News
HI News V2 No. 18: Is housing "rigged"?
Download the latest issue of HI News Vol. 2, issue no. 18
HI News
Bunnings' micro-warehouse in Balmain
Metcash-Mitre 10 half-year results for FY 2016-17
Click to visit the HBT website for more information
The Australian housing market and its implications for the home improvement retail industry gets a lot of attention in the latest issue of HI News.

Just click on the following link to download this edition:
HI News V2 No. 18: Is housing "rigged"?

We take a close look at the future of retail, based on the findings from strategic survey data company Roy Morgan. Its statistics indicate a strong increase in customer visits to physical ("bricks and mortar") retail outlets. However it has also detected a fall in overall actual spending.

Overall revenue grew slightly for Mitre 10 owner, Metcash in its first half results. However EBIT continued to decline. Diversified agribusiness Ruralco is in growth mode after a restructure. The group includes merchandise group, Combined Rural Traders.

We also put forth an alternative theory on why Bunnings may be building a micro-warehouse in the inner-suburb of Balmain in Sydney.

Australian bathroom retailer, The Blue Space is experimenting with virtual reality for its customers. Local tradie app, Mr Tradie moves the focus away from just cheap pricing.

Featured new products include battery driven outdoor power equipment from Greenworks Commercial; latest Honda mowers; and a home security range.
News
Is the housing market "rigged"?
Buy a house, or rent and invest?
Hardware News Network
Price to income comparison for housing
Echange is telework based
Click to visit the HBT website for more information
As retail strategists, we all feel sometimes that looking 10 to 15 years ahead seems almost pretentious. This is particularly the case at the moment, when the retail sector looks set to experience some turmoil over the next three or four years, which could change just about every projection we've already made. The potential entry of Amazon to the Australian market, increased automation in manufacturing, and the opening up of parts of Africa as production centres will all have effects. That said, there are some types of strategic decisions that really need a long-term view. One obvious area is determining the location for a new store, especially when it's an expansion, and you are hoping for something that will be slightly contra-cyclic to existing stores. Retail locations can take up to five years to fully develop, and most would plan on an additional five years of returns following that.

For the complete article, please click on the Full Text link
Retailers
Indie store update
Ruralco is the parent company of merchandise group Combined Rural Traders (CRT)
Farm Online
It is set to acquire TP Jones in Tasmania
Hunter Irrigation is being integrated into Ruralco's Eden water equipment stable
Click to visit the HBT website for more information
After a $14.1 million management restructure to strip out excess costs, Ruralco plans to make up ground on the back of reporting a 70% net profit slump recently. The farm supplies, agency and water equipment group added 19 new businesses to its network during the past year.

Ruralco is the parent agribusiness for a host of rural livestock and property agencies, plus the 38-branch Total Eden network and merchandise group Combined Rural Traders (CRT). It has 270 business outlets Australia-wide, many owned in partnership with their operators.

The group is set to launch a generic line of drench and lice treatments under the Covine brand by mid-2017 following this year's successful private label release of the Relyon farm chemical range.

Ruralco has also teamed up with the ASX-listed Steadfast group to merge its insurance broking business into a joint venture with Ausure Consolidated Brokers (ACB). This more than doubles its insurance footprint and provides better back office support and underwriting capabilities.

In Tasmania, Ruralco's agency subsidiary, Roberts is set to absorb the TP Jones and Company rural retail businesses in Launceston, Longford, Latrobe and Campbell Town in February 2017. It will sell its Kubota and Agco machinery dealership, Tasmania Farm Equipment, in Devonport, Launceston, Smithton and Hobart.

At the same time, Ruralco has been incorporating the recent purchase of three additions to its Total Eden water equipment stable in the NSW Lower Hunter Valley (Hunter Irrigation) and two in South Australia's Riverland. They are part of the 19 businesses added to the network in the past year.

However, tight margins in the livestock export business and the cancellation of an export licence for its southern Frontier International operation in July became the trigger for a big cost cutting drive and management revamp.

Live export and water business restructuring alone cost the company more than $8 million, with redundancies, six store closures and the divestment of the machinery business costing a further $4.4 million.

The restructure, and an $8.7 million slide in live export gross profits, eroded Ruralco's 2015-16 after-tax net profit to just $4.2 million.

However the group still posted strong results in its core traditional business, with rural supplies' gross profits up 16% to $118 million and agency gross profits up 3% to $105 million. The company has spent $14 million on restructuring and divestment costs.

Managing director, Travis Dillon, has not released estimates on the value of the cost savings to Ruralco's bottom line, but he said the "strategic cost out benefits will more than cover the expenses we've incurred". He told Farm Online:
We've taken action which needed to be taken; we've got a very engaged workforce; we're very comfortable with our platform, and we're very optimistic about the business outlook for the next six months.

Despite the lean 2015-16 net profit result, the company's underlying performance was solid with revenue up 10% to $1.8 billion and gross profit lifting from last year's $297.7 million to $304.9 million.
Companies
Supplier update
Boral buys US company Headwaters
HNN Sources
A consumer survey from Husqvarna shows the popularity of eco-friendly equipment
James Hardie has downgraded expectations for its full-year profit
Subscribe to HNN weekly e-newsletter
Boral acquires Utah-based building products group Headwaters in AUD3.5 billion deal; Husqvarna survey shows support for eco-friendly equipment; and James Hardie's half year profit dropped 24%.
Boral's US acquisition

Boral, Australia's biggest supplier of construction materials and building products, has agreed to buy Utah-based firm Headwaters for USD2.6 billion (AUD3.5 billion) in a deal that will double the size of Boral's US business.

It will be funded by a AUD2 billion share issue, as well as borrowing and Boral's existing cash, according to the company's announcement to the Australian stock exchange.

Chief executive Mike Kane said the deal would provide cost savings of around USD100 million per annum within four years of closing. He said in the statement:
The businesses of Headwaters are highly complementary with Boral's existing US operations - in fly ash, roofing, stone and light building products.

Headwaters chief executive and chairman Kirk Benson said the combined group would be one of the "leading manufacturers and distributors of building products and construction materials for infrastructure, new residential, repair and remodel, commercial and institutional construction".
American dream

The market was quick to connect Boral's big bet on the US with the election of Donald Trump, who has promised to launch a USD1 trillion (AUD1.35 trillion) infrastructure investment program via tax breaks for the private sector to boost economic growth.

Headwaters' fly ash business (a waste product from coal-fired power plants that is used as a cement substitute in heavy construction) would be a big beneficiary of what Mr Kane called a "Trump bump", although he insisted this would be "gravy" for Boral and hadn't been built into its due diligence projections.

So when Mr Kane told AFR Weekend "this was the time to buy this business in this cycle" he was talking less about infrastructure and more about the recovery in the US housing market.

The huge US housing crash a decade ago caused new housing starts to slump from more than 2 million in 2005 to just 646,000 in fiscal 2009.

The bursting of the US housing bubble sparked the global financial crisis and led to millions of home foreclosures. Property prices plunged more than 20% and many gave up on the great American dream of owning or building a home.

As a major manufacturer of bricks, other cladding like stone, roofing, tiles and building materials in the US, Boral was already leveraged to the US housing market and badly hurt by the downturn.

Today, Mr Kane's theory is simple. Due to years of under-building since the crisis and strong pent-up demand, the housing market has bottomed and is now in a five-to-seven year upswing that will see housing starts move back to their long-term annual average of 1.5 million, from around 1.2 million in 2015.

Mr Kane says the market is now largely controlled by so-called "production" home builders who own huge land banks. Prior to the GFC, when the economy was awash with money, these groups were in a building frenzy but today they are being much more cautious.

The result, Mr Kane said drawing on his 42 years of experience in the US market, could actually be a more sustainable market. He said:
It's a housing market that's been characterised by violent swings every seven to eight years. And now we are probably going to be in a 10 to 12-year recovery.

While the Headwaters deal will help diversify Boral's US operations away from the new-home market - the proportion of revenue from new homes in the US business will fall from 66% to 45% after the deal - housing will remain the key to Boral's American dream. Around USD810 million (AUD1.1 billion) of its revenue in the US will remain exposed to the sector.

Beyond the macroeconomic and political forces influencing the success of the takeover, a benefit to Boral is that Headwaters can sell its products through Home Depot and Lowe's stores.
Eco-friendly equipment finds favour

A recent survey conducted by Husqvarna shows that its US-based customers prefer eco-friendly equipment and are willing to pay more for it.

The Green Spaces Survey was conducted in August of this year. Of the 1,579 consumers polled, 65% stated they would choose a landscaper who uses eco-friendly outdoor power equipment over one who doesn't.

Companies that choose to be eco-friendly are also more likely to receive ongoing customer support, as 72% of the survey respondents said they would support eco-friendly companies over those that do not use battery-powered equipment. Jeff Dewosky, vice president and general manager for Husqvarna North America, said:
Husqvarna is committed to keeping a pulse on the future of public green spaces so we can best advise both consumers and professionals on sustainable, efficient ways to maintain parks, as well as commercial and residential properties. This report demonstrates that there's a demand for more eco-friendly outdoor power equipment and the benefits that the technology provides.

Along with being eco-friendly, the consumers polled also had an interest in quieter outdoor power equipment, with 57% saying they would pay more for a landscaper who uses quieter equipment. A strong majority of respondents (71%) felt that companies that choose eco-friendly equipment should receive tax benefits.

At GIE+EXPO, the largest industry event for outdoor power equipment held each year in Louisville, Kentucky (USA), Husqvarna revealed additions to its 500 Series battery lineup, including the 536LiPT5 and 536LiP4 pole saws. Both saws have an intuitive keypad and a 10-inch bar, but the 536LiPT5 comes with a telescopic tube and weighs slightly more at 10.8lbs (almost 5kgs); the 536LiP4 weighs 7.4lbs (3.6kgs).

The 536LiLX trimmer is another addition and features a two-way rotation head, enabling users to operate the product in both a forward and backward direction. The 536LiHD60X hedge trimmer, meanwhile, has been upgraded with a new proprietary motor that maximises its working time, and the tool's rear handle can pivot to enable both vertical and horizontal trimming.

As with all of Husqvarna's battery-powered equipment, each model can share the same type of battery.

On the more traditional gas-powered side of things, Husqvarna has two new trimmers and edgers.

Husqvarna said the 522L trimmer is an affordable option for landscapers who don't want to forfeit the manufacturer's durable design. The 525LK trimmer features a detachable shaft that allows it to be a jack-of-all-trades, swapping out attachments such as a dethatcher, brushcutter and edger.

The 525ES edger has a steel shaft drive while the 525ECS edger comes with a curved shaft and flex drive.
James Hardie cuts FY expectations

Building products supplier James Hardie has downgraded expectations for its full-year adjusted net operating profit, saying production constraints are affecting its ability to meet US demand.

The company noted that analysts' forecasts for net operating profit excluding asbestos-related adjustments for the year ending March 31, 2017, ranged from USD256 million to USD285 million (AUD342 million to AUD381 million).

But management expects full-year adjusted net operating profit to be between USD250 million and USD270 million. The comparable adjusted net operating profit for fiscal 2016 was USD242.9 million.

Chief financial officer Matt Marsh said in a briefing for market analysts that James Hardie was taking steps to increase manufacturing capacity to meet strong demand now and in the future. Mr Marsh said the downgrade was driven by a combination of start-up costs and the company not being able to ship everything it had orders for. He said:
So a combination of those two is really the driver of the adjustment down to USD250 million to $US270 million.

Chief executive Louis Gries said it would be another two or three quarters (six to nine months) to get James Hardie's manufacturing network up to targeted performance levels.

James Hardie expects the US housing market to grow steadily in fiscal 2017. But although US housing activity was improving, market conditions were uncertain and some input costs were volatile.

In Australia, net sales are expected to trend in line with the average growth of the renovation and single detached housing markets in the eastern states.

James Hardie recently booked a 24% fall in first-half profit to USD144.1 million, mainly due to greater asbestos-related adjustments in the prior corresponding period.

Excluding asbestos-related adjustments, net operating profit was up 10% to USD141.4 million, from USD128.7 million a year earlier.

Net sales rose by 11% to USD973.5 million, driven by higher sales volumes in the North American fibre cement business and a higher average net sales price in the international fibre cement segment, which includes Australia.

Although demand in the renovation and new housing markets grew in the US, James Hardie's production costs increased because of unfavourable plant performance and higher start-up costs associated with lifting the production capacity of the US plants.

In Australia, net sales for the half-year lifted due to a higher average net sales price and greater volumes. But the guidance pointed to a transition year for the company, where good volume growth does not provide the upside that the market may have anticipated.
Products
Tradie app offers more than price
Mr Tradie helps customers to not just focus on price
Fairfax Media
The app's flat fee for tradies is its point of difference
Mr Tradie is available as an iPhone app and also has an Android version
Click to visit the HBT website for more information
Another tradie app has been launched and was recently profiled in Fairfax newspapers. First launched on the iPhone in 2015, Mr Tradie makes it easy for Australians to find tradespeople in their area.

Rather than tradies simply undercutting each other to offer the lowest price, Mr Tradie also includes an Uber-style ratings system so users can take into account customer satisfaction. They can rate tradies but not vice versa, although that feature might be added down the track.

Competing services tend to charge tradespeople a fee every time they provide a quote, regardless of whether or not they win the work. However Mr Tradie charges tradespeople a flat fee of $10 per month or $100 per year. It's a model that works better for both tradespeople and customers, explains founder Ishan Dan. He told Fairfax Media:
When you rely on a cheapest quote system the good tradies tend to get beaten by the cut-price tradies who aren't necessarily qualified - which drives the good tradies away and can leave the end customer with a shoddy job. It becomes a race to the bottom on price which punishes the good tradies by forcing them to cut their prices to survive.
Mr Tradie lists a customer feedback score, a bit like Uber, which means tradespeople are relying more on their reputation to win work than on offering dirt-cheap prices - if tradies continue to get bad feedback scores I kick them off the system.

The idea for Mr Tradie was born from Mr Dan's conversation at the pub with several tradespeople friends who were struggling to find customers but were relying on word of mouth and referral networks rather than marketing and establishing an online presence.

Mr Dan has no background in app development, he's a stockbroker who works for a financial planning company but he studied both computing and finance at university. The hardest part of bringing the Mr Tradie idea to life was building the app, he explained, with disputes over the first version of the iPhone app almost going to court.

The search for a replacement developer forced Mr Dan to heed his own advice for hiring tradespeople: don't shop on price alone. He weighed up seven developers before going with Melbourne-based AppsCore.

Altogether Mr Dan and his investor have spent around $70,000 on app development, which includes two versions of the iPhone app as well as an Android version. His advice for people wanting to bring their app ideas to life is to invest lots of time and effort in the planning stage rather than making changes later that can cost thousands of extra dollars and delay the project by months.
Bigbox
Bunnings' micro-warehouse in Balmain
A rendering of what the completed store would look like
HNN Sources
A map of the area around the proposed Bunnings
The site of the building
Click to visit the HBT website for more information
Bunnings' proposed store at the inner-Sydney location of Parsons St, Rozelle is no ordinary Bunnings store. With a selling floor space of just 4,100 square metres, including 500 square metres of outdoor garden space, it is one of the smaller Bunnings stores in the big-box retailer's fleet.

While Bunnings has made great strides with its "medium" format stores, such as the one at Collingwood, on the outskirts of the Melbourne CBD, this store would appear from the plan diagrams to be quite different. Rather than concentrating on fitting the maximum amount of selected stock into a "compact" space, the Balmain store follows the design layout of the larger warehouse stores. As the planning documents state:
The Bunnings "small format warehouse" is a new venture for the company which currently develops contemporary large formats of some 17,000m2 to 20,000m2 and medium formats of some 12,000m2 to 16,000m2.

The documents go on to characterise the purpose of this kind of retail layout:
It is relevant that the large contemporary hardware outlets are "destination" sites whereas the small outlets are more "convenience" sites for local residents and trades persons.

The store has two floors of selling space, with the upper floor apparently having an open area for garden plants and supplies. The two floors are connected by a travellator. It has a number of other unique features, including a turntable in its shipping dock for trucks.

This store is likely aimed at the weekend quick stop market, as well as the weekend/weekday drive-by/drop-in traffic, predominantly by DIYers, but also, in this inner-urban location, tradespeople as well.

To put it simply, this Bunnings store could well be the trial prototype for a rollout of smaller format stores that are directly aimed at taking market share from smaller independent stores in urban locations. It is considerable effort, too, with the store predicted to cost $11.8 million to construct.

From a location standpoint, looking at the map, it's easy to see why Bunnings is attracted to this location. It is virtually triangulated by the three existing Bunnings in the general area, Ataramon, Ashfield and Alexandria.

HNN will cover in more detail at a later date the retail characteristics of this new store layout. What is of most interest at the moment is how Bunnings is working the planning the system so as to get this type of store approved.
Planning approvals

Given the style of the store, local small hardware stores see it as a direct threat to their businesses. The Hardware Store has its Balmain branch located a few minutes drive from the proposed site, and its owner, Grant Crowle, has been vocal in his view the store should not be allowed to go ahead. Not only will the store likely directly impact his own operations (which have been ongoing since 2003), but he says it has the potential to worsen traffic congestion in an area that is already highly congested.

There is also the matter of parking. The planning documents that only 74 car parking spaces will be provided in a basement car park.

Protests have reached a state where an online petition has been organised to provide a focal point for objections, and a sign appeared for a brief time, lashed to the fence around the site (currently an unused warehouse) protesting the development.

However, as usual, Bunnings' property team have developed a clever approach to getting approval for what could turn out to a controversial store location. To begin with, the site had been granted planning approval in 2012 for a three-level building with industrial establishments on the ground and mezzanine level, and a fitness gym on the top level. This will tend to make protesting the building itself a more difficult task.

That plan (which never went beyond planning approval) called for 94 parking spaces. How, then, can Bunnings, as a retailer, get away with providing only 74 spaces?

The answer is in the way Bunnings has positioned this store in the planning documents. The planning documents provide this analysis of the likely traffic that would be generated by the store:
  • the projected traffic generation of the previously approved development for the site were significantly greater than that projected for the proposed Bunnings development during the weekday peak periods
  • the projected weekend peak for the proposed Bunnings development may be higher than the potential for the approved development, however the flows on Robert Street and Mullens Street are significantly lower at these times (i.e. than the weekday AM and PM peaks).

  • Essentially what is going on is that Bunnings is "fitting" the store into the congestion patterns of the area. It is claimed that the store will generate less traffic during times when the traffic is at its highest, that is, on weekdays, and reach peak traffic loads only on weekends, when general traffic is at its lowest.

    Just to add to the picture, Bunnings is also claiming that another new, full-size Bunnings warehouse it has underway, at Victoria Road in Gladesville, will also divert some traffic away from the Balmain Bunnings.

    The calculations regarding parking spaces are just as interesting. There is an existing standard for the number of parkings spaces that must be provided for a retail floor areas. In this case, that standard calls for 1.78 spaces per 100 square metres of floorspace. In this case, that would work out to 73, and Bunnings is supplying 74 spaces.
    Analysis

    While it is evident that the new Bunnings would affect trade at the long-established The Hardware Store nearby, it seems quite likely that this is not the primary target of this venture. Just 15 minutes away down the Western Distributor is one of Mitre 10's most praised retail outlets, the Sunlite Mitre 10 store in Paddington.

    When Mitre 10 began to suggest it would consider acquiring the operations of the Home Timber and Hardware Group (HTH), HNN did suggest that this could alter the competitive situation between Bunnings and Metcash's hardware operations. This could be one of the first moves in that direction by Bunnings.

    If so, the company may be planning to adopt a quite unique approach. Rather than -- as it has done in the more blue-collar Collingwood store -- seek to produce a compact, as fully-stocked as possible store, Bunnings may select profitable, more upmarket locations to expand into. The stores it builds in these locations may be, instead of small and compact, scaled down warehouses, with more of a sense of space, and a more limited stock. It wouldn't be surprising if many of these locations turned out to be near stores that are fully-owned by Metcash.

    There are a number of other intriguing possibilities to this as well. There are signs that Bunnings could well launch an ecommerce site in calendar 2017. Having more urban, smaller stores, could open the way for it to facilitate ecommerce, by offering click-and-collect, or an online expansion of its special ordering services.

    Another possibility is that these stores in more upmarket suburbs might end up being the primary distribution points for some Bunnings products that continue to seem slightly out of place in its standard suburban warehouse stores. Chief amongst these is the company's range of outdoor furniture, which competes favourably with some of the furniture offered by Harvey Norman and even Domayne.

    If that did prove the case, it would be likely these small warehouses have less of an impact on retailers such as The Hardware Store, as the stock overlap would be smaller.

    In the meantime, Inner West Council is accepting public submissions on the proposal until December 19. The development application can be found here:
    Development application
    Retailers
    Metcash half-year results for FY 2016-17
    Results for Mitre 10 FY2017H1
    Metcash
    Results for Metcash overall, FY 2017H1
    Slide from Metcash analyst presentation
    Click to visit the HBT website for more information
    Australian supermarket and hardware wholesaler Metcash has released its results for the first half of its FY 2017, to 31 October 2016. Sales revenue was reported as $6629 million, up by 0.35% on the previous corresponding period (pcp), which was the first half of FY 2016. Earnings before income tax (EBIT) was reported as $82.8 million, down by 4.72% on the pcp. Net profit after taxes was $74.9 million, down by 38.61% on the pcp.

    Net profit was affected by several non-recurring items. The pcp comparative profit included profits of $35.1 million, relating to the sale of Metcash's automotive operations to Bursons. The current results include the acquisition costs for the Home Timber & Hardware Group (HTH) of $4.5 million, and an additional $3.4 million spent on Metcash's "Working Smarter" program aimed at reducing operational costs.

    Metcash reported that while the hardware and liquor divisions had performed well, the results had been impaired by a dip in the performance of the company's food and grocery operations. For the latter revenue fell by 1.16% and profit before tax fell by 8.05%.

