Robert Niblock, made some comments about the new kinds of customer service needed in a 2009 interview with the Association for Talent Development:
Six or seven years prior to the slowdown, there was a lot more outsourcing of home maintenance. For example, customers were outsourcing their lawn maintenance and their painting but now they're doing it themselves. Today you have more DIY customers showing up who didn't grow up doing the work themselves, and they lack experience. We've always been able to help the DIY customer, but where there's a lack of experience, you have to make sure you spend extra time. So it's important that associates are aware that they might be talking to a first-time do-it-yourselfer. We want our associates to recognise that each customer's situation is different and to take the time to give the right amount of advice.Robert Niblock interview - Association for Talent Development
The important point here is the idea of "recognition". It's easy for retail sales staff to fall into a pattern where their main focus is on the task a customer needs to perform. Without realising it, they end up treating a DIY customer as though he or she is a kind of "mini-tradie".
There is a general pattern that can work in selling to these customers. The mistake that most sales staff make in the beginning is concentrating on the task at hand, instead of on the customer. The first questions, at least, should be about the customer, their level of experience, what tools or capabilities they might have.
From there the salesperson can move on to defining some of the options. For example, they can indicate to a customer who is putting up a shelf that for more experienced people, a mechanical level works really well, but if you are a bit uncertain, a self-levelling laser level can make part of the job much easier.
Of course, this is expensive. Staff need to be trained. At critical times, especially on the weekends, there needs to be adequate staff on the floor, so that they can spend enough time solving the problems of customers. But, just as with paint, where the very expensive advertising campaigns, and product development to make paints easier to use, are balanced by several multiples of margins on consumer paints versus trade paints, the high margins on most consumer-oriented tools are also there for a reason.
The good news is that DIY consumers do actually value the kind of time and attention independents can offer. But this is very different time and attention from what is typically supplied at most home improvement retailers today. At the risk of sounding overly optimistic, inexperienced, untrained consumers really are not a problem. They represent a very good opportunity for sales and growth.
Bunnings has become the "default" choice of these consumers, but they haven't done a great job of directly capturing this market. That is largely because the main marketing driver of Bunnings -- low prices -- is a secondary driver in this market. Just as they are willing to pay much more for paint that is easier to apply, they are willing to pay much more for solutions in tools and products that makes success easier to achieve in DIY.
The question that faces the overall home improvement industry is whether whoever (or whatever) ends up owning HTH -- and, in the future, perhaps Mitre 10 as well -- will be willing to invest the time and capital to expand into this market. Doing so could be the first step to creating a truly competitive environment.
Until next time,
You can contact me directly via email firstname.lastname@example.org or Twitter @HNN_Australia
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