    In a comment presented in Metcash's earnings press release, the company's CEO, Ian Morrice, is reported as stating:
    Despite difficult market conditions in the Supermarket sector, Independent Retailers are continuing to invest in growing their businesses, including new stores and refurbishments, and we remain focused on supporting this growth. The acquisition of HTH broadens our footprint in the hardware sector and, along with smaller acquisitions in the Liquor business, have diversified the Group's earnings base.
    The Group's strong underlying cash flows have further strengthened our financial position. Metcash is well placed to invest in growth opportunities, as well as in further operational cost and efficiency improvements.
    Hardware

    The company reported sales revenue for its hardware operations of $581.6 million, up by 9.59% on the pcp. Profit before tax was $12.5 million, an increase of 7.76% on the pcp. The company reported that sales on a like-for-like (comp) basis increased by 1.7%, up from the pcp's number of 1.3%.

    The newly acquired HTH operations did not materially contribute to EBIT, according to Metcash. However, HTH did contribute $51.5 million to revenue.

    In its presentation to investment analysts, Metcash stated that its EBIT percentage of sales fell to 2.1% for the reporting period, down from 2.2% in the pcp, noting a decline, however, of just 4 basis points or 0.04%. Based on the non-contribution to EBIT by the HTH revenue, HNN believes a more representative EBIT margin for Mitre 10 operations would be 2.36% (or as Metcash would present that number, 2.4%) an increase of 17.2 basis points.

    Metcash said the increase in EBIT came despite pressure from Masters' liquidation sale, and the unseasonal cool weather on Australia's eastern seaboard.

    The company noted that it completed a further four Sapphire store transformations during the half, bringing the total to 16. It claims an average sales increase of 17% across these revised stores.
    Acquisition

    Adjusting for cash already held by HTH, balanced against adjustments to working capital, the $165 million acquisition cost for HTH works out to $163.2 million. Assets acquired included trade receivables and loads amounting to $171.1 million, and inventories amounting to $125.6 million. These and other assets balanced against trade payables and provisions of $168.1 million balance the acquisition out at $163.2 million. No goodwill was included in the transaction. Total transaction costs amounted to $6.4 million.

    Metcash noted that the 2% retention rebate provided by HTH was discontinued in October 2016. Integration of HTH and Mitre 10 is expected to be completed by the end of FY 2018. The company states that it expects HTH to contribute more than $10m to EBIT during the second half of FY 2017, exclusive of integration costs.
    Analysis

    The food & grocery division of Metcash continues to struggle in what has become a highly competitive retail sector. Roy Morgan holds that IGA's market share, at around 10%, is now less than that of Aldi, which it believes has 12% Australia-wide.

    One possibly hopeful event on the horizon would be the entry of US online retailer Amazon into Australia, as Amazon has suggested it might make use of Metcash's supply chain. Even should this occur, Metcash and other grocery retailers could be hard-hit by the entry of Amazon, which could take market share in profitable staples such as laundry detergent.

    HNN has suggested in the past that Metcash has used Mitre 10 largely as a means of financing its ambitious goals in the grocery sector, making the minimum investment required to secure a good return, rather than making longer-term investments to grow the business into the future. The addition of HTH to the hardware division may change that equation somewhat, but it is difficult to see Metcash taking on much more risk over the next two years.

    The long-term question that remains is whether Metcash will become a diversified retailer, moving to make its grocery business a smaller contributor overall, or if the company will instead spin-off its hardware division at the end of FY 2018 so as to finance further expansion in its grocery business.

    HNN notes that, as has become the case over the past 18 months, Metcash has delayed making the recording of its presentation results to analysts available. HNN will be providing separate analysis of this when it does become available.
    Retailers
    Bathroom retailer using virtual reality
    The Blue Space has introduced virtual reality in bathroom, kitchen and laundry retail
    Power Retail
    It can display all the fixtures and fittings in the space
    The Blue Space is an Australian online retailer
    Click to visit the HBT website for more information
    Australian online retailer The Blue Space will launch its virtual reality (VR) technology in early 2017 to enable shoppers to choose and buy bathroom designs.

    The technology will replicate the customer's own kitchen or bathrooms (including dimensions), which will allow them to see what a range of packages would look like in their own space. Managing director, Josh Mammoliti told Power Retail:
    It simply takes the hassle out of shopping for a kitchen, bathroom or laundry. You can really see what each choice you make will look like in your house. You can 'live in it' before you buy. It helps with choice, saves time and reduces the risk of buying something you don't actually like.

    The virtual reality technology also shows real lighting and reflections, from the exact position of the sun as it moves through the day, based on the customer's home specifications. This can create a more accurate ambiance of lighting when they are viewing their virtual bathroom design.

    The retailer said its VR technology is within 99.9% dimensionally accurate, to correctly display all the fixtures and fittings in the space including all hardware and surfaces. Mr Mammoliti said:
    Bathrooms are quite complicated, especially when people are sinking usually $5,000 or a lot more into one. I wanted to build a business that looks at everything that makes it difficult for a customer to build a bathroom or kitchen, and do everything to take down those barriers.

    As the former digital strategist for Caroma, Mr Mammoliti saw a gap in the marketplace, and decided to start a company that takes the stress and hassle out of building a bathroom.

    The company primarily operates online but it has recently developed a bricks-and-mortar presence, with showrooms in Brisbane and Victoria. A few more have opened in New South Wales where customers can book for a virtual reality consultation or have their bathrooms built online in 3D. He said:
    The showrooms will be about the virtual reality and consultancy side of things - it's not really about the traditional showcasing of physical products.
    We're aiming for people to come in, do a 3D bathroom or experience it via virtual reality and for us to do the specifications. We can design the bathroom for them. We give them a code. They then load it up on their computer when they go home and play with it, show their family, chop and change things and then buy from home.

    The technology is in its first generation and Mammoliti said his vision for The Blue Space is that people can do this in their homes, with their own virtual reality systems.

    Developers of the technology, Situ, are currently refining the design, with a virtual colour palette to be implemented into the system at a later stage.

    The Blue Space is looking to install more pop-up stores in high traffic locations. Mr Mammaloti said:
    We're currently testing it out to making sure it all works. Customers will also eventually be able to buy through the VR technology, which is also being tested for its future generation models.
    Retailers
    USA update
    Ace Hardware has reported a third quarter revenue decline
    HNN Sources
    Pergo Outlast+ flooring has won The Home Depot's 2016 Innovation Award
    Lowe's is working with start-up B8ta to sell smart home products
    Click to visit the HBT website for more information
    Ace Hardware misses sales targets in its third quarter; The Home Depot hands out awards to the most innovative products and suppliers; and Lowe's works with start-up to offer smart home gadgets.
    Sales decline at Ace Hardware

    US hardware co-operative, Ace Hardware has reported third quarter 2016 revenues of USD1.2 billion, a decrease of USD46.5 million or 3.6%, from the third quarter of 2015.

    Net income was USD50.2 million for the third quarter of 2016, a decrease of USD4.1 million from the third quarter of 2015. John Venhuizen, president and CEO, said:
    Our expectation for the third quarter of this year was modest sales growth and lower net income as a result of last year's strong 13.2% consolidated revenue growth and 45.3% net income growth.
    We missed on sales in our Ace domestic business, but exceeded our net income budget. The Ace domestic sales shortfall was largely driven by last year's sell-in of LED lights and the lowering of wholesale selling prices to our retailers. For our shareholders, these wholesale price reductions were positive as over three-quarters of our wholesale price changes were decreases, resulting in less margin for the corporation, but more margin for our retailers.

    The 0.8% increase in retail same-store-sales during the third quarter reported by the approximately 3,000 Ace retailers who share daily retail sales data was the result of a 2.2% increase in average transaction size. For the first nine months of 2016, retail same-store-sales are up 1.9%.
    Revenues

    Total wholesale revenues were USD1.17 billion, a decrease of USD46.2 million, or 3.8%, as compared to the prior year third quarter. Decreases were noted across several departments with electrical, paint and plumbing showing the largest declines.

    Wholesale merchandise revenues to comparable stores decreased USD39.1 million in the third quarter of 2016. A significant portion of that decline was the result of significant sales of LED bulbs in the third quarter of last year as part of store resets and to support an October 2015 LED promotion.

    The company's Ace Wholesale Holdings subsidiary contributed USD1.9 million of incremental revenue in the third quarter of 2016, which was an increase of 2.1% from the prior year third quarter.

    Retail revenues from Ace Retail Holdings were USD59.9 million in the third quarter of 2016. This was a decrease of USD0.3 million, or 0.5%, from the third quarter of 2015. Same-store-sales decreased 3.4% compared to the prior year with the largest decreases in paint, lawn and garden and hardware.

    Ace added 36 new domestic stores in the third quarter of 2016 and cancelled 16 stores. This brought the company's total domestic store count to 4,335 at the end of the third quarter of 2016, an increase of 60 stores from the third quarter of 2015.
    Flooring innovation recognised

    The Home Depot recently announced that Pergo Outlast+ has won the retailer's 2016 Innovation Award. The company was selected because its new laminate flooring provides 24 hours of defence against liquid spills - something no other laminate offers at the moment.

    The annual award acknowledges the most innovative new products that provide genuine benefits to consumers and the suppliers that exceeded expectations in sales, service and program execution.

    Runner-up honours were awarded to Milwaukee Tools for its Milwaukee M18 FUEL with ONE-KEY. ONE-KEY allows users to connect to the tool with a smartphone for unlimited customisation and control. And honours went to Heath Zenith lighting for its Defiant LED BLADE motion activated security lights that has seamless light coverage.

    Additionally, Trex Enhance Composite Decking, made from 95% recycled materials, won Environmental Partner of the Year and PPG won the Marketing Innovation award for its Glidden Diamond Launch campaign.

    In addition to the top three award winners, The Home Depot endorsed the companies that round out the top 10 product innovations.

    Ryobi Ultra Quiet Garage Door Opener is the ultra-powerful motor that will quietly open and close large doors with ease, and comes with a multifunctional wall control, wireless keypad, two remotes, safety sensor and can be controlled via smart device.

    Mohawk Industries Lifeproof Carpet has lifetime stain protection, superior softness, exceptional durability and environmentally friendly attributes.

    FEIT LED Edge-Lit Flat Panel Lighting integrates the latest in LED technology with a low profile design that directs the light downward, creating uniform light distribution without hot spots, flicker or glare.

    Masterbrand's Thomasville Studio 1904 cabinets offer 12 unique door styles with modern, simple and straight lines.

    Nexgrill Evolution Plus 5-Burner Gas Grill with Side Burner provides the flexibility of choosing between direct heat and infrared cooking, and also has a smoker for smouldering wood chips.

    Apex Tool Group Husky 100 (Black) Mechanics Hand Tools includes multi-purpose alloy steel tools, heat-treated for added strength, suitable for small jobs around the house or the DIY mechanic.

    Freud Diablo Carbide-Tipped Hole Saws are the industry's first carbide-tipped hole saws to cut both wood and metal, with a design to simplify the attachment process for mounting.
    Lowe's selling tech gadgets

    US big box home improvement retailer, Lowe's has struck a deal to showcase technology products sold by San Fransisco-based B8ta within its stores.

    The Lowe's outlet in Livermore, California (USA) has installed a 400-square-foot section that lets customers get their hands on B8ta's still-unfamiliar home technology devices, including smart doorbells, light bulbs, security cameras, garage door openers and lawn sprinklers.

    It's one of three SmartSpot Powered by B8ta sections Lowe's has installed. The others are opening in Lowe's Burbank, Los Angeles and Aliso Viejo, Orange County locations.

    Details about the partnership were not revealed, but it would be a big boost for B8ta if Lowe's were to eventually decide to expand across its chain. B8ta, which started with a single store that opened two years ago in Palo Alto, California recently announced a USD19.5 million round of financing that will let it open outlets in Seattle and Santa Monica. Co-founder Phillip Raub said:
    For us, it was important to be able to broaden the horizons of B8ta.

    The Lowe's section sells about 40 products, less than half the number sold in B8ta stores. Manufacturers include Amazon, Lutron, Nest, August, Ring and Chamberlain, as well as tech startups.

    The display devices are placed on tables and not boxed up, so customers can play with them. Crucially, each product has an iPad next to it, to demonstrate how the device works and what colours are available, and to explain why it might benefit the customer.

    B8ta monitors the type of information shoppers look for on the iPads and whether changes in how the product is displayed - in terms of colour, for example - increase or decrease sales. Collecting continuous data on customer preferences, a core methodology of B8ta, is increasingly crucial to retailers.

    The SmartSpots feature a new generation of smart home devices that are more popular with early tech adopters than the typical Lowe's customer. But Ruth Crowley, Lowe's vice president of customer experience design, said the chain hopes the section helps demystify smart-home products.
    One of the keys is that all of these products are out of the box. We wanted to make sure to take away the intimidation in a market that's saturated with these kinds of products and allow the customer the ability to touch and feel and experience.

    Cutting-edge tech products that lure more consumers could be key to Lowe's future. Lowe's lags behind Home Depot in luring customers who are home improvement professionals, which "puts Lowe's at a disadvantage, especially if growth in the consumer segment starts to wane," according to a note from the retail research and consulting firm Conlumino.
    Products
    Battery-powered OPE for pros
    Greenworks Commercial has a new line of tools designed for professional landscapers
    Total Landscape Care
    Greenworks Pro 3-in-1 battery-powered lawn mower with 21-inch deck
    Starting in early 2017, Greenworks Commercial will offer three models of zero-turn mowers
    Click to visit the HBT website for more information
    Greenworks Commercial has launched a line of tools specifically engineered to meet the needs of professional landscapers. Powered by 82-volt battery technology, the range of commercial grade equipment delivers power and run-time equivalent to comparable gas-powered models.

    The latest equipment line that Greenworks has produced comes with four main benefits, according to the company. The products are quiet, easy to operate, give off no fumes, and are low maintenance.

    All Greenworks Commercial battery-powered products use push button start technology, removing the need for pull cords. This is especially appreciated with its chainsaw. Gray Abercrombie, director of global marketing for Greenworks told Total Landscape Care:
    Arborists love the saws. All they have to do is push the button to start and safety comes into play a lot with chainsaws.

    They also no longer need to leave their elevated position and return to the ground to restart their equipment.

    The push button start on the GBB600 Backpack Blower allows the user to go from full power to completely off, and back to full power without ever removing the backpack.

    By using lithium-ion batteries, landscapers do not need to worry about the memory effect commonly found with nickel cadmium batteries, where they lose their maximum charge over time if continually recharged.

    These battery-powered tools have been designed for those who work in cities with strict decibel ordinances. Most US cities with ordinances limit anything above 79 dB and Greenworks' 82-volt brushless axial blower ranges from 60 to 72 dB. Mr Abercrombie said:
    Commercial landscapers can start earlier and work later with this quieter equipment.

    Greenworks' string trimmer produces 50% less noise than its gas counterpart while its power is equivalent to a 32cc gas engine.

    The brushless hedge trimmer comes with a 180-degree rotating rear handle and features a die-cast magnesium gear box to endure heavy use.

    Greenworks has a walk-behind mower that is battery-powered as well. It features a 21-inch deck and comes with seven cutting heights that can be adjusted with a lever.

    Starting in early 2017, Greenworks Commercial will offer three models of zero-turn mowers, the GZM 33W Walk-Behind Zero Turn Mower, the GZM 48S Stand-On 48" Zero Turn Mower, and the GZM 52R Ride-On 52" Zero Turn Mower.

    Run times depend on the amp hour battery used. The products come standard with a 2.5 Ah battery, but they can be upgraded to a 4.0 Ah battery, 5.0 Ah battery or a 900W battery backpack.
    Products
    Home security offering for tradies
    Uniden's Guardian Hybrid digital video recorder (DVR) range is ideal for tradies
    Uniden
    This security system can be used to monitor the interiors and exteriors of a property
    It is suitable for both home and small to medium sized business owners
    Click to visit the HBT website for more information
    Home maintenance professionals and electricians looking to expand their services can consider home security systems as an opportunity to help customers who prefer the Do It For Me (DIFM) approach to home improvements. Uniden's Guardian Hybrid digital video recorder (DVR) range of security systems is best installed by those proficient in home handiwork.

    The Uniden home security system - with wired and wireless capabilities in one device - is ideal for home and small to medium sized business (SMB) owners who want a cost-effective solution to keeping an eye on their property.

    Whether it is introduced as an ad-hoc job or an extension to existing projects, handypersons and electricians can add value with a simple hardwiring camera installation. This type of work requires approximately one to two hours of labour. (Installation time will vary based on the complexity of the property. For example, multiple storeys or large premises may require additional cables to be run through.)

    The system can provide peace of mind to home and business owners lacking the confidence to carry this out independently.

    They can choose a combination of wired internet IP cameras, which rely on an Ethernet cable for internet connectivity, as well as wireless IP cameras which connect to the local wi-fi network via an app. Hardwiring the cameras calls for drilling holes into wall and ceiling surfaces and running cables for power and internet connectivity.

    Relying on a power connection only, the wireless cameras are practical for locations where it's difficult to extend a video cable, such as a garage or deck.

    This security system can be used to monitor the interiors and exteriors of a property, and can be scaled up as needs change. Home and SMB owners have the ability to monitor their premises remotely via a dedicated app on smartphone or tablet devices. The app also sends alerts to connected devices whenever the security system detects movement.

    All Guardian wired and wireless cameras are weatherproof to withstand the harsh Australian elements. Key features include:
  • Expandable with up to 16 wired cameras and up to eight optional wireless cameras
  • Full HD 1080p resolution for clear picture quality
  • Guardian Live Pro app for iOS/Android smartphones and tablets
  • Up to 2TB internal storage
  • Up to 20 metres of night vision, from dawn to dusk
  • USB backup
  • Connect to a large screen TV or monitor via an HDMI port
  • Remote viewing capabilities via smartphone or tablet
  • Companies
    Chervon buys SKIL from Bosch
    Chervon Group has purchased the SKIL business from Bosch
    Chervon Group
    A Chervon factory
    The SKIL brand is now owned by Chervon
    Subscribe to HNN weekly e-newsletter
    Chervon (HK) Ltd. has signed an agreement with Bosch Power Tools to acquire the SKIL businesses in North America and Europe. The new arrangement will see ownership of the rest of the global market phased in over a period of time. The deal is now subject to the approval of antitrust authorities. President of Chervon, Peter L.Q. Pan said:
    SKIL is an excellent complement to our existing brand portfolio. It will further strengthen our competitive position in the global power tool market...

    Its current brand portfolio includes Ego, a line of battery-powered outdoor power tools; Hammerhead, a range of cordless tools and accessories; and X-Tron. The Toolguyd website said:
    Chervon has made a lot of the tools for Craftsman's 12V Max Nextec lineup, and still makes some of Craftsman's C3 cordless power tools. It also made Craftsman's digital router.

    According to the Pro Tool Reviews website, Skilsaw redefined its brand in 2016 so that it was separated from the DIY-level SKIL brand. Both brands, however, remain under the same umbrella, and Chervon has acquired the two brands in this deal. It said:
    It will be interesting to monitor new Skil tools and Skilsaw tools over the next year and see what Chervon has in store for the brand. If the new Skilsaw worm drive table saw is any indication, this could be a great year. As Chervon acquires Skil, we also anticipate an expansion of the brand into more types of saws and tools in the coming years.
    Background

    The business cooperation between Chervon and Bosch can be traced back to 2003, when Chervon became one of the major OEM suppliers for Bosch Power Tools. In 2007, the two companies formed a joint venture in Nanjing known as Bovon Power Tools with a focus on benchtop products. Henning von Boxberg, president of Bosch Power Tools said:
    We are confident that the SKIL business will benefit from Chervon, and will be able to take the best possible advantage of its opportunities for growth in this customer and price segment.

    Chervon's strategy of creating original brands began in early 2003. In 2007, the company launched Devon, targeting the professional Chinese tool user. In 2013, Chervon acquired the century-old German power tool brand Flex and entered the European power tool market.

    By 2014, Chervon introduced the world's first 56V Lithium-ion battery driven outdoor power equipment into the North American, European and Oceania markets under its own brand Ego.

    Founded in 1924 in New Orleans (USA), SKIL has been a highly recognised tool brand for over 90 years. In the early 1920s, SKIL invented the electric hand saw (known as the Skilsaw) and has maintained its success in the marketplace ever since.

    In 1960, SKIL expanded its business to Europe. Beginning in the early 1980s, it grew its footprint into South America, Asia Pacific and other emerging markets. By 1996, SKIL was acquired by Bosch and became one of the business units of the Bosch Power Tools division.

    Related:
    Supplier update: EGO range campaign - HNN
    Companies
    AkzoNobel results for first half FY 2016
    AzkoNobel results 2016 H1
    AkzoNobel
    AzkoNobel results summary
    AzkoNobel raw materials breakdown
    Subscribe to HNN weekly e-newsletter
    AkzoNobel has released results for the first half of FY 2016. Overall revenue for the company came in at EUR7,141 million, down by 5.29% on the previous corresponding period (pcp), which was the first half of FY 2015. The company states that this was mainly due to adverse fluctuations in the rate of exchange on non-Euro currencies.

    Earnings before interest and taxation (EBIT) rose by over 7% to EUR848 million, delivering a return on sales ratio of 11.9%, up by 1.27% over the pcp's 10.5%. Net income was even more positive, coming in at EUR552 million, up 12.42% on the pcp.
    AkzoNobel results 2016 H1
    Decorative paints

    The positive earnings performance was driven by a 1% increase in volume, particularly in decorative paints and performance coatings, according to the company. Sales revenue for decorative paints declined by 5.34% over the pcp, while the division's EBIT increased by 2.81%. AkzoNobel reports that decorative paint volumes increased in Asia, fell in Latin America, and were slightly down across its European operations.

    While decorative paints was hit with a 7% reduction in revenue due to the effect of negative currency fluctuations, it made a 1% gain in volume, but lost that 1% on its price/product mix equation.

    Decorative paints for AkzoNobel is split between 75% paint for maintenance, renovation and repair, and 25% for new build projects. It provides 27% of the company's overall revenues, and 20% of its operating income.

    The division employs 14,900 people worldwide, and the company states it provides a return on investment (RoI) of 11.7%. Some 55% of its market is in Europe, Middle East and Africa (EMEA), and 30% is in Asia. The division is the number one supplier in the UK and Ireland market, most of the European continent, South America and Africa.
    UK post-Brexit market

    With heavy exposure both to the UK market and the European Union as a whole, the question of what effect the UK's vote to leave the EU ("Brexit") will have on AkzoNobel has received some attention. AkzoNobel's CEO, Ton Buchner, made some statements regarding this in the prepared comments at the start of the analysts' conference call for the release of the company's FY 2016 second quarter results:
    Overall it's too early to determine the full impact as a result of the outcome of the UK referendum. Although in the run up to the UK referendum and immediately afterwards we did see a slowdown in activity in our markets in the UK. We've also seen housing rotations reacting to the outcome of the vote but it is unclear whether this is short term or medium term trend. We have a strong presence in the UK, in 2015 our total revenue was around 1 billion, around 7% of our revenue and our invested capital was [EUR] 833 million and we had around 3500 colleagues based in the UK, a very relevant country for us.
    One part of course is our decorative paints business. Market leading paint brands like Dulux and Cuprinol are part of this business and this business is mostly local and fairly naturally hedged, which means we make and sell around the same value of products inside the UK. Where we're not naturally hedged is in the area of raw materials where we sometimes have to import [US] dollar denominated raw materials into the country resulting in some transactional foreign exchange exposure especially with the recent currency developments that have taken place.

    This was an item that was revisited in the course of the analysts' questions. In response to one such question Mr Buchner, stated:
    Have there been any perceptions of market share loss in Q2 in Europe? The answer would be no, we take this very carefully and we've not observed market share loss in any of the relevant European countries that we operate in.

    Mr Buchner expanded on this further in response to a subsequent question.
    Regarding deco as I indicated when I highlighted around the slide that was dealing with the UK referendum, in the run up to the actual referendum date we have seen a slowdown and the business has not recovered since as such because the insecurity is still there and as I indicated we don't know whether that is a trend or whether that is a short term effect. We are keeping close track of the housing rotation statistics in the UK and we will continue to do so. That is our exposure of course the housing market regarding the decorative paints business both on the trade side and on some of the dealings with the big boxes.

    Asked if, given this, there was any difference emerging in trade and retail sales, Mr Buchner said:
    Yes at this point in time I guess we just see clearly different general environment on both sides, I think both consumers and the trades are basically still trying to figure out what it means for them personally and so at the moment I can't really make comments on a different shaded response between those two.
    Analysis

    Operationally AkzoNobel is showing gains across its businesses, including decorative paints. However, it is also noticeable that in terms of market expansion its decorative paint operation is not performing. This includes the well regarded non-Australian Dulux operations (which are sold by Wesfarmers' Homebase stores in the UK).

    In part this is due to the uncertainty in the markets where it operates, which has only been increased by concerns over the UK's Brexit "strategy". There is certainly pent-up housing demand across Western Europe, and particularly in the UK, but it is not clear AkzoNobel is positioned to really take advantage of this.

    More than any other major paint company, AkzoNobel has exposed itself to developing economies. This is a positive long-medium term strategy (five to six years), but carries significant risk over the coming two years.

    This could turn out to have been a canny choice, with AkzoNobel developing close relations that will pay off handsomely in better times. It remains to be seen if seizing this sort of first-mover advantage ends up being a better strategy than the second-mover advantage which would make use of the relations AkzoNobel has worked so hard to establish.
    Editorial
    Bathrooms strategy: from luxe to electric
    Kingfisher's map of a bathroom redesign
    HNN Sources
    Bathroom choice process
    Nebia shower
    Give to Amnesty International
    Bathrooms, as Australian home improvement retailers know, are a good business -- as well as a big business.

    The Housing Industry Association (HIA) estimates that there were 429,400 new bathroom installations in FY 2015/16, at an average cost of $16,731, for a total of $7,184 million. In bathroom renovations, there were an estimated 219,600 installations, with an average cost of $17,779, for a total of $3,904 million. The total market is thus estimated to have been worth over $11,000 million. The actual market size for bathroom fittings alone is estimated to be a little less than 50% of this, about $5,400 million.

    The Australian domestic market is currently dominated by two companies: Reece Group, and the New Zealand-based Fletcher Building, through its Australian wholesale chain Tradelink. Reece holds around $2,000 million of the market, for 38% overall share. Tradelink has around $800 million for a 15% share. The share that Bunnings controls is difficult to determine, but it is thought to be somewhere between 7% and 9%.

    The rest of the market consists of companies with shares of less than 4% of the market. These range from large integrated retailers such as IKEA, to smaller national chains such as BGW's Samios Plumbing, which has over 20 outlets around the country. A large proportion of the market is also held by smaller, regional and local companies.

    In the commercial market, there are major players such as the RBA Group, which supplies, among others, the Harvey Norman Commercial division. Harvey Norman Commercial has been expanding in recent years, and opened a showroom in Canberra, ACT in March 2016. Harvey Norman has also expanded this commercial offering to online services, most notably as a hot water replacement service supplying systems from Rheem.

    [To read the full story, please click the Full Text button]
    News
    HI News V2 No. 17: Kitchen report
    Download the latest issue of HI News Vol. 2, issue no. 17
    HI News
    Renovators are upgrading appliances and benchtops rather than whole kitchens
    The weather had an impact on Bunnings' first quarter sales performance
    Click to visit the HBT website for more information
    The latest issue of HI News is about a lot of things. On the business side, we take a second look at the kitchen category this calendar year and highlight some of the marketing strategies from the industry's top retailers and suppliers.

    There is also some analysis of Bunnings first quarter sales performance and DuluxGroup's full year results.

    Just click on the following link to download this edition:
    HI News V2 No. 17: Kitchen report

    On a more personal note, there is a brief tribute to Tim Starkey, long-time group manager of Hardware & Building Traders (HBT), and a friend to HNN (Hardware News Network), publisher of HI News and Industrial & Tools News.

    Other major stories include the role of home brands in the hardware industry and our visit to the HBT state conference in Melbourne. In addition, we closely examine the ACCC's (Australian Competition and Consumer Commission) recent judgement against Dulux.

    The most recent hardware retail data is featured in our Statistics section. In our regular update on big boxes, we draw attention to some of the main points in the presentation by Bunnings UK managing director, PJ Davis to members of the British Home Enhancement Trade Association.

    In terms of suppliers, Hitachi is preparing to unload its power tools and semiconductor fabrication equipment businesses and sources indicate that Stanley Black & Decker is seeking buyers for its locks division.

    New products include Makita's 18V LXT(r) Sub-Compact Brushless range; Caterpillar's entry into the outdoor power market; and Leatherman emergency tools.
    Reports
    Kitchen renovations evolve
    IKEA tries humour to sell kitchens
    HNN Sources
    A new style of ad from Kaboodle?
    Real Living offers Kaboodle great editorial support
    Subscribe to HNN weekly e-newsletter
    This is a summary version of the article. To read the full article, please download our PDF magazine (which is free) at the following link:
    HI News Vol. 2, issue no. 17

    The kitchen renovation industry -- always a little fickle when it comes to style and fashion -- seems set to undergo one of its periodic changes for 2017. HNN has identified a number of trends, many of which are already shaping the kinds of products and the way those products are presented by the major flat-pack suppliers. Some of these trends will also affect the higher-end, semi-custom and fully custom kitchen design and installation industry as well.

    One trend which has become evident at the end of 2016, is that the slow shift from the pre-Christmas kitchen to the pre-Winter kitchen has taken a move forward. While this shift has been underway for the past two or three years, it seems to have accelerated in Spring 2016. One possible reason for this is that there has been an increase in spending on outdoor living renovations.

    The outdoor room -- which proved so popular five years ago, but declined due to the high level of maintenance required -- has met up with a strong trend to building decks, and produced a new version of the outdoor room. Built on the deck, this new outdoor room offers a new extension for outside entertaining, and is relatively easy to maintain. It is also rapidly developing more "outdoor kitchen" features, becoming almost a summer kitchen, especially for households in the warmer climes outside of southern Victoria and Tasmania. It is likely that establishing a "second kitchen" outside is reducing the spend on the standard kitchen inside.

    One area where this slow-down has been sharply felt is in sales of magazine advertising to the two main flat-pack competitors, the Bunnings-exclusive brand Kaboodle and IKEA. There have been almost no IKEA kitchen ads in Spring home decorating editions of magazines, and Kaboodle has also reduced its spending, outside of one particular magazine.

    In the notch above flat-pack, the semi-custom kitchen market, changes also seem likely in the near future. The Good Guys pulled out of their major promotional activity, sponsoring the kitchens on Channel Nine's reality/renovation show "The Block", and they don't seem to have replaced this with increased promotional spend elsewhere. The Good Guys' place on "The Block" was taken by the other main semi-custom kitchen company, Freedom Kitchens. Freedom carried off that sponsorship with real flair and demonstrated ability.

    As The Good Guys has been recently acquired by JB Hi-Fi, it does seem possible that its kitchen business will be spun out during 2017, as it doesn't sit well with JB Hi-Fi's main electronics and appliances business. Should that happen, the most likely buyer would be Freedom Kitchens.

    An alternative to this would see Metcash acquiring the kitchen business of The Good Guys, and incorporating this as one of the elements of its Mitre 10 Sapphire stores. That's unlikely, as Metcash has enough integration concerns at the moment without adding a service business to the mix. However, one strong possibility for Metcash is that it will spin out and IPO the hardware business in the first calendar half of 2019, and an asset such as a kitchen fitting service could help to make Mitre 10 more attractive as an independent company.

    The actual health of the core kitchen business at Mitre 10 is something HNN has not been able to determine, as Metcash has not responded to requests for information. It seems very likely -- and a little ironic -- that the kitchen business of Metcash's recent acquisition, the Home Timber & Hardware Group (HTH), is going through some tough times this Spring. HTH sells the same Principal Kitchen range as has been sold in Masters, with some stores, such as Hume & Iser in Bendigo, making it a major feature of their business. There have been some discounts on this range throughout Masters' liquidation sale, but in November 2016 these discounts increased substantially, to over 50% in some areas.
    Numbers

    In terms of kitchen installations in new homes, the Housing Industry Association (HIA) is predicting this will slow considerably during 2016/17 and 2017/18, before picking up again in 2018/19. The slowdown is predicted based on a reduced number of dwellings being built.

    Kitchen renovations -- as contrasted with new builds -- are expected to continue at around the same number for 2015/16 into 2016/17. The HIA pegs the "pool" of available renovations at 145,600 for 2015/16, and sees this increasing by less than 1% for 2016/17.

    Shane Garrett, a senior economist with the HIA, has indicated there are three main reasons why kitchen renovations will continue at a steady rate. While the HIA does see renovation budgets in general shrinking somewhat, even as more people turn to renovating, kitchens represent good value for money, and are lower in cost than major renovations such as extensions or structural alterations.

    Mr Garrett also points to the high levels of building in the early 2000s. With most kitchen renovations taking place in kitchens around 15 years old or so, this has helped to feed the pool of available work. Finally, he notes that there was been a sharp shift in fashion for kitchens, with the utilitarian looks of 10 or 15 years ago replaced by kitchens that match the rest of a house aesthetically.

    In 2014/15 the HIA estimates the average value of a renovated kitchen was $21,862, up from $19,036 for 2013/14. A survey conducted by the home design website Houzz during 2016 on renovations conducted during 2015 indicates that the average cost of a full renovation on a large kitchen was $31,000, while for a kitchen under 12 square metres it was $21,840. A minor renovation on a large kitchen averaged at $16,120, while for a kitchen under 12 square metres it was $11,570. The average size of a renovated kitchen was 14 square metres. Some 76% of all kitchen renovations involved replacing benchtops, according to this survey.
    Trends

    In addition to the trend of much of the kitchen renovation business under $60,000 shifting from the Spring to Autumn season, there are a number of other shifts taking place in the kitchen renovation market. HNN has identified six key ones.
    Appliance upgrades

    While the number of ads for kitchen suppliers reduced sharply in the pages of home design magazines, the ads for very high end kitchen appliances, especially ovens, increased sharply. Smeg and the Italian brand Ilve were particularly noticeable. Harvey Norman also ran a number of ad sequences that featured black and white images of high-end kitchen appliances.

    This seems to match up with industry reports that one version of a kitchen "fix up" instead of a complete renovation is to buy higher-end appliances for an existing kitchen. Instead of spending $30,000 or more, home-owners spend $12,000 to $15,000 on appliances with advanced technology, and perhaps replace kitchen benchtops as well.
    Style over reference

    During 2014 and 2015 there was a push for kitchens which offered a very particular design approach, such as industrial, rustic, or cafe. In 2016 there is a move away from those complete systems of design to more freeform styles, where colour, for example, plays a much greater role. This echoes a trend that has been developing in the US, where many homeowners approach kitchen design with a primary colour -- white, blue, green, black -- as its central theme.
    Adaptation over cost

    Where cost has played a central role in the past when it came to choosing a kitchen, consumers are now willing to pay a little bit more for kitchens which offer a higher degree of adaptability. While the finite life of a kitchen might remain 15 years, they expect that they will update the kitchen once or twice over that period, to keep up with changing fashions. Cabinets that can be easily repainted a different colour, with hardware that can easily be swapped out have gained in popularity.
    Apartment style

    In the past many people moved from their parents' house to a share house during university/apprenticeship, then bought their own house. Today, it is more likely that there will be a period of five to 10 years (or more) when they will live in a multi-dwelling building of some sort. They have grown used to much smaller kitchens, and while they might want something a little bigger, they feel a little uncomfortable in kitchens that are too big. This is especially noticeable for kitchens in smaller houses. Where these homeowners would once make big kitchens to make the house "feel bigger", that's less likely today.
    The Not So Serious Kitchen

    Not that long ago, it seemed that everybody who had anything to do with a kitchen almost had to be, compulsorily, a gourmet chef. Recently, homeowners have come to terms with the fact that many of them might be fair at putting a decent meal together, but they don't see a great future in flambe.

    Hence the origins of the Not So Serious Kitchen (NSSK). It's no longer mandatory to concentrate on how much "prep space" you have on the benches when, frankly, the most used kitchen appliances will be the microwave oven and the grill.

    This means many homeowners are seeking to downscale the kitchen, reducing it both in size, and in its presence in the house.
    The living room is the new kitchen

    Over two years ago, HNN and a number of other sources suggested that there was a move in Australian households to make the kitchen the new living room. Today, we're seeing a further evolution of that trend, where the living room is functioning as part of the kitchen. Where these two room were, in the past, kept clearly separate, designs now feature kitchens opening directly into the living room in open plan houses.
    Advertising

    It is true that 2015 was an unusual year for kitchen advertising. IKEA was boosting its new kitchen system, METOD, after its release in May of that year, with a heavy cycle of magazine advertising in September and October. Just about every home design magazine featured at least a five-page foldout on the new kitchen, and some had considerably more ads. Kaboodle, motivated not only by the IKEA move, but also by its involvement with in Bunnings' resistance to the Masters venture, responded with a heavy advertising blitz as well.
    IKEA Spring 2016

    In 2016, the kitchen advertising spend could be optimistically described as "subdued". HNN could only discover one single ad for IKEA kitchens, and that was in a quarterly publication, and so likely had more to do with February/March 2017 than the current season. There were some IKEA ads in other magazines, but these were devoted to IKEA's Indian-inspired SVARTEN range of interior design furnishings. Not even an editorial which featured a METOD kitchen in Better Homes & Gardens September 2016 edition could seemingly convince IKEA to advertise.

    One possibility with IKEA is that this slowdown in advertising is partially a result of the company's change in its media buying contracts. After a review that began in April 2016, and went through to July 2016, IKEA determined that media buying and planning would be handled worldwide by either Group M or Dentsu Aegis.

    It's not clear currently which media buying group IKEA Australia chose to go with, though most commentators expect it would be an agency in the Group M business. (Media buying/planning relates only to purchasing ads. IKEA's creative work in Australia seems to be mostly handled by leading ad agency The Monkeys. IKEA appointed Pulse Communications, part of Ogilvy PR Australia, as its public relations agency of record in April 2016.)

    Another possibility is that IKEA is gearing up for general online sales starting in early 2017, with a switch to more spending on online advertising. The company has recently launched an online store that services only Tasmania. It runs online stores in other countries around the world, including the US.

    However, HNN is fairly certain that the lack of IKEA ads in Spring 2016 is down more to internal logistics than strategy. One factor that points clearly in that direction is that, with the publication of the December issues of home design magazines, IKEA's kitchen ads have made a mild comeback. It makes very little sense to choose December as the month to promote kitchens over September and October. That late in the year those families that intend to install a new kitchen before Christmas are well down the planning and renovating path.

    Outside print advertising, IKEA globally has begun to adopt a very interesting approach in its online ads. Its main theme in recent times has been "Let's Relax". The company has put together a very clever ad on this theme which illustrates exactly how silly today's online-obsessed world has become. An aristocratic family in what looks like the Louis XIV period sit down to eat a meal -- but wait, they can't touch it until a painter has rendered it on a canvas. Which is then transported around the country via couriers for a number of groups to view, who give it a thumbs up or a thumbs down. Only when those results are tallied and reported back to the family can they eat the meal.

    In parallel with this effort, IKEA has run a series of short videos which it calls "Kitchen Confessions". In each of these people from a range of ethnic backgrounds confess to a range of "kitchen sins". "I served take-away food," one woman confesses, "and pretended it was home-made." "I never use a timer," is the blunt statement of a another man. "I ate from disposable plates," a woman says, "for a month".

    Other confessions are far more serious, even grave. "I never understood," a man says, "the oven symbols". "I never wash lettuce". And, finally: "I can't cook".

    The video closes on the message: "Relax. Nobody's perfect".

    What is definitely getting picked up here is the NSSK theme described above. IKEA has likely identified that one factor preventing people from buying its kitchens is the sense that they need to be enthusiasts -- dedicated chefs, stylists extraordinaire, appliance savants -- in order to design and order a kitchen. In truth, lots of people simply need a kitchen, and it's not such a big deal. It needs to be an adequate kitchen, but they don't expect it to "transform the living space" or suddenly make their family life richer and more meaningful. It's a kitchen. You cook stuff there. That's OK.
    Kaboodle Spring 2016

    Kaboodle had more of an advertising presence during the season, especially in the Bunnings-supplier perennial favourite, Better Homes & Gardens, as well as Real Living. The big exception for Kaboodle, however, was the September 2016 issue of Australian Home Beautiful (AHB), which had a saturated ad buy. There are seven pages of advertising, which meant that Kaboodle "owned" that issue's "kitchen special" feature. While Kaboodle has rightly targeted this magazine for some time as representing a good market for its products, it is also possible that, with IKEA pulling out, some of those ad pages were sold at discount, "distressed" rates.

    Better Homes & Gardens, as is usual with Bunnings suppliers, gave Kaboodle a heavy editorial presence, featuring in particular its "paint it yourself" cabinet doors, and had one full page and one double-page spread ad. Real Living also featured the "paint it yourself" cabinet doors (though in a much more creative way than BH&G) in two separate editorials, and scored a double-page spread ad. These are very much "standard" ads for Kaboodle, similar to those it has been running over the past two years or so. The editorial design feature was backed up by another editorial feature, providing DIY instructions for painting the Kaboodle cabinets.

    The real Kaboodle story was unveiled in AHB. This featured what appear to be two new style ads from Kaboodle, though at a guess this isn't the finished campaign that will be seen in Autumn 2017. Kaboodle has tied these ads together with a theme it calls the "seven builds" in the first ad of the series. The seven builds are:
  • Built to dream
  • Built to cook
  • Built to celebrate
  • Built to design
  • Built to create
  • Built for colour
  • Built to last

  • The two new ads would seem to be "built to cook" and "built to colour". The first shows a crisp white kitchen with an island bench, and the second shows four cabinets along a wall, each painted a different shade of blue, promoting the "paint it yourself" range. One factor that Kaboodle hasn't got quite right in particularly the second ad is the height of the camera.

    In the darker ads the company has featured recently, the camera height is just slightly above the bench height, which tends to highlight the benchtops, and give the ads a planar feel. This camera position doesn't work quite as well when the main subject is brightly painted cabinets. Most kitchen photography highlighting cabinets uses a camera height that is lower, usually 50cm to 65cm from the floor.
    A new style of ad from Kaboodle?

    It is difficult to know to what extent these ads play a clear role in Kaboodle's future strategy, and to what extent they are a somewhat make-do response to a good advertising opportunity. At a guess, it is likely to be a bit of both, and the two new ads may signal a change in Kaboodle's advertising strategy for 2017.

    If that's true, then the company will be answering the trends of style over reference and flexibility. Cabinets that have been painted one colour can fairly easily be painted a new colour in another five or six years. In terms of pure advertising, the addition of brightness and colour in the Kaboodle ads would be welcomed by many.
    Analysis

    There are two trends that likely deserve a good amount of attention going into 2017, one of which has been mentioned above, and one which has not. The one that has not been mentioned is a deep underlying trend in retail, that's actually been around in some form for the past decade, but which is beginning to bite a little deep now. That trend is all about the ongoing decrease in the influence brands have on consumers.

    It could be said that as we move into 2017 the entire notion of what a brand really is has become more a question than an answer. One reason for this -- though it does not have a big direct effect on either IKEA or Kaboodle -- is that the influence of standard television programming itself is decreasing. The top 50 years for brands, from about 1956 through to 2006, coincided with the top years for television. TV, in fact, has been every advertiser's dream medium, just a fantastic way for them to get their message delivered.

    Today TV is being steadily replaced by online alternatives. The simple truth behind this is that online video viewing is likely not even half as effective as TV has been for advertising. Many online viewers dislike advertising so much that enough ads by one particular brand actually turn them off that brand. So advertisers face a steady migration of audiences away from a medium which is good for advertising to one which isn't. That has to mean that, in the main, we face a future where advertising will simply not be as effective in producing sales as it has been in the past.

    There are other influences that are leading to the decline of the brand as well. One way of getting to what those influences are is to ask the question: "What has replaced the brand?" The simple answer to that question is: innovation. One of the strongest brands the world has ever seen is Apple, the California, USA-based maker of smartphones and computers. Yet as successful and big as it has grown, people still speak of it as though it is perpetually on the edge of some kind of failure. That is because, as it sits out there on the edge of innovation, it is only ever as good as the most recent product it has launched.

    An even better example of how innovation has replaced brand can be seen in the car industry. Small car makers have come and gone over the past three or four decades, and often end up being only really known (and remembered) by car aficionados. In Australia, names such as Bolwell are a mystery to all but a few. And there have been dozen of others: Puma in Brazil, De Tomaso in Italy, for example. Even currently operating manufacturers such as Proton in Malaysia are little known.

    But everybody knows what a Tesla is. That's not because of advertising, or publicity stunts. It's because Tesla products are directly and evidently highly innovative and highly effective. Drive a Tesla alongside a great car such as BMW's i7 sports hybrid, and it becomes immediately evident that the BMW is a very good car, but it's really a repackaging of the past. The Tesla is a direct line drawn to the future. Despite BMW's decades of great cars and good advertising, the innovation in Tesla is able to overshadow it.

    Both Kaboodle and IKEA have been quite innovative in recent years. IKEA launched its new kitchen system, METOD, in 2015, and it has been a success. Kaboodle managed to evolve its brand from what many saw as a cheaper alternative to a "real" kitchen, to something that meant average homeowners without too much to spend could get the style and features of much more expensive kitchens.

    Innovation, however, is something that never stops. Where in pure branding companies can take a year or even two years off from major developments, innovation is constant. So the question needs to be asked: how and where should flat-pack and standard kitchen makers think of innovating in the future?

    One way to get to an answer is to run the thought experiment of imagining where a startup kitchen company would innovate today in entering this market. There would be at least two entry points.

    The first is to reconsider the "pod" kitchen. This idea of the do-everything pod that is prefabricated and dropped into a kitchen space has been popular in Europe for decades, but not really found a receptive audience in Australia just yet. However, if the trends HNN predicts do take hold, especially the acceptance of more apartment-based styling and the rise of the NSSK, pods may become an acceptable, cost effective alternative for many Australian homeowners.

    The second -- which is a real challenge -- is to develop the $12,000 kitchen. How much kitchen -- complete with appliances and installation -- could really be delivered for $12,000? This thought experiment opens up a number of areas for investigation, such as considering materials, new sources of manufacturing, and exactly how DIY a kitchen can be made. Today's flat-pack kitchens can be self-assembled, but this requires a fair amount of skill. Can this be made simpler, easier, cheaper?
    Appliances

    The second key trend, which has been mentioned above, is the shift evident during this Spring 2016 season towards buying better appliances rather than doing a complete kitchen upgrade. At the moment this trend is only affecting the higher-end of the kitchen purchasing spectrum, but it is likely to start affecting the middle of the market by the Autumn 2018 season. Developments such as steam ovens will likely begin to become more commonplace by then.

    Again, this is largely driven by innovation. Appliances are getting smarter, and we are likely on the edge of seeing them fully integrate into intelligent home management systems designed by companies such as Amazon and Alphabet (Google). Instead of playing with knobs and dials, it will be possible to say "Set the oven temperature for 300 degrees, and the timer for six-thirty".

    This change will bring a new balance to parts of the kitchen renovation market. IKEA, for example, is well-positioned to take advantage of such a change. Replacing kitchen renovation with new appliance purchases will work well for the company as it is fully vertically integrated into kitchens. IKEA is no doubt developing its own high-end range of kitchen appliances, and these will likely launch before 2019.

    For other suppliers, such as Kaboodle and Bunnings, it is probably not such a positive development. While Bunnings is making more of a move into appliances, it's a difficult market to enter against strong and persistent competition.
    Other developments

    The other major change in kitchens which is likely two years off from widespread development is the use of virtual reality (VR) technology to showcase kitchens to potential customers. While some advances have been made in various "3D" kitchen design systems, most of them remain awkward to use. Fully developed VR will enable customers to "enter" a possible kitchen and "walk around" in that kitchen. It could be a winning sales tool that really closes the deal for some suppliers.
    Conclusions

    In the longer term, the problems that continue to hold back the overall kitchen renovation industry from reaching its full potential are much the same problems that hold back over 50% of renovation activities. Where construction has made some progress in becoming a more efficient (and a much safer) industry over the past 20 years, progress in the renovation sector has all but stalled.

    The simple fact is that if renovations could be made less expensive and much simpler to organise, there would be a sharp increase in renovation numbers. To do that means a transition from a smaller number of renovation jobs at a relatively high price, to a much higher number of renovation jobs at a lower price.

    It's a difficult transition to make. In the end, it's likely we will have to rely on the suppliers -- and retailers to drive the suppliers -- to bring in the needed changes to the industry. In the mean time, HNN believes the renovation industry, in spite of its recent growth, is perhaps 20% below its true potential, in earnings, not revenue terms.
    Bigbox
    Wesfarmers-Bunnings sales results 2016-17 Q1
    Bunnings results for FY2016/17Q1
    Wesfarmers
    Rainfall for September 2016
    Average Australian rainfall for September
    Click to visit the HBT website for more information
    Australian retail/resources conglomerate Wesfarmers has announced its sales figures for its retail operations over the first quarter of its FY2016/17. Bunnings, Kmart and Officeworks performed well. Coles Food and Liquor returned a mediocre result. Target returned negative growth results.
    Bunnings results for FY2016/17Q1
    Bunnings

    Bunnings Australia and New Zealand (BANZ) reported sales of $2659 million for the quarter, up by 7.4% on the previous corresponding period (pcp), which was the first quarter of FY2015/16. Like-for-like store growth was 5.5%, according to the company.

    These numbers were substantially lower than growth for the two previous first quarters. According to the company, there were two contributors to the lower numbers. The first was that Australia experienced wetter and cooler conditions throughout this early Spring quarter, resulting in an induced incentive to commence home improvement tasks. Additionally, the liquidation sale of Masters may have affected sales, though only for a limited proportion of the quarter.

    In response to a question from an analyst, Wesfarmers Home Improvement CEO John Gillam commented on the factors which had impeded results for the quarter. He began by commenting on the difficulty of estimating any impact from the Masters liquidation sale:
    If you think right back to February [2016], we talked about the risks of unprecedented liquidation event, because we thought it would be May/June, then we called it out again in August, because then there was more knowledge about it... There is no transparency over the volumes that are being liquidated, so your guess is as good as ours.

    He also offered this assessment of the impact of the poor weather during Spring 2016:
    I would point out...you've got to go back to about 2012/13 financial year to find a Spring that has been as late, and a Winter that has just kept going, and the water that has been around. We are very sensitive to weather. That is not new news. We call it out when we've got the wind at our back, and this time we're having to tack pretty hard to set up for the Spring. Hopefully, when the warm weather comes, there will be very good growing conditions, given the sort of moisture that is around. But, you know, Richard's [Goyder] comments at the start were there because it is very obvious that what started at the start of September has continued in October, and is continuing as we speak.
    Bunnings UK

    Bunnings UK reported sales of GBP320 million ($554 million), as Bunnings completed its seventh month of operating the acquired Homebase stores. Another metric offered by the company was total customer transactions, which it says increased by 8.4% as compared to the pcp.

    Mr Gillam expanded on why Bunnings offered this particular measure, and the task that the company faces in developing Bunnings UK:
    The reason we have included this [number] is that we are rebasing sales quite significantly. If you recall back on the June strategy day, my self and PJ spoke about the best number to think of is GBP1.2 billion across the full year, and there is a bit of a washing machine of product that was Argos coming out, and reported previous revenue, like Habitat that was part of Homebase [also going out]...and closing stores -- with all of those changes it seemed best to provide some measure of what is going on.
    We are pleased with the progress, but there is a helluva lot to do. It is a big, big job we've got in front of us. Nothing too scary, but just lots to do. But eight months in, we're on track.
    Analysis

    The following map shows the normal, average rainfall pattern across Australia during September:
    Average Australian rainfall for September

    The following map shows the rainfall for September 2016:
    Rainfall for September 2016

    As these maps illustrate, there has been substantially more rain along the eastern seaboard of Australia during September 2016 than there is on average. Mr Gillam is correct in recalling this condition has not occurred since 2012, and is in this case slightly more severe. As Mr Gillam suggested, this kind of weather event is more likely to affect the timing of many sales rather than the extent. Lush conditions brought on by wet weather should help improve sales, and at the very least partially compensate for any renovation work that may have been postponed due to poor conditions.

    It is likely that any impact from the Masters liquidation will show up more strongly in the results for the second quarter of the current year, with peak sales from the liquidation reached during October and November. However, Bunnings will after that be the sole big box hardware retailer operating in Australia, through an expanded network, and it seems very possible that in the second half any losses due to the Masters liquidation will be compensated for by increased sales.

    It remains to be seen how competition between Bunnings and the two chains now operated by Metcash, Mitre 10 and Home Timber and Hardware Group, will play out. Given the difficulties of integrating a business that largely consists of independent retailers, it's unlikely a clear strategy will emerge much before the second half of calendar 2017.

    As HNN has remarked previously, it seems unhelpful to try to estimate how the Bunnings UK business is doing, until at least the completion of FY2016/17. The indications, based on the numbers Wesfarmers has provided, is that Homebase is continuing to trade successfully. The first Bunnings UK store is expected to open in February 2017 at St Albans, with another three expected to open in the following four months. These will provide the first solid information on how the Bunnings concept can be translated to the UK
    Companies
    DuluxGroup full-year results 2015-16
    DuluxGroup results FY2015/16
    DuluxGroup
    Paints and Coatings numbers for Dulux
    Dulux jellybean ad garners nearly 1000 views on the internet
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    Australian household paint and building products company DuluxGroup (Dulux) has reported its results for FY2015/16. The results were overall modestly positive, with the company itself describing them as "solid". Sales revenue for the year was $1716.3 million, up by 1.69% on the previous corresponding period (pcp), which was FY2014/15. Earnings before interest and taxation (EBIT), excluding non-recurring items, rose by 4.52% on the pcp to reach $201.1 million.

    Net profit after taxation (NPAT), excluding non-recurring items, increased by a similar percentage to reach $130.4 million. In Dulux's paint and coatings division, sales increased by 2.27% over the pcp, to reach $890.6 million, while the division's EBIT, excluding non-recurring items, rose by 6.61% to reach $156.5 million.

    In a Dulux press release, the company's CEO, Patrick Houlihan, is reported as stating:
    Our Dulux, Selleys and Yates businesses, which make up more than two thirds of DuluxGroup's revenue, collectively grew earnings by 6.2%, and individually delivered record profits. These businesses have done well despite short-term retail market challenges, including the impact of the Masters closure and stock liquidation. The Dulux trade and specialty coatings businesses were particularly strong, which demonstrates the value in our broad end-market approach.

    In his remarks at the results presentation to investment analysts, Mr Houlihan sought to portray Dulux as having fared well, despite significant negative factors in its markets.
    Dulux results FY2015/16
    Paints and coatings

    Sales for this division came in at $890.6 million for the year, up by 2.3% on the pcp, while EBIT excluding non-recurring items was $172.3 million, up by 4.7% on the pcp.
    Paints and Coatings numbers for Dulux

    Mr Houlihan said that the weaker than usual growth was a result of a number of factors. A major one was that the renovation and repaint market (stated as 75% of Dulux's market volume for paint, 65% for the company overall, according to the current annual report) fell by 4.5% during FY2015/16. While the trade sector of this market grew, the retail sector declined. Contributing factors to this decline included:
  • A change in product mix, specifically higher sales in low-end paint through retail channels
  • Promotional discounts used to launch Dulux's new variant on its Wash & Wear paint
  • Discount paint sales which resulted from the liquidation of Masters' paint stock

  • In response to an analyst's question later in the presentation, Mr Houlihan expanded further on the impact of the Masters' sales:
    We did see some impact late in F16, but not a material impact. I suppose the paint and coatings result speaks for itself in terms of sort of overall performance. If I think about paint specifically, remember what has been in Masters. The Valspar Company to my knowledge have taken the premium Solagard product back, so we're not seeing a discounting of a well known premium brand.
    We're seeing liquidation of effectively unknown brands: Sherwin-Williams, Pascol, and Valspar, which while as a brand it's been around for a while, in consumer research it's still effectively unknown. So we believe that that liquidation is flowing more into the mid to bottom end of the market, where we are less biased, and that is why we are seeing less of an impact, and even into the mid to lower end of elements of the trade market, where you might think of a handyman or the youth brigade or whatever is the best way to describe that.

    In his general comments on the paints division, Mr Houlihan also highlighted three positive developments that are under way. He nominated what he called the company's "iconic jellybeans promotion" (where customers receive a can of jellybeans along with the purchase of a set amount of paint), which he said had worked well with the launch of the new Wash & Wear paint. In addition, there is Dulux's growing range of speciality coatings products. Dulux is also seeing good results, apparently, from its Dulux Snapshot colour-matching device, for which the company has exclusive rights in Australia and New Zealand.

    In the company's annual report, it notes that input costs such as those of titanium oxide (known in the industry as TiO2) and latex resin were expected to increase in line with inflation during 2017.
    Acquisition of Craig & Rose

    Dulux announced it had acquired a small UK-based paint manufacturer on 10 August 2016. Craig & Rose is described by Dulux as manufacturing a niche range of premium paint products. The company does not seem to have actually disclosed the acquisition price. Instead it has listed three acquisitions as a group -- Craig & Rose, Munns lawn care business and the business Gliderol had in Western Australia -- and stated the total acquisition cost was $13.2 million, with goodwill accounting for $5.5 million of that cost.

    Mr Houlihan explained at some length the logic behind this acquisition during the analysts' presentation:
    As we have already mentioned, in the second half we acquired Craig & Rose, a small premium decorative paint company in the United Kingdom. Craig & Rose is based in Edinburgh, and up until we acquired it, it was the oldest independent decorative paint brand in the United Kingdom, founded in 1829. The business is small and operates at break-even level, however we believe that the acquisition will provide an excellent entry point for the UK, and has excellent growth prospects for DuluxGroup.
    The Craig & Rose brand itself has been under invested in, and has the potential to grow with better marketing and wider distribution. An in-country presence and manufacturing base will assist us in potentially launching other brands and ranges into the UK market, such as Selleys and Porter's.

    In response to a question from Mark Wilson, an analyst with Deutsche Bank, he elaborated further on this acquisition:
    What we've done with Craig & Rose is buy this business that's relatively small. You might think well why buy it, but what it does is it gives us manufacturing capability on the ground that can be easily expanded for some incremental capital. I don't envisage we'd be going to build new manufacturing capacity or new manufacturing sites there ourselves.
    It gives us a brand that has latent value, but it just hasn't been invested in. It gives us chemists on the ground. It gives us formulas on the ground. It might seem a bit unusual, but in Europe to sell any formulas that utilize raw materials, those raw materials need to be registered under the European REACH legislation.
    So suddenly we've got chemists, and raw materials, and formulas that all European REACH compliant. So we can do things that we otherwise couldn't do by shipping paints or formulas from Australia.
    It basically gives us a beachhead to explore how we can improve that business, let alone use the infrastructure it gives us to look at what we can do with Selleys, what we can do with Porter's. Let alone, as I say making Craig & Rose a better brand.
    Those comments are very UK specific, but it also gives us a platform to explore what else we might do in other parts of Europe.
    Consumer and construction products

    Sales in this division for Dulux's FY2015/16 came in at $253.9 million, down by 4.5% on the pcp. EBIT exclusive of non-recurring items was $29.5 million up by 1% on the pcp. This division consists of Dulux's Selleys and Parchem businesses.

    Mr Houlihan stated in his remarks to analysts that there were two main drags on growth for Selleys. The first was the "destocking" activities at Woolworths' hardware division. While he explicitly named the Masters' liquidation sale, by implication it may be that the Home Timber and Hardware Group (HTH) was also destocking, prior to its acquisition by Metcash. The second drag came from a reduction in internal sales of Selleys' products, as Dulux's Asian operations switched to sourcing comparable products locally.

    Mr Houlihan stated in his remarks that, exclusive of those factors, the revenue for Selleys had grown by 4% during the year as compared to the pcp. He said that as these were passing factors, growth should return to Selleys in 2016/17.

    The other business in the division, Parchem, is reliant on engineering-based infrastructure projects, and it was hard hit by a decrease in that kind of construction due to contraction in resources industries linked markets.
    Other divisions

    Cabinet and architectural hardware grew EBIT by 38.9% to reach $12.5 million, with the Lincoln cabinetry business making the biggest contribution. The "Other Businesses" category saw EBIT decline by 8.8% over the pcp to $14.5 million. Papua New Guinea declined sharply, Yates managed some growth in what Dulux describes as a "soft market", and a good performance by operations in Vietnam saw improvement in South-East Asia operations.

    Perhaps the biggest disappointment of the results came from the garage doors and openers division. Overall sales grew by 5% over the pcp to reach $177.9 million. According to Dulux, excluding the acquisition of the Gliderol Western Australia business, sales growth was just 2.2%. Overall EBIT declined by 5.8%, or one million dollars, to reach $16.1 million.

    Dulux reported that the division's market was flat. Mr Houlihan reported in his remarks that the company was satisfied with sales directly to builders, sales through B&D dealers was disappointing. However, he does see some upsides:
    The reality is that the business remains work in progress. There are positives on the market in innovation side of the business, particularly in relation to access control, but the manufacturing and distribution strategy requires further fine-tuning.

    Mr Houlihan made some further comments in response to a question from Andrew Johnson, an analyst with CLSA:
    There's been evidence, and we've seen the impact, of market softening particularly in parts of New South Wales and Queensland. That is more in the dealer channeled focused on home renovation which tends to be one of the more higher margin areas, versus say for example, new housing where we've got reasonably positive growth but it's an inherently lower margin business.
    ...
    Just recently in October, we launched our Home Safe Home campaign. If you go and have a look at the B&D.com.au website, you can look at this stuff firsthand. We've launched the world first Auto-Locks, that when you shut a garage door, unless it's key locked, it's actually not locked. It's just held down by gravity and a chain. You can rip it open.
    We've launched in effect a deadbolt system that comes out from the door into walls that can be automatically locked through your smartphone synced in with your electronic opener. Because the key thing in this category is to give people peace of mind around safety and security when they're not at home. The biggest source of burglary break-ins to homes are through the garage. When they are at home sleeping at night you don't want people breaking into your home.
    I'm feeling pretty positive on the marketing work we've done, and we're back on television with those ads. Again, they're on that website if you want to have a look. The innovation we're doing, but I still feel we've got to do more work in the distribution channel to get basically the conversion of the leads we're getting through to the home owner via dealer quality, dealer footprint, the discipline in our sales force, let alone in our dealers around what the mutual obligations are. That's the work in progress.
    Analysis

    One way of looking at these slightly lacklustre results from Dulux is that the company has spent a year "trading sideways" -- making some gains which were offset by some losses. The narrative that Dulux is providing is of a company that has been affected by a series of unforeseeable events that have prevented it from performing as well as it might.

    An alternative narrative is to consider whether Dulux may be facing a more profound shift in some of its markets. These shifts might have a more long-lasting effect on its revenues and earnings. In that view, there are two prime, somewhat linked vulnerabilities that Dulux currently has in the marketplace.

    The first is that Dulux is heavily reliant on consumers continuing to select high-cost, premium paints. While this has been a steady and strong market in the past, there is no guarantee that consumers might not switch to slightly less premium paints in the future. To some observers the consumer paint market seems ripe for a kind of true disruption -- where products with fewer features and lower cost displace the top quality products. Just how good does paint have to get before consumers start considering paint products in the next category or two down?

    The second vulnerability is that, when it comes to premium paints, there are generally two main strategies for promoting these to consumers. The first involves emphasising the durability and ease-of-care for surfaces coated with the paint -- which is the strategy Dulux has taken with its latest Wash & Wear paint. The second strategy is to emphasise the ease of application of the paint. There are few reasons, really, that a paint cannot meet both requirements, but in general paints need to be sold with a single, strong message.

    The question is whether Dulux has found the right message for the current market. Is what stops people from painting a fear the paint will not last long enough, or concerns they will not be able to do a good job?

    It's a point that brings up a possible third vulnerability for Dulux: a major competitor. US-based Sherwin-Williams, which now owns Valspar and therefore Wattyl, has long marketed its paints as much for their ease of application as their general quality. It's likely that Sherwin-Williams will have Valspar better integrated, and will become a better competitor in the second half of calendar 2017.

    Mr Houlihan has, of course, repeatedly dismissed the effect of any foreign competitor on the Australian markets where Dulux currently dominates. For the past two or three years, he has insisted that architectural paint is largely something that is reputational, and that local companies will always do better than multinationals.

    These repeated statements cast a rather curious light, then, on Dulux's own acquisition of a very small paint company based in Edinburgh, Scotland. It's not just that Dulux is executing a strategy abroad that it has dismissed domestically, but it is doing so in one of the most hard-fought paint markets in the world.

    Finally there is Dulux's garage door and opener business. It is of course possible that, as Mr Houlihan has suggested, this is a business that just needs to be settled in, with a clearer line to its markets established, before it begins to perform well.

    However, it seems equally likely that this is a category that will continue to develop in ways that are not familiar to the somewhat untechnical (in a computer/internet sense) Dulux. We're probably a year out from garage door openers that are voice-controlled through services provided by either Amazon or Alphabet (Google). While B&D's recent mechanical innovation, a deadbolt on the garage door (a version of which seems to have been available in aftermarket kit form in the US since 2009) is an advance, it brings the product no closer to true Internet of Things (IoT) integration.

    To put IoT integration in simple terms: will consumers prefer to have a separate app on their smartphone for each element of the home they control -- an app for the garage door, the doorbell/front door lock, the air-conditioning, house lights, dog door and alarm system -- or one app that controls everything? It's very likely the latter will win. It's hard to see a clear path Dulux can follow to that kind of integration. All it can do is to wait for its Chinese suppliers to go down this path, which could take another two or three years.

    It is also interesting that Dulux chose to make no mention of the $400,000 court judgement against the company over paint products it sold prior to 2012, resulting from a case brought by the Australian Competition and Consumer Commission (ACCC). (This subject is covered in this issue of HI News, in the article entitled "Paints ain't paints". ) It seems to be missing not only from the results announcement, but from the company's annual report as well.

    To be fair, this does relate to mistakes Dulux made dating back to 2008/9 in product development and testing, as well as changes to the way the ACCC enforces consumer protection regulations. There is little or no ongoing risk of this re-occurring.

    What should also be taken into consideration for the first half of FY2016/17 is that the full effect of the Masters paint discounts on Dulux is likely to come to bear during October and November, the first two months of Dulux's next financial year. How much of an effect they will have will be interesting to see.

    On a more positive note, Dulux now has distribution in the two largest home improvement operations in Australia, Bunnings and the Metcash-owned Mitre 10 and HTH. While Sherwin-Williams/Valspar/Wattyl may eventually mount effective competition, it's likely Dulux will have much of the premium market almost to itself for the next eight months or so. It is likely that will balance out any negative effects of the Masters' liquidation for all of FY2016/17.
    The challenge

    At the core of these challenges is the possibility that, in retail, consumer choice is beginning to move beyond brands. While Dulux is to be congratulated for the high status both its paint brand and its Selleys brand enjoy, is it possible that brands themselves are entering a period of decline?

    As HNN has suggested elsewhere, brands have relied heavily on television to build their presence, with campaigns in other media feeding into the TV ads. However, the influence of TV itself is steadily fading, to be replaced by online video viewing. The difficult for advertisers with this is that advertising simply does not work as effectively online.

    Quite recently the Dulux brand has based itself on "traditional" Australian values. Take for example a TV ad from late 2015, where an authoritarian father mildly disciplines a little girl in a pink fairy dress and a boy trying to play sports indoors in order to preserve the immaculate newly painted walls of a house. In the end, the clever wife shows that all this fuss isn't necessary, as the new Dulux Wash and Wear paint can be easily cleaned.
    Dulux Wash and Wear: traditional family

    It's an ad that would not be out of place in 1975, but might have raised a few eyebrows in 1995. It's difficult to see it having a broad appeal in 2015.

    There is, of course, also the Dulux "jellybean" ad, where the main selling device is that customers get a free can of jellybeans with the purchase of eight litres of Dulux paint.

    Is it possible that Dulux is relying on its brand in a way that will become rapidly outdated? If brands do become diminished, how will the Australian architectural paint market reformulate itself? These are questions that will need to be considered over the coming two years.
    Bigbox
    Big box update
    Bunnings UK and Ireland managing director PJ Davis at the BHETA in the UK
    HNN Sources
    Bunnings plans to build a larger facility in Shepparton (VIC)
    Another zoning review will be made of Bunnings-owned land at Tura Beach (NSW)
    Click to visit the HBT website for more information
    Bunnings unveils pilot store plans to the UK industry; larger Bunnings store planned for Shepparton (VIC); potential re-zoning for Bunnings-owned land at Tura Beach (NSW); Bunnings Yarrawonga is set to open; and Bunnings UK could present opportunities for some suppliers.
    PJ Davis presents at UK event

    Bunnings chose a recent networking forum run by BHETA (British Home Enhancement Trade Association) to outline plans for the roll out of the brand in the UK and Ireland.

    In a presentation held at the Ricoh Arena in Coventry, Bunnings UK and Ireland managing director PJ Davis revealed that the first Bunnings Warehouse pilot store would open mid-February at St Albans in Hertfordshire.

    This will be followed by at least three more pilot stores by the end of June as the company phases out the Homebase brand, and a further four to six by the end of 2017.

    Industry publication, Horticulture Week reports that Mr Davis said the pilot would have a "wider assortment than anything you've seen in this country before". The UK pilots will also have the warehouse format. He added:
    All the (range) changes we're going to make we've made.

    Duvets and cups and saucers have been replaced by a lot more home improvement, timber, hardware and storage. Mr Davis said:
    We'll buy where we can get best value and the best innovative product. It's not just value, it's easy to use. We'll source from wherever...

    Mr Davis also said he and finance director Rodney Boys made some mistakes this year when adding GBP80 million (AUD132 million) of product to stop out-of-stock issues. He said:
    We were not going to allow empty shelves. In some cases there was too much stock. Some stores were a bit messy.

    Mr Davis told 350 BHETA members there is a "big job to be done" at Homebase, with areas such as tills and systems up to 20 years out of date. There are also distribution, legal, property and head office issues to separate from previous owner Home Retail Group.

    Mr Davis believes the UK has a GBP38 billion (AUD68.2 billion) growing DIY market. He said Homebase stores are generally the right size and in the right places but he wants to add new builds as well as conversions.

    Mr Davis said the 200,000sq ft. or 145,000sq ft. average Bunnings warehouse in Australia is too big for Britain because it is "hard to drive around here". He said Australian stores have a 15.5-minute drive time ideally, and up to AUD90 million turnover, "but in the UK 15 minutes doesn't get you far". He added:
    We probably need a few more stores. I just don't think they will be as big. We'll convert a few pilots to find out what customers really want then convert a lot more. We also expect to build new stores and take over other properties, which is cheaper than converting our own stores.

    In terms of pricing, Mr Davis said it will be "very difficult" to put prices up because wages are not rising as fast as inflation.

    Many UK import prices have risen by up to 20% post-Brexit and retailers and suppliers are debating on who should bear the brunt of the increases. Mr Davis said:
    Inflation is going to be driven by exchange rates not wages, which makes it very difficult to put prices up. If we put prices up, less will be sold. If wages were going up and there was more disposable income, it would be a good reason for prices to move.

    He said pricing is about trust because people can search prices instantly on the internet.
    They know when you're ripping them off.
    Online

    Mr Davis said Bunnings' website was in the top five in Australia with 130 million hits but bunnings.com.au is all about pre-shop and advice with its 760 how-to videos.

    He explained how his father taught him how to change a tap washer and car tyre but younger customers are no longer taught these tasks. Mr Davis said:
    We don't do online transactions in Australia.

    He said customers don't like them and trust Bunnings to have product in stock so there is no need for click and collect. They also enjoy store visits "but this market is different. It will be a fully transitional site".
    Lessons from Masters

    Mr Davis said Bunnings had learnt from Lowe's setting up Masters as a failed rival to in Australia. He said this was "one if the most expensive case studies in the world when Lowes took us on", adding that they lost AUD3 billion and were "very arrogant" and Bunnings would not show the same attitude in the UK.

    He said that he did not want his buyers to try and develop innovation:
    We're hopeless at it and so are a lot of other retailers in this country...I want them [my buyers] to work out how to sell more.

    Mr Davis said he wanted DeWalt or Bosch to wake up thinking, "How can we make better drills for less money?"

    Mr Davis also sees advantages in older British homes with 40% being over 50 years old, in contrast to Australia's newer homes.
    Bunnings gets bigger in Shepparton

    Bunnings plans to build a brand new, larger facility on Benalla Road in the regional town of Shepparton (VIC).

    The store's larger facility, with more car parking, space and jobs comes on the back of several other major projects in the area - the $70 million magistrate's court precinct, the $40 million Shepparton Art Museum and the relocation of the Coles Express service station to Riverside Plaza at Shepparton's southern entrance.

    The investment should augur well for a growing city. It also poses some questions - what will become of the old Bunnings site?
    Community uses

    According to a recent article in the Gold Coast Bulletin, there are some interesting possibilities for empty Bunnings stores in Queensland, with local councillors checking out the recycling of large empty bulk goods stores.

    For example, the former Bunnings Warehouse in Burleigh (QLD) has been earmarked for conversion to a community centre by Cr Pauline Young.

    The councillor confirmed she was running the ruler over the store, which has been tipped by property industry insiders as a possible facility for the staging of the Commonwealth Games. She said:
    We're running very tight on community centres in Burleigh and would like to think that post-Commonwealth Games we would be able to put something together. It's only very early days as far as the process goes...

    This comes as the number of groups using council's community centres booms, with five new centres opening in the past four years. Cr Young also said buying a bulk goods centre offered other benefits.
    We don't want to go out and design something and this store has already got car parking which is not metered so with a large number retirees looking to use a community centre that's perfect.
    Bunnings' rezoning request

    Another zoning review will be made of Bunnings-owned land at Tura Beach (NSW) after the big box retailer asked council for its support.

    The review request follows the NSW Department of Planning and Environment's gateway determination that a change of zoning to B5 business, be refused. It is not the first time that owners of the land have tried to get the zoning changed without success, according to Merimbula News Weekly.

    Some of the issues raised by NSW Planning were that the proposal did not fit council's view of Tura Beach as a village and the "primacy role of Bega" which it said was a "major regional centre".

    The matter will be taken to the Joint Regional Planning Panel (JRRP). Director of planning and environment, Andrew Woodley said that it was council's submission going to the JRPP that, if successful, would go as a recommendation to the state government. If the government agrees to let the matter proceed, the rezoning would be publicly exhibited and receive submissions.

    Only then, after a successful rezoning would Bunnings be in a position to lodge an application as development of this type is currently prohibited on this land, he explained.
    Final prep for Bunnings Yarrawonga

    Local newspaper, The Yarrawonga Chronicle toured the new Bunnings Yarrawonga store prior to its official opening.

    A typical warehouse operation, it has an extensive garden and outdoor furniture range, paint supplies, a large tool shop and a two-lane trade drive thru. In line with the retailer's commitment to sustainability, Bunnings Yarrawonga will implement a number of energy and water saving design features including energy efficient lighting and rainwater harvesting tanks.

    The new store forms part of the redevelopment of the Kaiela Industrial Estate on the Murray Valley Highway in Victoria and is more than 6,000sqm in size. Development of Bunnings Yarrawonga represents an investment of more than $10 million including a lease commitment, fit out and stock.

    Deb Thompson has been appointed store manager and will oversee over 70 staff. She said:
    Team members have supported a number of community groups already, working together to assist in local community projects including refurbishing the Fairy Garden, building a Mud Kitchen and raising garden beds at Yarrawonga Kindergarten as well as refurbishing the school veggie garden, fertilising, weeding and mulching the garden bed and fruit trees and installing a garden shed at Sacred Heart Primary School.

    Bunnings Yarrawonga was sold to Chinese investors for a reported $11.5 million earlier this year.

    Related:
    Big box update: Bunnings Yarrawonga has Chinese owner - HNN
    Bunnings UK looking to suppliers

    There is an opportunity for garden suppliers to add to a broader offer being introduced by Wesfarmers-owned Bunnings UK, according to Horticulture Week.

    Phase one of the new Bunnings-branded offer will be introduced over the next three-to-five years to "combine essential local elements with the best of Bunnings to build new business". This will include more local sourcing, including plants.

    The warehouse format will include "lowest prices, wider choice with trusted brands and great service". Opening hours could be extended, and Bunnings will aim at trade as well as consumer customers, becoming more of a builders' merchant format.

    The "always low prices" approach will mean not having discounter-style seasonal plant promotions and having more customer-facing staff. There will be higher stock weights and wider assortments, including for plants and gardening goods.

    Wesfarmers will prioritise bringing higher store merchandising standards to Homebase, with refits likely. Bunnings stores are refitted every five or six years.

    Long-term growth will be through a stronger team, better stock flow, higher productivity and deeper community involvement. This will all include more customer value, a better customer experience, greater brand reach and more merchandise innovation, which will be led by big brands. Rival B&Q has moved towards own brands in recent years.

    Store closures have also stopped but Bunnings UK will not consider any new outlets until the pilots are working. Omagh in Northern Ireland is the latest of 18 stores to be reprieved within the chain after a renegotiation of tenancy.

    Bunnings UK managing director Peter Davis and finance director Rodney Boys are leading a team that includes general managers Craig Castelino (merchandise), Shane Mealor (store development), Craig Wallace (operations) and Keith Murray (marketing). Property general manager Andrew Mason is ex-Halfords and Wickes. HR general manager Martina Kay is ex-Marks & Spencer.
    Reports
    Europe update
    Travis Perkins has announced plans to shut stores
    HNN Sources
    B&Q is planning to launch a one hour click-and-collect service in 2017
    Wickes has launched its "Wickes Hourly" click-and-collect service
    Subscribe to HNN weekly e-newsletter
    Builders' merchant Travis Perkins issues profits warning; advanced click-and-collect services from B&Q and Wickes; and Laura Ashley exits Homebase stores.
    Store closures at Travis Perkins

    The Guardian reports the uncertain economic environment in the UK after the vote to leave the EU has led to Travis Perkins, the builders' merchant and owner of the Wickes chain, revealing plans to close more than 30 branches, putting 600 jobs at risk.

    Travis Perkins will close 10 distribution and fabrication centres as well as the 30 branches and is reviewing the future of its plumbing and heating business, which dropped 3.9% in year-on-year sales in the third quarter of 2016.

    The closures will be across the company's trade brands, which include Travis Perkins, Benchmarx, its kitchen and joinery arm, and BSS and PTS, its plumbing and heating businesses.

    Travis Perkins, which employs 28,000 people and has 2,060 stores, said it hoped to relocate some of the affected staff to other locations.

    Chief executive John Carter said the company was making the cuts because "levels of future demand remain difficult to predict". Mr Carter blamed the uncertainty on Brexit and an increase in stamp duty on second home purchases. He said:
    It [Brexit] is a big part of the uncertainty. If we were stood here now without Brexit I think it would have been easier to predict 2017. The government took the decision to change the tax status of buy-to-let and we had a massive spike in housing transactions in March [before the new regulations started]. That is still unwinding to get to a consistent level.
    There would have been some uncertainty about 2017 just based on the housing transactions, but clearly it is a big uncertainty because we don't know how Brexit is going to work.

    Mr Carter said he expects the market next year to be "soft". He warned:
    We are working on the basis that it is going to be soft, but we don't know how soft. None of us have experienced this before and really it comes down to the consumer -- disposable income and consumer confidence.

    Travis Perkins warned it would take a GBP40 million to GBP50 million (AUD66.3 million to AUD82.8 million) hit from the restructuring in 2016, although two-thirds of that will be the writedown of the value of its assets and not involve a cash loss.

    Although Travis Perkins enjoyed a 3.4% increase in group sales during the third quarter and a 2% rise in like-for-like sales, which was driven by a 9% rise in sales to consumers, the plumbing and heating business contracted sharply.

    Mr Carter said the plumbing and heating business was "structurally challenged" as homeowners turn to online alternatives for repairs and installation or defer major purchases. Asked if the company would consider selling the business, he added:
    If we could, I think we would. The sector is not attractive to investors, so it is our job to fix it.

    Travis Perkins is halfway through a five-year overhaul of the group, in which it is shutting unprofitable stores and expanding in better-performing areas. It is revamping its Wickes stores and said it has refitted 50 shops.
    B&Q offers click-and-collect in an hour

    UK home improvement retailer B&Q is introducing a one-hour click-and-collect service. It also announced plans to roll out its new format store -- introduced at Cribbs Causeway in Bristol -- across 10 stores.

    Speaking at Retail Week's Interior Summit, B&Q chief executive Michael Loeve said it would launch up to 10 similar stores by the end of March. He said the company is trialling it in different catchment areas to see how shoppers react, adding that he was keen to get to the stage where the profit on store refurbishments would be strong enough to justify a full implementation.

    Mr Loeve admitted that B&Q had "lost focus" in terms of its stores' designs with some starting to look "fairly functional" and "a little bit tired". The latest store concept aims to improve this with brighter and more visual displays, and better in-store navigation as well as shop-in-shops.

    And, despite the continuation of B&Q's plans to close 65 stores across its portfolio, Mr Loeve revealed plans to open more stores, particularly in and around London.

    B&Q is also planning to launch a one-hour click-and-collect service next year, enabled by the introduction of a unified IT system across parent company, Kingfisher. There were hints the system would deliver more innovation, with the promise of "digital services not seen in the market before".

    Related:
    Europe update: An inside view of B&Q - HNN
    Wickes' DIY deliveries

    Home improvement retailer Wickes has launched "Wickes Hourly", a delivery service that provides customers with a choice of one-hour time slots for their product deliveries. The service is made possible through a partnership with delivery technology brand, On the dot, following a successful trial.

    Introduced across the UK, hourly delivery is designed to make home improvement shopping quicker and easier. Whether it is power tool failure or running out of a product mid-job, this service offer enables customers to chose ultra-convenient delivery.

    There are over 7,000 products available through Wickes Hourly and orders can be made online or through the customer services team. Precise one-hour windows are available seven days a week and same day, from GBP9.95 (AUD16.50).

    Developed in 2015, On the dot is operated by CitySprint -- the largest privately owned courier fleet in the UK with a regional network of 41 service centres - and supported by its GPS, SMS and email tracking technology. Its open API (application programming interface) means it can be easily integrated into retailers' checkouts and ePOS, both online and in-store.
    Laura Ashley dropped at Homebase

    Wesfarmers has axed 22 Laura Ashley concessions that were operating as part of its UK-based Homebase stores that will be converted to Bunnings outlets.

    Laura Ashley is a listed homewares and fashion group and revealed to investors that it would remove its concession stores within Homebase by the second quarter of next year. It sold paints, wallpaper, home furnishings and other housewares through Homebase.

    In January, Laura Ashley's Australian business was placed in administration, with the local and New Zealand businesses run under a licence agreement with Laura Ashley UK.

    At the Wesfarmers investor day in mid-June, Bunnings chief executive John Gillam confirmed the removal of all concessions from Homebase stores was proceeding to plan.
    Reports
    USA update
    The Restorer is made under the Porter Cable brand and sold at Lowe's
    HNN Sources
    Lowe's Vision is one of the first apps using Tango, a Google technology
    True Value has achieved comp store sales increase of 1.5% in Q3
    Subscribe to HNN weekly e-newsletter
    Lowe's is stocking The Restorer, a new tool under the Porter Cable brand; the Lowe's Vision App allows users to envision their home improvement projects using augmented reality; and True Value reports its third quarter performance.
    Power tool invention at Lowe's

    When Robert Kundel Jr. couldn't find the right tool to remove rust from the surfaces of the metal products his family's company works with every day, he made one with the help of fellow employee Richard Schley. Mr Schley previously worked as a tool and die employee at Delphi Packard Electric.

    Seven years later, Kundel's invention, The Restorer, can be purchased at Lowe's across the US and next year is expected to go on sale in New Zealand, Australia, Latin America and Europe. Mr Kundel told the Tribune Chronicle:
    I don't consider myself an inventor. I'm a solutions guy. But because I work here and we needed a solution to get something done, I ended up creating a tool for our business. Now it's available to others who need it.

    He began working for his father's business, Kundel Industries, an Ohio-based manufacturer of trench shoring products, when he was 16. Eventually, he moved into the role of chief operating officer at Kundel Cranes, a division of Kundel Industries.

    One of the company's biggest expenses involved prepping surfaces before welding or painting them. Typically, Mr Kundel explained, it used an angle grinder to remove rust and paint, but that left jagged marks. He said the prototype he created, albeit crude, worked so well to restore surfaces that he decided to patent and market it.

    Mr Kundel showed his prototype to a tool company, which made him an offer that he declined because, he said, it didn't "seem right at the time". He bounced around among several companies the next few years before signing a deal with Stanley Black & Decker that would launch his invention into 1,671 stores.

    He enlisted assistance from Matt Gennari of Maryland-based Gennari Consulting to get the product produced. Mr Gennari, who worked for Black & Decker 20 years, is vice general manager of US operations for Jinding, a Chinese manufacturer that produces the power tool for Wellington Corp.

    Mr Gennari said the invention is a crossover tool that replaces three devices, two of which can actually be dangerous to use.
    He's created a product that replaces 85% of the applications in those three tools with a very safe, ergonomically designed tool. The physics of the tool, and how it works are what's truly revolutionary about it.

    The tool, which uses a wheel that is actually an expansive roller, allows the user to remove a lot of material rapidly, without generating the large amount of heat other tools create.

    Approximately 13,384 units have been shipped to Lowe's. The tool has become available under the Porter Cable brand, a subsidiary of Black & Decker.

    Mr Kundel started a new company, Wellington Corp., to contract, manufacture and distribute the hand-held power tool that can be used to polish, buff, sand, scrub or clean surfaces by using interchangeable accessories such as a buffing wheel or polishing roller. It can also be connected to a vacuum, and Mr Kundel said he plans to add other features including scrubbing brushes for the multi-purpose device that "takes the elbow grease" out of the job.

    He has entered into a reverse licensing agreement with Stanley Black & Decker, meaning Wellington pays Black & Decker a royalty to use its name.
    Lowe's augmented reality in aisle 3

    Lowe's is giving home improvement customers a new way to see their homes through Lowe's Vision, one of the first apps using Tango, a Google technology that enables computer vision software on a phone for augmented reality experiences. Using the app and the Lenovo Phab 2 Pro, the first Tango-enabled smartphone, customers can envisage virtual home furnishings, fixtures and accents in their real living rooms, kitchens and bathrooms. Kyle Nel, executive director of Lowe's Innovation Labs said:
    Lowe's Vision and Tango bring our customers one step closer toward eliminating the challenge of visualising a completed home improvement project. Tango transforms the smartphone into a digital power tool that helps customers measure and style spaces in their home with confidence.

    By leveraging Tango technology, a set of sensors and computer vision software from Google that senses and maps surroundings, Lowe's Vision creates a 3D depth sense allowing customers to measure spaces and envision how products like appliances and home decor will look and fit together in a room.

    Lowe's Vision features at launch include the following:
    Power Measure

    Quickly and intuitively capture room dimensions and other interior space and surface measurements with a powerful digital tape measure.
    3D Designer

    Select any item from Lowe's virtual library and place it in the home in real-time to style and preview indoor spaces.
    Save, snap & share

    After designing the perfect space, save the project and share photos online.
    Shopping lists and reviews

    Create a shareable shopping list and save to a myLowe's account. Find additional product information like reviews, related items and promotions.

    The Lenovo Phab 2 Pro will be available in December. Lowe's Vision is a free download in the Google Play Store.

    Related:
    USA update: Lowe's Tango app for projects - HNN
    True Value posts more gains

    US-based retail hardware cooperative True Value Co. has achieved a comparable store sales increase of 1.5% in the third quarter. It reported growth in six of the cooperative's nine product categories, led by farm, ranch, auto, pet, lawn and garden and paint.

    Revenue was USD1.16 billion, up 0.7% or USD7.7 million, compared to last year. Gross billings were USD1.59 billion for year to date ending Oct. 1, 2016, up 1.6% or USD25.6 million. On a gross billings basis, wholesale comparable store sales were flat versus the year-earlier nine-month period, the company said.

    The retail co-op posted net margin of USD20.5 million, up 88.6% from a year ago, driven primarily by continued efficiencies in lower inventory provision and adjustments, advertising costs and freight-in expenses. President and CEO, John Hartmann said:
    Despite a soft retail environment, True Value members continue to see the benefits of our strategic plan unfold as they grow their business and engage their markets. Our continued strong growth in net margin shows that we are making clear and steady progress.

    True Value also expanded its square footage and retailer base. In the nine-month period, the company added nearly 1,120,000 square feet of retail space, furthering its commitment to grow Destination True Value (DTV) and other relevant formats in its network. DTV comparable store sales were up 2.5% year to date.

    There are more than 4,400 True Value locations around the world.
    Companies
    Hitachi to sell power tool unit
    Hitachi gears up to sell its power tool and chipmaking equipment businesses
    Nikkei Asian Review
    Hitachi Koki posts 2015-16 results
    Hitachi-Koki kickstarts 2016
    Subscribe to HNN weekly e-newsletter
    Hitachi is preparing to unload its power tools and semiconductor fabrication equipment businesses.

    It is focusing resources on infrastructure and information technology, and related services such as maintenance, management and consulting as part of efforts to streamline its sprawling operations and clarify its business philosophy. Hitachi's power tools and chipmaking machinery operations focus more on the sale of equipment than on services and the company has decided that they do not fit the broader group strategy.

    Hitachi and its Hitachi Koki unit together own more than half of Hitachi Koki's outstanding shares, including treasury stock held by the power tool maker. Hitachi has initiated a bidding process with a goal of unloading the stake by the first half of 2017. The sale could total more than 50 billion yen (AUD632 million). US investment fund Carlyle Group is among those interested.

    Plans to sell Hitachi Kokusai's chipmaking equipment business could also happen next year. Hitachi could first buy all of Hitachi Kokusai's remaining shares on the market via a tender offer, before spinning off the chipmaking equipment business. Then it could directly sell a portion of its stake in the unit to another company.

    Hitachi is involved in a wide range of businesses, a factor that hurt earnings during the 2008 financial crisis. It got back on track after chairman Hiroaki Nakanishi and other executives clearly laid out a new focus on infrastructure and IT.

    Hitachi also hopes that the sale will breathe new life into restructuring efforts some say have stalled. It accepted investments by SG Holdings and Mitsubishi UFJ Financial Group this year in its logistics and leasing arms, respectively. It will continue pursuing reforms for non-core businesses, including selling them off.

    Hitachi sold its hard-drive business in 2012 and spun off operations in liquid crystal display panels, to create a revenue base competitive with companies such as General Electric.

    In 2014, the Japanese company relisted electronics maker Hitachi Maxell that had been made a wholly owned subsidiary back in 2010. It turned its business in thermal power generation systems into a joint venture with Mitsubishi Heavy Industries in 2014, and its air conditioning business into a joint venture with US-based Johnson Controls in 2015.
    Companies
    Stanley Black & Decker offloading locks: sources
    Stanley Black & Decker is looking for buyers for its mechanical locks business
    Reuters
    Stanley Security releases a wireless solution
    Stanley Black & Decker 2016 Q1 results
    Subscribe to HNN weekly e-newsletter
    Power tool maker Stanley Black & Decker is working with investment bank Goldman Sachs Group on a sale process for its mechanical locks business, which could fetch as much as USD1 billion (AUD1.3 billion), according to people familiar with the matter.

    The divestiture process for the unit, which sells and installs locking mechanisms and keying systems, would allow Stanley to raise cash by selling what it sees as a non-core asset.

    The business has not performed as well as competitors with more scale such as Allegion and Assa Abloy, and Stanley has been more focused on growing its electronic security systems.

    The locks business has 12-month earnings before interest, taxes, depreciation and amortisation (EBITDA) of around USD70 million (AUD91.2 million), sources told Reuters.

    Asked by an analyst recently about the company's review of its security business, Stanley chief executive Jim Lore would only say that "it will play out in the coming months, and that could be another source of funds if it goes in that direction".

    Mechanical Access Solutions, together with its Convergent Security Solutions, and Stanley Access Technologies, make up the Stanley Security Solutions platform. The business provides integrated access control and security solutions for institutional, commercial, and industrial businesses and organisations.

    Its brands include Stanley, Best, Safemasters, K2, Precision, OmniLock, and Sargent & Greenleaf.
    Retailers
    Tradelink put on notice?
    Fletcher Building announced Tradelink expansion plans in April 2016
    Financial Review
    Fletcher Building 2015-16 FY results
    Tradelink sells basins, baths, showers, toilets, kitchen sinks and mixer taps to plumbers
    Click to visit the HBT website for more information
    The 200-store Tradelink network may be the next hardware and building products business to have a new owner if its performance doesn't improve by the end of 2016-17 FY, according to a report in the Financial Review.

    Tradelink sells plumbing and bathroom supplies to trade customers in Australia with an estimated 18% of the market, a distant second to Reece. Reece has around 50% of the market and a market capitalisation of $4.4 billion on the ASX.

    New Zealand-headquartered Fletcher Building is the owner of Tradelink, and signalled at its recent investor day that if the business doesn't improve its performance, it may be put up for sale.

    Morgan Stanley analyst James Rutledge said that management had indicated that "Tradelink performance has been disappointing to date, and that a sale of the business may be considered" should the division not achieve earnings of NZD20 million (approximately AUD19 million) in 2016-17 FY.

    Tradelink is undertaking a turnaround program to try and lift returns in an Australian plumbing market, which general manager Alan Ball said in an earlier presentation in April, remains an attractive industry.

    Tradelink is part way through spending AUD10 million on 60 new stores over three years. The major focus of that expansion is an additional 26 stores in NSW and 23 in Queensland. During the company's presentation in April, Mr Ball forecast earnings of between AUD24 million to AUD28 million from Tradelink for 2016-17.

    Mr Ball is also overseeing a strategy shift, where Tradelink is moving away from supplying large construction projects and towards small-to-medium enterprises that are involved in renovations, smaller construction projects and maintenance.

    The "payback" time for the extra investment was outlined as two years in the April presentation. Independent operators make up about 31% of the total AUD4 billion plumbing market in Australia. Tradelink's annual sales are about AUD730 million.

    Related:
    Fletcher Building 2015-16 full year results - HNN
    Products
    Yamaha engines for lawn and garden
    Yamaha has launched its MXV-EFI Vertical V-twin series engines
    Market Wired
    The engines are purpose built for commercial landscape zero-turn radius mowers
    The specially designed stainless steel muffler will fit a wide variety of ZTR mower frames
    Click to visit the HBT website for more information
    The outdoor power equipment division of Yamaha Motor Corporation has released a line of vertical V-twin engines for the lawn and garden market. Yamaha's MX775V-EFI, MX800V-EFI and MX825V-EFI engines are purpose built for commercial landscape zero-turn radius (ZTR) mowers.

    The MXV-EFI series of engines combine Yamaha's high performance and durability standards with landscape ZTR-specific development.

    The vertical V-twin engines deliver substantial power and torque -- ranging from 29 certified gross horsepower to 33 certified gross horsepower. The result is a smooth, even cut with consistent speeds even in difficult high-grass conditions.

    Three valve hemispherical heads, closed loop electronic fuel injection (EFI) with variable ignition timing, and low-friction design result in the most fuel-efficient engines in their class.

    The MXV-EFI engines are made to create an easier user experience. Yamaha product planners and engineers visited commercial mower OEMs, dealers/resellers, large landscapers among others while developing the MXV-EFI line. This comprehensive research and development from multiple field visits has resulted in unique features, enhanced serviceability, and a compact design that minimises noise and vibration levels.

    Some of the innovative features include easily accessible hatches that make for simple maintenance, a rotating grass screen that protects against debris clogging, and a stainless steel muffler that will fit a wide variety of ZTR mower frames.
    Products
    Cat enters consumer outdoor power market
    Caterpillar has launched its new RP3600 portable generator set
    Diesel Progress
    Cat's RP Series will be available in a new multi-channel distribution approach
    The RP5500 model is suitable for homeowners and contractors
    Click to visit the HBT website for more information
    Caterpillar Inc. has launched its first-ever line of portable gasoline generator sets called RP Series, aimed at the home and outdoor power market. But the company says the four-model lineup is not necessarily limited to use by consumers.

    RP Series generators range in power from 3.6 to 7.5 kilowatts, and are designed to provide backup or recreational power to home users but also have enough juice for contractors to power tools and lights on the jobsite.

    The generators will be available for purchase through a multi-channel distribution approach called omni channel. Part of Caterpillar's newly formed marketing and digital division, omni channel brings a different distribution model to Cat for these and future products. Channel development manager, Tony McAllister told Diesel Progress:
    Omni channel is a new organisational designation within Caterpillar. It comes from ... a strategy of using multiple channels to take these consumer-type products to customers. We are developing omni channels for specific products for Caterpillar, starting with the portable generator sets.

    Mr McAllister said the distribution model starts with Caterpillar dealers/resellers who can choose to sell or service the line of outdoor power products, depending on specific territory needs.

    He said that while many of the contracts for additional distribution channels are still being negotiated, they are all retail based and would fall under terms like "big box" as well as contractors, wholesalers, and "etailers". Mr McAllister said:
    There are prime product channel sales and there will also be an authorised service network where they may not be selling products, but will be able to offer aftermarket service.

    As part of this strategy, Caterpillar is announcing a brand known as "Cat Home & Outdoor Power" that establishes a distribution identity for businesses that join the service network. The trademark will be rolled out on in-store signage, displays, clothing and service trucks to identify authorised sales and service centres that provide maintenance and repairs for the latest outdoor power products.
    Product features

    There are four models of RP Series of gen-sets in the initial US and Canadian release - 3.6, 5.5, 6.5 and 7.5 kW - with a 12 kW model to follow in early 2017.

    Nick Kelsch, omni channel marketing manager, said ease of use, safety and noise were the top three things they heard about from customers regarding RP generator sets. This led the design team to put everything a user actually touches on the gen-set in one place. He said:
    The controls, the plugs, the digital display are all in one place on one side of the unit. In our user testing we watched people spend a lot of time figuring out where the choke was, where the starter was, where the oil fill was. So our industrial design team paid a lot of attention to those touch points.

    Other RP series features include all-steel roll cage construction and a hinged handle to move the generator, which is mounted on two wheels. The gen-sets use Lithium-ion batteries on the electric start models, and have an LED light for night operation. There is integrated battery charging, a 7.9 gallon fuel tank (4.5 gallon on the RP3600 model), and what Cat referred to as a premium exhaust muffler and sound attenuating side panels.

    All of the wiring is fully protected to prevent snags and accidents and all products incorporate snap-fit weatherproof socket covers.
    Companies
    Tradies sing for hipages
    A tradie choir is front and centre of hipages' latest campaign
    Mumbrella
    Tradies sing about the different solutions they can offer in the ad
    The commercial shows a need for qualified tradie help around the home
    Subscribe to HNN weekly e-newsletter
    A choir made up of tradies is at the forefront of a new campaign for online home services marketplace hipages. The ad sees a group of tradespeople collectively singing about the different services they can offer customers such as plumbing, electrical issues, landscaping and tiling.

    The light-hearted scenes show a clear need for qualified tradie help around the home. The hipages tradie choir displays the breadth of challenges that Australian tradies solve everyday. Tracy Richardson, chief marketing officer of hipages, said:
    At the heart of our new brand campaign is the celebration of Australian tradies. Tradies are central to everything we do and so it was natural to place them at the centre of our communications. It's a salute to their everyday great work.
    The creative idea behind the TV ad is to take viewers on a journey of diversity and scale. Diversity from the breadth of problems Australians face when renovating their homes, right through to the diversity of expertise, gender and age of our brilliant tradies.

    David Kennedy-Cosgrove, managing partner at VCCP Sydney -- the agency that created the ad -- hopes the campaign will also share the diversity of personalities amongst Australian tradies. He said:
    From their legendary humour ... and their can-do attitude, hipages is saluting the great Australian tradie. We're pleased to be working with such a dynamic team to help introduce hipages to wider Australia.

    The TV commercial is being rolled out in one minute, 30-second and 15-second spots and was launched via Foxtel. You can view the video here:

    News
    HI News V2 No. 16: Lowe's and Woolworths battle
    Download the latest issue of HI News Vol. 2, issue no. 16
    HI News
    Boral's construction material and cement business FY2016
    Trio has launched its Patriot lock into the market
    Click to visit the HBT website for more information
    This issue of HI News features the inside story of what went on between Woolies and Lowe's at Hydrox.

    Just click on the following link to download this edition:
    HI News V2 No. 16: Lowe's and Woolworths battle

    Makita's "slow and steady" pace belies its high-risk, highly strategic global strategy. We take a closer look at the details.

    Other features in this issue include a review of Trio's Patriot lock and Bunnings' social website for DIY enthusiasts called Workshop. There are also results from Boral, GWA Group, Fletcher Building and home improvement retailer Kingfisher.

    In our regular section on Statisitics, we provide an update on the latest ratings for "The Block" before it goes into the finale auction episodes.

    We also highlight the new executive team at Mitre 10.

    There has been a lot of activity with suppliers with Hills Industries and Woolworths ending their deal early and Stanley Black & Decker taking on Newell's tools business. SawStop is also suing Robert Bosch in the USA.

    New products in this edition include Uniden's updated DIY wireless surveillance system, Hitachi's Triple Hammer tool, Toro's latest zero-turn mowers, brushless power tools from Porter-Cable and DeWalt's outdoor bower.
    Companies
    Boral results FY2015-16
    Boral results for FY 2015-16
    Boral
    Boral Construction Materials and Cement overview 2016
    Boral's geographic performance
    Subscribe to HNN weekly e-newsletter
    In its results for its full FY2015/16 Australian-based construction products company Boral has managed to continue the redevelopment success story it began in the previous corresponding period (pcp), which was FY2014/15. Once again, overall revenue has nudged down slightly, but earnings before interest and taxation (EBIT) has lifted.

    The company has moved clearly into the end stages of the "Fix, Execute, and Transform" program initiated by Boral's respected CEO, Mike Kane, several years ago. It stands in a good position now to take advantage of the increase in infrastructure expenditure over the coming two years, as civil construction comes out from under the lingering shadow of budget cuts and delays made in response to Australia's economic difficulties in past years.

    Total revenue came in at $4311.2 million, down by 2.34% on the pcp. Revenue from continuing operations, however, climbed by a modest 0.32% over the pcp, to reach $4311.2 million. EBIT was $397.9 million, up by 11.55% on the pcp. Net profit after taxes was $256 million, down by $1 million, or 0.39% on the pcp.
    Boral results

    The headline financial ratio is Boral's return for funds employed (ROFE) based on EBIT, which came in at 9.0% for the current year, up from 8.2% in the pcp. The importance of this is that Boral has begun to subtly shift its future strategy. While retaining a strong direction in improving efficiencies, the company is also moving towards better portfolio management, allocating its investments to the product lines and geographic regions where better returns can be planned for.
    Boral's focus on return on funds employed (ROFE)
    Company changes

    As Boral moves into its FY2016/17, the company continues to undergo changes. As announced earlier in 2016, its building products division in Australia will be combined with its construction materials & cement division to form a new Boral Australia division. As Boral's CEO, Mike Kane, said at the time:
    This is a sensible and logical next step for Boral as portfolio realignment has seen the building products division substantially reduce in size over recent years.

    At the time of its results release, Boral also announced the formation of a new joint venture in North America with US company Forterra, which owns Forterra Brick. The joint venture will grant both participants an even share. According to the media release:
    The joint venture will bring together Boral's US clay brick operations and distribution network and Forterra's clay brick and concrete brick businesses in the USA and Canada. The combined business will have a capacity to produce over 2.6 billion standard bricks per year, and will include 27 clay brick manufacturing plants, 2 concrete brick plants and 41 building products distribution centres.

    In answering a question from financial analyst Emily Smith of Deutsche Bank during the results presentation to analysts, Mr Kane expanded further on the reasoning behind the joint venture:
    Putting together these two leading companies who have the capability to reach the key segments for the brick markets in the US, and to get -- to drive up the efficiency from bringing these companies together, is going to be an important step. We've got to get velocity through the plants and through distribution. At 54% or 55% capacity utilisation, it's very difficult to get drive, but we were able to prove that when we took out almost 50% of our capacity in the past, that we can shrink back. Some consolidation has to happen between our asset bases, and the plans are in place. People know what we're going to do. We've identified -- we've tried to be conservative in our projections, but I'm an optimistic fellow and I'm telling you I'm looking for more than what we're saying here.
    Divisional performance

    The headline performance figures for the four divisions Boral had operating during 2015/16 was very positive. The largest division by far, construction materials and cement (CMC) saw its EBIT outside of property earnings lift by 4.0% over the pcp. However, including property, the total EBIT was $293 million, representing a drop of 2.7% on the pcp.

    Building products returned EBIT of $33 million, up by 11% over the pcp. USG Boral saw its EBIT lift by 27% over the pcp, to reach $179 million. Boral USA returned USD32 million (AUD44 million), up considerable over its EBIT of USD5 million (AUD6 million) during the pcp.
    Construction materials and cement

    Revenue for this division fell by 6% to $2900 million. The company states that this was largely due to a decline in liquid natural gas (LNG) construction projects. Other impacts included the sale of its landfill business, and a lower profit realisation from its property business, which has been anniverseried against a particularly strong year in FY2014/15. Additional costs included some restructuring to the logistics fleet in Western Australia and Victoria.

    Positive influences, which enabled the ex-property EBIT to actually lift despite revenue falls, included the receipt of $4 million in damages from the company's long-running (and highly commendable) action with the Construction, Forestry, Mining and Energy Union (CFMEU), and lower fuel costs. Boral reported a reduction of around $16 million in diesel costs for the company overall during FY2015/16. As a result, ROFE came in at 14%.

    In its concrete business, overall volumes are reported to have fallen by 2%, while prices increased, also by 2%, though the company reported that as the mix of products sold shifted, the average price increase for Boral was closer to 1%.

    Boral's asphalt business had a similar outcome, with declining volumes but improved pricing, delivering a steady result. The company notes that this remains a very competitive market.

    Quarries continued to provide good earnings, driven by ongoing growth in metropolitan Victoria and South-East Queensland. Results for New South Wales were mixed, with regional areas providing good sales, but the area around Sydney less so, due to materials produced by tunnel excavation activity.
    Boral Construction Materials and Cement overview 2016
    Transition

    The underlying story to this division is the movement, predicted by Mr Kane in 2015, of its business from resource-based projects, to infrastructure and residential construction. As he said during his response to a question from Ms Smith:
    Underlying, when you look at Australia, there is this transition. Last year I was talking about this transition. I think there was a lot of cynicism about what would happen with the housing market in Australia. There wasn't anyone in the room suggesting it would go up, even including me. But it did go up to 226,000 starts.
    The strength in the housing market in the eastern states in Australia is a phenomena. It's a phenomena that has sort of defied expectations of everyone in the market. We look at our forward order book, we look at the activity we have going on in New South Wales, which is extraordinarily strong, we see a strong base of business in Queensland, a strong base of business in Victoria, and we have to say there's nothing on the horizon that suggests any significant negative activity in housing in Australia, clearly dominated by multi-family, which we benefit from in our construction materials and cement division. So we're positive and we're confident that that will continue.
    I said last year we were moving from a resource base, strength in the LNG projects, into this new housing arena. We expected it to continue to be strong, and it was. It was even stronger than we expected. The roads, highway and infrastructure work, which was all sort of pending and talked about, and in the exploratory stage in the last financial year, came forward in financial year 2016 with projects being let, pouring having started, and the early stages of the road, highway and infrastructure work starting to pick up.

    Later, in response to a question from Andrew Johnson of CLSA, Mr Kane expanded further on his thoughts about the housing market:
    It's all about the eastern states. It's all about the footprint we have that covers those eastern states. I'm very encouraged and enthusiastic -- 226,000 housing starts. I had a question this morning from the media that said isn't the high price of housing in Australia, isn't that going to curtail the housing market? If that was true, we shouldn't have increased housing starts in Australia in the last year. I said high housing prices in Australia have been a phenomena for over 10 years, over a decade. So that's not having that impact. There are other things we can attribute to what's happening to the primary demand. This is a very robust housing market.

    Meanwhile, the pipeline of possible road projects for Boral continues to increase over the next three to four years.
    Boral major road projects pipeline for Australia

    In response to a question from Kathryn Alexander, an analyst with Citi, Mr Kane described some details of the project bidding process for roads:
    Unlike the LNG projects that as I've said in the past, where we took the majority of the LNG projects across Australia, we could do that. We cannot take all the infrastructure projects. We don't have the capacity or the capability of doing that.
    So you have to have a bidding strategy that says you're going to lose a significant percentage of these projects, you're not going to get them all. Which ones do you want to win? Which ones do you want to lose? And that hierarchy of decision making, you'll find that we'll bid on just about everything that's out there. But we'll have different expectations depending on the project.
    It has a lot to do with the simplistic notions of proximity to the project, proximity of our quarries, proximity of our fixed plant operations, whether or not a portable plant and we have the availability to report on plant as required. How long -- where -- can we get cement to this? Can we not get cement to this?
    Boral building products

    Allowing for a shift in accounting practices regarding the Boral/CSR Bricks joint venture, underlying revenue for this division grew by 1%, while EBIT grew by 11% over the pcp to reach $33 million. Bricks and roofing saw price rises of between 1% and 4%. Timber revenue grew, with hardwood seeing a 4% increase in price.
    Boral gypsum

    Revenue for this division grew by 10% over the pcp, while EBIT rose by 27% to come in at $179 million. The company sees much of this gain coming from efficiencies. Sheetrock brand plasterboard experienced high demand, and an increase in prices of 4% delivering a price premium of around 5%. Volume was particularly high in Australia, increasing by 13%.

    Boral put much of the 27% increase in revenue down to operational improvements, including better cost management strategies.

    In commenting on the growth strategies for this division, Mr Kane stated:
    Asia and North America are our growth platforms, and in USG Boral we are targeting organic growth through innovation, growth in Asian economies, and accelerating market penetration for interior linings and associated products.
    Boral USA

    Revenue grew by 8% to reach USD751 million, while EBIT recorded a substantial increase from USD5 million in the pcp to USD32 million. This came about through a combination of better margins along with volume and price increases. The company sees this as a result of the improvement in the US housing industry. Overall US housing starts increased by 13% during the year. Boral saw a 16% rise in starts in the US states where it sells tiles, and a 6% increase in the states where it sells bricks. That said, the increase in sales in the brick states was only 4%, due to starts occurring predominately in lower-cost housing.

    Roofing revenue increased by 11% of USD176 million, while revenue from fly ash grew by 5% over the pcp to reach USD170 million.
    Analysis

    One of the most important statements that Mr Kane made during the presentation was this:
    Boral's geographic diversification positions the company well to leverage growth opportunities. The priority for Boral Australia is to protect and strengthen our leading, integrated construction materials position, which will benefit from a significant pipeline of major roads and infrastructure work over the next several years, and to optimise returns across all building products and construction materials businesses. However, our ability to grow through cycles is limited by the scale and scope of the Australian market, which is why Boral has identified Asia and North America as our growth platforms.
    Boral geographic performance

    One aspect of this is something that is being consistently heard from the CEOs of big companies. It's not that they don't believe in the economic future of Australia, but they do see its as, in the medium term, being quite uncertain. The current wave of infrastructure building, for example, is largely servicing latent demand. Once that is done, the continuing level remains difficult to predict.

    Likewise, as Mr Kane hints, while the housing markets, especially in Sydney and Melbourne, do not seem to be all that price-constrained, the actual drivers behind the ongoing growth in the value of real estate do not seem all that well-defined. This leads to an uncertainty about predicting future demand beyond two or three years.
    Companies
    Trio wakes up lock market
    Trio Australia's new Patriot lock
    Trio Australia
    Assa Abloy Lockwood Paradigm lock
    Comparison of locking for Paradigm and Patriot
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    Trio Australia has developed a double-cylinder lock, named the "Patriot", with some interesting features, targeting home renovators who want to upgrade their front door locks. It's a product that has potential, going into an accessible, highly desirable market. However, it's also going to be a real challenge for the company to master.

    That's not because there is anything wrong with the product itself. In fact, HNN would go so far as to say the Patriot itself is actually inspiring -- which is not something we ever thought we would find ourselves saying about a lock.

    Trio has really defined some specific problems and needs, and found a way to at least reduce the effect of those problems. It has then moved on to a core problem with locks such as this, which are sold predominantly as a replacement for existing locks: how to make it easier for the low-skill home handyperson to install it?

    All that sounds great, but marketers reading this are probably already nodding their heads as they see what's next. The problem? Instead of concentrating on one, single feature/solution, and making that the primary, marketable benefit about this lock, Trio has developed a device that has three -- arguably four -- features that would be of interest to a consumer.

    To make matters more difficult, these features all point in slightly different directions, so that tying this story into a single, understandable narrative becomes very difficult. How do you define and present the benefits?

    There is even another, additional marketing problem that Trio faces with the Patriot. This is that, in explaining how the lock works to a consumer, the consumer is likely to nod along, get to the end of the explanation, and glance at the sales associate with a look that says "So?"

    Because, in fact, the way the Patriot works is close to the way that people think most premium locks should work. Which means the sales assistant will have to get a lock that doesn't work that well, and demonstrate the difference.

    Well, nice problems to have, certainly, but they still are real, actual problems.
    Quiet pioneers

    All this points to the sense that the Patriot lock belongs to a class of products that we could label as being "quite pioneers". These are products that actually do revolutionise a category, but do it in such a subtle way that it is sometimes difficult for consumers to grasp what is going on.

    This is definitely both an advantage and a slight disadvantage. The disadvantage comes from the difficulty of getting the product started in the market, understood by consumers, and edging out that first 1% of adoption.

    The advantage, which is long-term and significant, is that for many consumers, once they buy one Patriot, they will buy others as well. With a little bit of encouragement, those early purchasers will also become influencers, and get friends and family to consider buying this type of lock as well.
    Reviewing

    These difficulties extend not only to consumers, but to reviewing the locks as well. Reviewing the Patriot on its own would not really reveal all aspects of its design, so we've chose to review it alongside two other locks. We should say that each of these locks has its own unique application, but comparing them reveals the contrasts more clearly.

    One lock that is a close competitor to the Patriot is the Assa Abloy Lockwood Paradigm lock. The other lock we chose to add to the mix is the Kwikset Smartkey lock, which enables the owner to "rekey" the lock, so as to grant temporary access to, for example, tradies, or even AirBnb guests.
    Deadbolt dilemma

    At the core of the developments in the Trio Patriot lock is the problem just about everyone with a deadbolt lock has faced at some time. The deadbolt lock enables it to become "double-locked", meaning that a key is required to open it from both the outside and the inside.

    The sole purpose of this double-locking is to prevent someone who has broken into your premises through a window or via elevated balcony, from being able to easily carry the occupants belongings, such as televisions and computers, out through the front door. Double-locking can be particularly useful in apartment buildings, for example, as even the very best second-storey man is going to have trouble climbing back down with your 60-inch flat-screen TV under one arm.

    One problem with double-locking is that a large number of consumers simply don't understand that this is the purpose of the feature. There's an understandable, but very misinformed, idea that double-locking a door somehow makes the occupant safer.

    Nothing could be further from the truth. Once a modern lock is locked, it's just locked. Double-locking doesn't really make it any more locked. All it does it prevent the lock from being unlocked from inside without a key.

    However, when occupants are inside the building and the door has been double-locked, if there is a fire they may have trouble getting out of the building. It is a mistake that results in preventable deaths every year. In the US between 2007 and 2009, over 18% of preventable fire deaths were caused by egress difficulties, including locked doors.

    Yet most people have at least one relative or acquaintance who not only doesn't know this, but also can't be convinced. You go to visit your Nana in her little flat, ring the doorbell, and she calls out "Just a minute!" There follows about five or six minutes while she looks around for the key to unlock the door. And you think, "if there is ever a fire..."

    Or, in some ways even worse, you go to leave for work for the day and find that the front door has somehow, inexplicably, been deadlocked through the night. In winter. With electric radiators going. And the children sleeping upstairs.
    Comparing to standard locks

    As was mentioned above, before getting into what makes the Patriot lock special, it's best to go over the way a "normal" lock works.

    First of all, there are the standard single cylinder locks, such as the Kwikset Smartkey lock we are illustrating here. This lock cannot be double-locked, because the interior portion of the lock can always be opened by rotating the lateral knob.

    The Assa Abloy Lockwood Paradigm is a double-cylinder lock, with keyed access available on both the exterior and interior of the lock. This is a quite advanced deadbolt design, and actually has some features that are a little like the Patriot. When the Paradigm is not double-locked, it behaves just like the Kwikset, with keyed access from the exterior, and simple lateral knob access from the interior. When it is in this mode, a small green indicator appears in a slot at the top of the interior knob.

    To double-lock this device from the interior, with the lock in the locked position, the key is inserted into the lock, and it is rotated about 20 degrees counter-clockwise. There is a slight "snap" sensation, and the indicator in the slot shows red.

    To double-lock from the exterior, the key is first rotated through 90 degrees to lock the door, and is then rotated a further 20 degrees.
    The Patriot difference

    The double-locking mechanism on the Patriot lock is quite different. The first noticeable difference is that on the interior portion of the lock, the bezel has a black plastic push tab sticking out to the left.

    As with the other two locks, operating it in single-locked mode is simply a matter of rotating the lateral knob. In the case of the Patriot, this mechanism is more highly geared than the other two, so locking/unlocking requires only a 60-degree rotation, rather than the full quarter-turn 90-degree rotation.

    Now, to double-lock the door, the first thing you need to do is, with the lock in the unlocked position, push the black plastic tab into the bezel. This has a nicely weighted action, so that it is quite a soft push, but quite definite. Once the black tab has been pushed in, to double-lock the door, you simply use the same action you would use when you single lock it: rotating the external key by 90 degrees, or rotating the internal knob by 60 degrees.

    As the lock moves into double-locked mode, the black tab is pushed back out of the bezel on the left, and on the right of the bezel, a slightly longer (about 5mm) red tab emerges. The lock is now in its double-locked mode, and this is clearly indicted by that red tab. It will require a key both externally and internally to open the lock.
    Advantages of the Patriot system

    While this seems to be a very simple mechanism, it carries with it multiple advantages.

    The single biggest advantage is that it de-skills the use of the double-locking mechanism for every user. One of the biggest problems with locks such as the Paradigm is that, especially if you are unused to using the lock, it is hard to know how far to turn the key from the outside. The temptation (and sometimes the accident) is to turn the key just as far as it can go, thus double-locking the door. It's quite common to see people when they first use one of these locks standing there with the door open, twisting the key on the outside portion of the lock, learning just how far they need to turn the key.

    While accidentally double-locking the door is one risk, the other risk is, of course, intending to double-lock the door, and not quite getting there. There is simply no way of having absolute surety about what state the lock in the door is in from the exterior. Again, it's not uncommon to see people locking this kind of lock play with the lock for 20 seconds or so, making sure they have locked it the way they want it to be.

    With the Patriot, none of these problems apply. Users of the lock must select the double-locking mode by pushing in the black tab, and once that tab has been pushed in, they can be absolutely sure the lock has been double-locked.

    Using the large red tab to indicate the double-locked status is also a very good design feature. While the paradigm goes part-way to providing the same feature, the slot that shows the red or the green dot is very small, about 4mm tall by 3mm wide. It would be hard to spot from more than a couple of metres away, and just about invisible for older people with failing eyesight.

    In fact, the Patriot's tab mechanism means that the status of the lock can also be determined by touch, making it easier to sense in the dark, and for people who are vision impaired.

    An additional feature of the Patriot mechanism is that a key is not required in order to double-lock the door from the inside. All the user needs to do is to push in the black tab, and manually rotate the lock closed using the lateral knob. This can be very handy when locking up a house, where there are multiple doors to get double-locked quickly.

    Of course, there is also a slight drawback to this. Users could, inadvertently, double-lock themselves into the house, if they do not have access to a key. While that is unlikely to be a problem for adults, a curious child could potentially get in a bit of trouble. For most households that will not be a major concern.
    Comparison of locking for Paradigm and Patriot
    Lock installation

    The other area that Trio has chosen to address with the Patriot lock is ease of installation. There is a very good reason for this. The Patriot falls into the classification of a premium replacement product (PRP).

    This means that most purchasers of this lock will not be being an installation for a new door, but rather upgrading an existing lock. The big difficulty with this is that many, if not most customers will likely have next to no experience at installing or replacing door locks. So Trio is actively taking the next step, finding some way to lessen potential objections to a lock upgrade purchase.

    The area Trio has chosen to concentrate on is the problem of how a lock can adjust to different widths of doors. It's an interesting choice because, if you do know something about installing locks, the width of the door really isn't so much of a problem.

    For example, the other two locks to which we are comparing the Patriot have common solutions to this problem that actually do work quite well. In the case of the Paradigm, this comes supplied with three different sized metal links between the exterior and interior mechanisms, and the installer simply picks the link that suits the width of the door.

    In the even simpler Kwikset mechanism, the rod that connects the interior and exterior mechanism is quite long, and it fits into a very deep socket in the interior knob. There is enough "play" in that setup to accommodate a range of door thicknesses.

    The Patriot uses a spring-loaded mechanism that is tensioned to provide easy use with a range of door widths. Of the three, it is certainly the most designed, and the easiest to explain. It also does offer some real advantages. Certainly the linkages on the Paradigm lock are annoying to get right on installation, and typically take a few minutes and several attempts to get just right.

    What is clever about this move by Trio is that is shows the company understands a slightly unfortunate truth about DIY: sometimes you have to spend as much time resolving imagined problems as you do actual ones.

    The person who purchases a Patriot lock wants to go home, spend ten or fifteen minutes reading instructions, fiddling with tools, and end up with a new lock they can be happy with. (Trio says four minutes, but let's be honest, there is a lot more to installing a lock than Trio takes into account. Making the coffee, finding the electric screwdriver, finding the bits for it, finding the bit that actually works for it, drinking the coffee, trying to install the lock upside down the first time, and so forth.)

    By paying attention to this one detail of lock installation, Trio is providing comfort and assurance. It's suggesting this is not a "pro" operation that requires experience and serious tools. (In the installation videos Trio has made to support the product, the installer uses the absolutely wimpiest electric screwdriver that could be found on the planet.) We've got you, Trio is saying, we know what you're worried about, and we've thought this through.

    For the sales associate in the store, this feature can also be used to answer customer concerns. In response to the question "Is it easy to install?" instead of offering bland reassurances, they can say: "It sure is. For example, unlike on other locks, this lock automatically adjusts to the size of your door, so you can be sure it will work for you."

    After installing and uninstalling each of these locks three or four times, HNN can say that the Patriot lock does seem to have a slight advantage in terms of overall ease of installation. For example, the links on the Paradigm lock that help it adjust to different width doors are a little fiddly to keep in place while fitting the lock. The Paradigm is also quite sensitive to the lock setback, due to the way the bolt itself connects to the lock. Being out by a millimetre or two requires some extra finessing to get everything to work.

    The Kwikset, which is a cheaper lock than the other, consisted of three components instead of two, and this created some problems as well.

    The machined fit and finish on the Patriot lock was slightly better than that of the other two locks as well. However, Trio Australia were kind enough to supply this lock, which came in a point-of-sale (PoS) presentation, while HNN purchased the other two locks. It's likely the PoS display locks are the pick of the current production run.

    In fact, the PoS solution by Trio looks as though it would work well. According to the Trio website:
    The Patriot range comes available in a highly vibrant and informative PoS stand. The top shelf is tiered to maximise packaging exposure for each finish. The shelving in the stand body is designed to hold additional stock of up to 4 units of each finish. Therefore a total range of seven SKUs of each colour.
    Use this POS stand as an off-site location for maximum exposure in-store and return on investment. The stand has its own working display included for customers to test out the Patriot.
    Analysis: The marketing problem

    As was mentioned at the beginning of this article, the Patriot is a very good product, but it does have a marketing problem. How do you go about describing how good it is, and how helpful its features can be?

    One direct way is to make sure that potential customers get a chance to try it out in the store, and it would seem that Trio has gone some way to taking care of that, by providing comprehensive point-of-sale material that includes a working lock.

    Looking at the rest of Trio's marketing materials and web presence supporting the Patriot, it is evident there is a problem developing. It's the same problem that just about everyone who has developed a product encounters, and it is a really difficult one to overcome. It's also the number one problem that gets mentioned in every marketing textbook, that every marketer knows all about -- and that every marketer struggles with throughout their career.

    Yep, it's our good old friend: inadvertently highlighting features instead of benefits.

    Trio does make a running at promoting benefits, but, aside from ease of installation (which is actually arguably a feature), the only core benefit that gets promoted is the safety aspect of not getting locked-in during a house fire. Having a better chance of staying alive is definitely a big benefit, but it's a little problematical when it comes to marketing. It's the kind of benefit you can appreciate, but you sincerely hope you are never going to need.

    So, what is the real benefit of the Patriot lock? One way of looking at this is to consider The Moment.

    What is The Moment? It's something most of us experience everyday. It's that instant that happens soon after you leave the house for the day, either at the moment when you have turned the key in the lock, or perhaps those four or five seconds when you've entered the car before you've started the motor. You think: Have I got everything? Have I done everything I need to do? Cat fed, iron turned off, thermostat turned up/down, curtains closed.

    And door locked. Not just locked, but locked properly.

    The Patriot absolutely, positively removes the door lock question from that list of concerns. It's about piece of mind, one less thing to worry about every day of the customer's life. That is the real benefit.
    Bigbox
    Big box update
    A range of Blanco appliances is being distributed through Bunnings
    HNN Sources
    A supplier says Masters has attempted to cancel orders
    Bunnings CEO John Gillam remains confident about the British market
    Click to visit the HBT website for more information
    A Blanco range is being distributed through Bunnings; supplier sources report that Masters has been cancelling orders; an update on the Masters inventory sale; Costco not interested in Masters sites; Bunnings CEO John Gillam is upbeat about Britain; decisions should be made soon on Bunnings stores in Coolum (QLD) and Warwick (QLD); speculation around Bunnings buying a site in Kingaroy (QLD); and the property where Bunnings Takanini in New Zealand is located is being sold.
    Blanco brand in Bunnings

    Appliance Retailer exclusively reports that a line of Blanco appliances including two ovens, a gas and ceramic cooktop, a telescopic and undermount rangehood is now being ranged in Bunnings stores. The move could represent a change in Bunnings' approach as it usually just stocks house brands, Everdure and Bellini, in the appliance category.

    German-made Blanco is distributed and marketed by Shriro in Australia and New Zealand.

    In the six months to June 30, 2016, revenue for Shriro fell due to a change in distribution for Blanco kitchen appliances in October 2015. The brand was previously sold in Harvey Norman and The Good Guys stores. It continues to be sold through Harvey Norman commercial channels. Shriro general manager of retail appliances, Craig Handley told Appliance Retailer:
    With the departure of Blanco from traditional retailers Good Guys and Harvey Norman, and many longstanding customers loyal to the Blanco brand, Bunnings presents an ideal opportunity to reach millions of people who highly value the Bunnings shopping experience.
    Bunnings is also one of the largest sellers of flat pack kitchens, so adding Blanco with the recognition and history it has will likely appeal to a large number of these kitchen customers.
    A tight range has been selected designed to offer the customer real value and quality synonymous with the Blanco brand, with all products made in Italy and offering a four year warranty. I believe the Bunnings partnership positions Blanco well for growth in the future, and both existing and new customers will be delighted with the offering.
    Masters "cancels orders"

    A supplier - who wished to remain anonymous - has told Fairfax Media that Masters has attempted to cancel orders and suggested the fire sale was not going as well as expected. He said:
    I understand week one of the sale went really well, the first week straight after the announcement, but after that it's been pretty terrible. What they had to do was go hard in the first week so people would buy and then tell their friends.

    The supplier said there was a view within Woolworths that stock divestment specialist Great American Group Australia (GA), which is responsible for the inventory sell-down, had moved too slowly and failed to capitalise on shopper excitement about the closing down sale.

    Some suppliers also claim Masters has tried to bring forward the delivery date for existing orders and warned it may not accept stock received after this new deadline which would free Woolworths from having to buy the products and limit the risk to GA of even more unsold stock.

    Masters confirmed it has tried to bring forward supplier orders, but a Woolworths spokesman claimed this was only to give it more time to clear stock. He said:
    It's not [on the basis that] if you can't bring the order forward it's cancelled. [It's] better for Masters, they have more time to clear stock and better for the suppliers, they get paid earlier.

    A spokesman for GA said the only reason suppliers had been asked to bring forward orders was because the sale was going so well and it expected to get a big uptick in sales now the football grand finals were over.

    GA claims the sale is ahead of schedule and the chain may shut down ahead of the December 11 deadline.

    However, the closing down sale is not just stock on the floor at Masters or in distribution centres, it is also understood there are as many as 5000 pallets "on the water" which have not hit Australian ports yet, let alone distribution centres or stores.
    Masters' inventory sale update

    A number of newspaper reports have indicated that sales of Masters' inventory has at times broken company records but has been marred by consumer complaints of discounts that don't live up to the promised bargains. HNN believes the main effects of the sale on the industry may not be seen until mid-November.

    Some customers have complained on social media about smaller discounts than expected, provoking angry exchanges with Masters more loyal supporters. On every occasion, Masters has apologised and promised to investigate.

    Fairfax Media gathered a number of customer complaints regarding the sale for its article.
    Masters fire sale doubles record daily sales with some complaints about price - Fairfax Media

    News Corp. had a similar story about the Masters sale and referred to it as a "disaster".
    This price tag perfectly sums up the disaster that is the Masters sale - News Corp.

    Smartcompany.com.au has taken a look at the complexities of liquidating stock. Insolvency experts told the website that going out of business sales are incredibly complicated, and some of the specifics on the Masters arrangement are not known.

    In broad terms, selling stock to a liquidator could lead to that liquidator setting prices and deciding on the amounts at which items are discounted to maximise the amount recouped -- then communicating the prices and information to a company's staff if they are still involved in operating the business. Managing director at Insolvency Guardian Jarrod Sierocki told SmartCompany:
    What they're doing is a controlled sell down -- they're trying to sell as much stock at the best price that they can. If Masters has set an end date of December, I'd say they will fire sale everything right up until that time.

    Gess Rambaldi, partner in the business recovery and insolvency team at Pitcher Partners, said a liquidation process doesn't have to have a formal time frame attached to it. If a public end date for a business is set, but all the stock is not sold by that time, it is possible for a liquidator to look at other ways of selling stock. He said:
    It could be sold through the use of other agents, brought to different markets to different forums. One of the things that can happen is that they can remove the stock from the businesses and sell them off site.
    Masters website shuts: complexities of liquidating stock - Smart Company
    Costco has no plans for Masters sites

    The Australian managing director of Costco, Patrick Noone said it would not be acquiring Masters' sites, referring to recent media reports as a "mix up". He said speculation the company was acquiring Masters sites around the country was "incorrect".

    Numerous media outlets reported the retail giant had its eyes on soon-to-be vacant sites. Mr Noone said the confusion appeared to have come from a consultant suggesting in the media that Costco take over the failed stores.

    Retail analyst and managing director of Marketing Focus Barry Urquhart told news.com.au that it would be a smart move for Costco to take over Masters sites. Purchasing the abandoned Masters stores would be a logical plan, according to Mr Urquhart, as they were built for shopping in bulk. He also believes purchasing the former hardware sites would not be a risky move for the discount supermarket. He said:
    Simply, Masters wasn't around long enough to establish an image or position in consumers' minds. Masters was not successful, all the stores had annual sales that never exceeded the annual profit of Bunnings, so there'll be a lot of 'virgin' consumers walking into these stores that used to be Masters.
    Costco sets its sights on failed Masters warehouses - News Corp.

    Ballarat has a Masters at Wendouree, which will close with other stores around the country by December 11.

    Plans for the Home Consortium - comprised of Aurrum Group, Spotlight Group and Chemist Warehouse - to take over the lease at Eureka Homemaker Centre and redevelop the site into a large format retail centre are unchanged, according to a company spokesperson.
    Bunnings remains confident about UK

    Bunnings CEO John Gillam spoke recently at an Australian British Chamber of Commerce event in Melbourne. He said the big box retailer is no "one-trick pony" and the fragmented nature of the British home improvement sector presents a lucrative opportunity.

    He also said it has experience running smaller stores, with a quarter of Bunnings outlets the same size as those it picked up in its British Homebase acquisition. He said:
    One of the things we are most remarkably misunderstood on is people think it is the same Bunnings warehouse everywhere. We have got about 330 trading locations across Australia and New Zealand and there are hardly two that are the same.

    Mr Gillam said Bunnings was well versed in getting the best out of smaller shops. He said:
    Twenty-five per cent of our fleet across Australia and New Zealand is the same size as the Homebase fleet so we understand merchandising intensity in that size format. We have embraced variability on property size as a way of fuelling growth versus trying to find the same site everywhere and being stymied by our inability to do that.

    Mr Gillam said the British market was highly fragmented, with the top two players having a combined market share of less than 15%.
    We see a more fragmented market and that is attractive to us...We paid for a platform...it's very hard to get a network and start from scratch and that has proven to be in this (Australian) market.

    Mr Gillam said the Homebase turnaround was a long-term project and Bunnings would be experimenting with various store formats in its early rollout.
    We don't expect the first store to knock the lights out. Stores one, two and three have got to do some different things as we work out what is more impactful and more space efficient and more customer friendly.
    Succeeding in Britain

    Mr Gillam also talked down the risks from Britain's planned exit from the European Union while urging patience as the group "learns like crazy" through its British expansion. He believes the long-term opportunity in the British market was exciting and its Homebase acquisition set a platform for a "new Bunnings", according to a report in The Australian.

    Eventually the group will completely overhaul all Homebase outlets with the Bunnings livery, but this will take place steadily over a broad two- to five-year time frame as it refines its strategy. He said:
    We could be in stage one for quite some time and that won't bother us.

    Mr Gillam added that the integration was proceeding "boringly well", while also warning significant supply chain work was needed to repair a business plagued by poor stock availability. He said:
    Out of stock levels were possibly the worst we've seen from any player of scale in our sector globally.

    Not long after Bunnings purchased Homebase, confidence in the British economy was hit by the yes vote in the Brexit referendum. It caused a severe weakening of the pound but Mr Gillam said the vote would not affect Bunnings' plans. He said:
    Brexit was a very obvious risk. [But] over the long term we think the market characteristics that attracted us to the UK don't change.
    The ageing housing stock gets older, the population ages and has more needs, and the population grows and has more demands. And the way that people use their homes and gardens...we think supports a strong home improvement and garden operator if we can get our offer right.

    Mr Gillam believes the shock Brexit vote could offer opportunities in expanding its network as property prices potentially stall.
    The UK property market post-Brexit has probably got a little bit more pause in it in terms of price appreciation than it had before and we certainly don't want to waste that opportunity.
    Decision expected on Bunnings Coolum

    Bunnings' third attempt at getting a store approved in Coolum (QLD) will be decided soon. However the Sunshine Coast Daily believes the big box retailer will be knocked back at establishing one of its warehouses in the region.

    Sunshine Coast Council officers have recommended refusal as the scale of the development sits outside the planning intentions of the area, with visual amenity a major factor in the advice given.

    Almost 1000 public submissions were made to the council on the proposal. Out of the 982 properly made, 980 were opposed to the development.

    One of the arguments made against the development has been the impact it would have on local employment. The other side of the argument is that a new Bunnings would be a boon for local employment.

    The council's economic development branch advised a 5850sqm store would deliver about 70 extra retail jobs, delivering about $15 million per year in economic impact and 113 ongoing jobs based on "economic modelling".

    The branch was broadly supportive of Bunnings' argument the development would not significantly impact other higher-order centres or "compromise the role of Coolum Beach and its intended function".

    Surveys conducted by opponents of the Bunnings proposal found 18 local businesses in similar sectors (hardware, garden, landscaping etc.) were currently operating below capacity. Coolum resident Fiona Sykes found 127 employees were currently employed by those 18 businesses, but that could rise to 184 employed if local stores were operating at full capacity.

    Bunnings' latest proposal for a 5850sqm store was the smallest of the three put forward. The previous two proposed stores had gross floor areas of 12,150sqm and 8600sqm respectively.

    Related:
    Big box update: Opposition gathering in Coolum - HNN
    Consideration for Bunnings in Warwick

    A decision on the Bunnings site for Warwick (QLD) is expected at the next Southern Downs Regional Council meeting.

    Public submissions on the plan for a new Bunnings store on the flood plain at the corner of Canning and Condamine Streets near Warwick East State School closed recently.

    It is understood that at least a dozen business and property owners in the vicinity of the site have lodged objections, with at least one engaging a professional planning consultant from Brisbane to put their submission together.

    Alan Olsen of Olsen's Home Timber & Hardware insisted it was not Bunnings the residents had a problem with. He told the Warwick Daily News:
    It could be any business that decided to build in the flood zone, and we would be equally as zone concerned. The matter is, no one should be building there.

    A group of 20 local residents gathered recently to discuss their issues with the Bunnings development lodgement, compiling a list of reasons why they thought council should knock it back. The group claims the development:
  • Compromised the planning schemes of the area;
  • Did not comply with the purpose of the zone;
  • Conflicted with the framework of the planning;
  • Was at a height above natural ground level that was excessive for the area;
  • Did not provide sufficient car parking;
  • Was over development of the site
  • Was subject to flooding

  • Flooding is the main concern, according to Mr Olsen, whose business is one of the first to go under during floods. He said:
    They have worked off a one-in-a-100-year flood model. What we want to know about are the smaller floods and what effect the Bunnings building will have on us then. Then there's the one-in-200 [year] flood; what effect will something more intense have?

    He feared that once one building was allowed in the flood zone, others would follow suit.

    Former Deputy Mayor Ross Bartley agreed, saying the land came under mixed zoning, something that would be compromised by the introduction of a bulky goods trade store.
    Bunnings in Kingaroy?

    Speculation surrounds the possibility that Bunnings may have purchased highway frontage in Kingaroy (QLD) which was to have been the site of a multi-million dollar motel development. That project fell over in late 2015 after initial earthworks had been completed.

    Recently, southburnett.com.au spoke to the real estate agents handling the sale of the land who confirmed that the block, which fronts the D'Aguilar Highway, was under contract. They would not confirm who the interested party was, only to say that it was not a motel development.

    No development application has been lodged as yet with the South Burnett Regional Council. Kingaroy developer Kevin Taylor said he had also heard that Bunnings had bought the motel site. Bunnings general manager - property, Andrew Marks said:
    Kingaroy remained an area of interest for Bunnings and we would consider opening a store there in the future if the right opportunity became available.
    Bunnings NZ property for sale

    The property housing Bunnings Warehouse Takanini in New Zealand, which is generating total annual rental income of NZD1,388,000 plus GST, is for sale. It is offering a new owner built-in annual rental growth of 2.5%. The freehold property comprises a 10,433sqm large format retail complex.

    Dave Stanley of Bayleys South Auckland and James Chan of Bayleys' international division are marketing the property by international tender.

    Bunnings developed the site and opened the store in December 2013. Mr Stanley said:
    They chose this site because of its prominent corner position and road frontage to both the main arterial Great South Road and to Graham Street, which gives the store huge exposure and profile. It is also close to many other major retailers.

    The store follows Bunnings' format and layout with a trade and retail offering and expansive high stud design, a separate garden centre, cafe and children's play area. There is also an open air parking directly outside the store as well as underground parking for close to 230 vehicles.

    Jacqui Coombes, general manager - Bunnings New Zealand, said the sale forms part of its long-term strategic approach of releasing capital on lease terms that provide flexibility from a long-term operational perspective. Ms Coombes said:
    It also provides investors with exposure to high quality retail properties backed by the strength of Bunnings' covenant.

    The 12-year lease with eight six-year rights of renewal has the potential to take Bunnings' occupation of the property through until 2076 and the annual 2.5% increases commence on the first anniversary of the lease commencement and subsequent renewal dates.
    Careers
    Seeking opportunities
    Ashdown-Ingram is seeking a category manager for its industrial supplies and tools range
    HNN Sources
    Spectrum Brands is looking to recruit an experienced Bunnings national account manager
    Techtronic Industries is recruiting for an area manager in Melbourne
    Visit the Mecca Website
    An opportunity for a seasoned category manager to build the industrial supplies and tools category at Ashdown-Ingram; a national account manager to look after Bunnings is needed at Spectrum Brands; and an area manager role at Techtronic Industries in Melbourne.

    To read more about each role, simply click on the company logos.
    Establishing a new category

    Ashdown-Ingram is seeking a category manager to source and develop its industrial supplies and tools range, in a newly created position. The Perth-based role involves strong product development and integrity of all master data. The individual will monitor and communicate influences that are likely to impact sales performance.
    Ashdown-Ingram has an opportunity for a category manager
    Managing the Bunnings relationship

    Spectrum Brands is looking to recruit an experienced Bunnings national account manager for its hardware division. This role covers key brands including Varta, Rayovac, Kwikset, STP and Armor All. Responsibilities include creating strategic business partnerships with key retail channel partners.
    Bunnings national account manager wanted at Spectrum Brands
    Growing power tools sales

    Techtronic Industries is recruiting for an area manager/trade sales representative to service Melbourne's eastern suburbs as well as a regional run of stores. The sales professional will be representing a portfolio of tools including AEG, Hart and Kango.
    Area manager for Techtronic Industries in Melbourne
    Companies
    Supplier update
    The deal between Hills and Woolworths has been cut short
    HNN Sources
    Stanley Black & Decker has agreed to purchase the Irwin Tools brand
    SawStop has sued Robert Bosch for patent infringement in the US
    Subscribe to HNN weekly e-newsletter
    The deal between Hills and Woolworths has been terminated; Stanley Black & Decker is buying Irwin Tools from Newell Rubbermaid; and SawStop has sued Robert Bosch in the USA.
    Hills' Masters deal ends early

    The demise of Masters has prompted Woolworths and Hills Ltd to scrap a deal where Woolworths took control of the manufacturing and selling of the Hills hoist clothesline and 240 other Hills products for up to 19 years, reports The Australian Financial Review.

    The unwinding of the deal will result in Woolworths paying Hills at least $6 million as part of the confidential settlement that covers the royalties and licence fee income that was due to be paid to Hills for the next three years.

    The initial term of the contract signed on December 3, 2014 was for seven years and there were three four-year options to renew, which would have taken it to 2033. A base royalty payment of $2 million annually was agreed upon in the original deal.

    Woolworths pursued the Hills brand as one of the "hero" offerings in the $75 million clothesline category in hardware as it sought to beef up its range inside Masters to compete against the Wesfarmers-owned Bunnings.

    Woolworths generated most of the Hills sales through the Masters chain, which is being shut down. The December 2014 deal gave Woolworths control of manufacturing, distribution and sales of 240 Hills products across a range of clotheslines, clothes airers and garden sprayers.

    Hills told the ASX recently that it was "considering potential permanent replacement brand licensing arrangements" for all Hills products and was commencing discussions with interested third parties.

    But the trouble for Hills is that by siding with Masters and Woolworths in the first place, it cut off important channels to the market. Bunnings sells a large range of clothesline brands such as Sunfresh, Whites, Morgan and Daytek.

    The Woolworths deal was struck during a time when former Telstra executive Ted Pretty was running Hills as he attempted to transform the staid Adelaide-based firm from an old world manufacturer into a company with strong growth prospects in security systems, health technology, and audiovisual.

    Hills appointed David Lenz as its new chief executive in September, taking over from Grant Logan. Mr Lenz has moved quickly to resolve the Hills clothesline situation.
    Stanley buying Irwin Tools

    Stanley Black & Decker has agreed to purchase Newell's tool business that includes the Irwin, Lenox and Hilmor brands for USD1.95 billion in cash, according to Bloomberg.

    Newell's tool division had sales of USD760 million in the last 12 months and Stanley Black & Decker expects to net cost synergies savings of USD80 million to USD90 million by the third year after close. Stanley Black & Decker president and CEO James Loree said:
    Newell Tools is an important step in our quest to further strengthen our presence in the global tools industry. The addition of the iconic Lenox brand and very strong Irwin brand, as well as their associated power tool accessory and hand tool products, opens up exciting new sources of global growth in similar ways, albeit on a smaller scale, to what Black + Decker did in recent years.
    Thus, the acquisition of Newell Tools, our first major acquisition since 2013, will provide both a source of inorganic growth in year one and an organic boost thereafter.
    SFS 2.0, our operating system, with its growth enhancing elements of digital excellence, commercial excellence and breakthrough innovation will also be deployed to rev up organic growth. This transaction, with our multi-faceted approach to revenue expansion, is entirely consistent with our strategy of driving above-market growth in a low growth world.

    For Newell, the sale helps streamline its sprawling product portfolio after its merger with Jarden Corp. in April 2016. The combination with Jarden created a company with USD16 billion in sales and pushed Newell into new categories such as home fragrances and outdoor products.

    The deal is expected to close in the first half of 2017.
    More tools M&A

    Sources also told Bloomberg that Sears Holdings has been shopping around its Craftsman tool division, which may fetch about USD2 billion. It has attracted bidders including Stanley Black & Decker and Hong Kong's Techtronic Industries. Other companies such as Apex Tool Group and Sweden's Husqvarna AB have explored possible offers for Craftsman too, according to the sources.
    Stopping Bosch saws in the USA

    Saw maker, SawStop has sued Robert Bosch and its subsidiary Robert Bosch Tool Corporation for patent infringement. The lawsuit is before the US International Trade Commission (ITC). Recently, administrative law judge Thomas B. Pender confirmed that the Bosch Reaxx saw infringes patents related to SawStop's implementation of active injury mitigation technology and components thereof. Here is an excerpt:
    Based on the foregoing, it is my Initial Determination that there is a violation of Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. SS 1337, in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain table saws incorporating active injury mitigation technology and components thereof, in connection with the asserted claims of U.S. Patent Nos. 7,895,927 and 8,011,279. (U.S. I.T.C., Inv. No. 337-TA-965.)

    SawStop is asking the ITC to order US Customs to exclude Bosch's Reaxx saws from entering the United States, and to order Bosch to stop advertising and selling the saws and associated parts, which might include replacement cartridges essential to the saw's operation.

    Dr Stephen Gass, SawStop's president, notes that "the technology in SawStop saws wouldn't have made it to market except for the protection offered by the United States patent system". He said:
    We have invested millions of dollars in research and development to protect woodworkers from serious injury, and our inventions have been awarded numerous patents. Bosch chose to introduce the Reaxx saw in disregard of our patents, and we were left with no alternative but to defend our patent rights in court. We are very pleased Judge Pender confirmed that Bosch infringes our patents.
    Bigbox
    USA update
    The Home Depot CEO Craig Menear discusses targeting professionals
    HNN Sources
    Lowe's has launched Open House, a digital newsroom
    Canadian-owned Home Hardware looks to growth
    Click to visit the HBT website for more information
    Professional end-users are a priority for The Home Depot; Lowe's has launched a digital newsroom called Open House; mobile payments at The Home Depot; and Home Hardware in Canada is unfazed by its big box competitors.
    Digital engagement with Pros

    The Home Depot CEO Craig Menear recently spoke at the Goldman Sachs Global Retail Broker Conference where he discussed the use of digital technology to target the home improvement professional (Pros).

    Sitting alongside the enthusiastic amateur, the Pro customer is an individual with regular needs and a different, more specific, set of requirements. As such, they need to be targeted with particular care, he argued. Digital is at the heart of this with personalisation the key. He said:
    The marketing that we do to the Pro customers is now beginning to take advantage of the digital capabilities that we have. Instead of broad-brush marketing to the Pro as a Pro segment, it's individual marketing to a specific type of customer within Pro with defined messages that meet their needs.

    The Pro customer wants to engage with Home Depot via digital channels and in growing numbers. They are looking for very specific things from digital engagement. Mr Menear said:
    The thing that customer responds to is enhanced capabilities. Visual capabilities on the site are hugely important to the customer. The data that you provide around the product is important. We have seen strong engagement with the video content at a product information page level helps drive conversions. So the customer is definitely guiding how you engage with them in the digital world. And they are requiring upgrading content.
    One of the things that we have built into our app and mobile web is the ability for a consumer or a Pro to look up inventory in-store. We get a lot of feedback from our Pro customers that this is something that they value and benefit. So we are seeing the Pro engage. We are seeing the Pro engage in what we call BOPUS (Buy Online, Pick Up in Store). So they can be home at night, take a look at some things that they need, they can place their order and we have that ready for them for pickup the next morning when they swing by.

    But Mr Menear was also keen to emphasise that there are limited expectations for the firm's app play. He said:
    We don't believe that that The Home Depot app is going to be the first app that people are going to go to. But we also have to be relevant and continue to offer the app. But everything we put on the app, we also try and migrate to our mobile website as well as tablet and PC.

    Ted Decker, executive vice president - merchandising, believes that when it comes to pitching to the Pro customer base, there's an inherent advantage that the firm can exploit. He said:
    What we have with the Pro business is many of our Pro customers have our private label credit card. We have quite a bit of information. Other than digital marketing, we haven't done a lot of individual marketing.
    In data overall, we have always had a tremendous amount of data. And we are continuing to build tools and processes and in teaching our merchants and marketers how to better price the product and look at elasticities by market, how to assort our products, constantly looking to leverage that data map across the enterprise.
    We are increasingly contacting through e-mail campaigns those customers based on more in segmented customers as opposed to an individual customer. So we know someone is more engaged in garden, for example or may know someone is looking at a kitchen remodel. We will approach them as a segment, not so much individual.
    Lowe's debuts Open House

    Lowe's has launched Open House, a digital newsroom that will take consumers behind the scenes at the brand.

    About a year in the making, Open House was a "cross-functional" effort involving IT, recruiting, marketing, corporate communications, supported by an external agency, according to Colleen Penhall, vice-president of corporate communications. She said:
    People want to know more about the companies they shop with beyond the products and services they sell. At Lowe's, we are trying to build deeper and more meaningful relationships with our customers and, ultimately, more brand loyalty and advocacy.

    Open House serves as a digital avenue through which Lowe's can meet consumers "where they are," she added.

    The newsroom launched with stories such as the refurbishment of a Detroit school gym that was made possible because of a partnership between Lowe's and The Ellen DeGeneres Show. Ms Penhall said:
    We want to share authentic content they will not only share across channels, but they also feel is inspiring and relevant to them.

    Social media weighed heavily in the team's decision-making and the way consumers share "snap-able, bite-size" content, but long-form storytelling isn't off the table either. Ms Penhall said:
    [It's not] a cookie-cutter approach. We approach it from a variety of different ways people consume content and taking those [lessons] and applying them in the future.

    Lowe's marketing division recently launched "The Weekender," a 10-part DIY web series that shows homeowners how they can tackle a project in a weekend on a small budget, hosted by Monica Mangin, co-author of the East Coast Creative blog.

    The retailer also launched an app on Apple TV, and made content available on Amazon Fire TV and Roku TV.

    Rather than spearhead a campaign, Open House will serve primarily as a branding tool and "give people more insight into what went into the strategic thinking at Lowe's", Ms Penhall said.
    Mobile shopping expectations

    Retailers in the US such as The Home Depot are optimistic about the upcoming holiday season and they believe mobile payment users could be a big factor affecting their end-of-year sales. To cater to the mobile shopper, Home Depot is introducing chatbots.

    The home improvement retailer is pursuing beacons and chatbots for mobile consumers, who account for 50% of the company's online traffic, according to Mobile Commerce Daily. The chatbots can help consumers with advice.

    In a presentation at the MMA SM2 Innovation Summit 2016, an executive for The Home Depot stated that the growth in mobile is inspiring exploration of Internet of Things (IoT) technologies to drive sales. By focusing on mobile platforms, the company hopes to attract younger consumers from Gen Y and Gen Z, who The Home Depot calls "mobile prodigies". According to Yvette Davis, manager of media strategy for Home Depot:
    Mobile prodigies value personalisation, and they use mobile for shopping inspiration. Everything that we're doing is keeping those mobile prodigies in mind.

    The Home Depot is also experimenting with beacon technology and creative optimisation but claims it still has a ways to go. Ms Davis said:
    We have our beacon technology that we've acquired, but...we have to get mobile right. Mobile significantly drives foot traffic to my physical retail locations.
    Home Hardware focuses on growth

    Tony Flanagan, a 25-year veteran of Canadian-owned Home Hardware, operates in a tough retail environment -- the Home Depot, Lowe's and Canadian Tire are all in close proximity to his 18,500-square-foot store. He said:
    The reason I'm still here at the age of 69 is because I'm still having fun. I worked too many hours to develop hobbies, so now I'm turning my job into my hobby.

    Long service, such as Mr Flanagan's 25 years, is a common trait at Home Hardware, which has had just three chief executives since entrepreneur Walter Hachborn founded it in 1964. It's a retailer-owned enterprise -- the proprietors of its 1,100 retail locations across Canada are also its shareholders. Each dealer/retailer can tap into a range of services offered by corporate headquarters, in the heart of Ontario's Mennonite community. Chief executive Terry Davis explains:
    It's a culture of service. Retailers are normally controlled and owned by the head office. Our only purpose here is to serve those dealers in the stores, so we just have a different mindset. We are here to look after them. We are like a concierge service at the best hotels. I absolutely believe that makes us a strong competitor.

    Mr Davis, who is 65 years-old, joined Home Hardware in 1970 as a "picker" in what was then a modest warehouse operation, and he never left. Hired as the firm's 36th employee, he now oversees an operation with 2,300 employees at its head office and central distribution centre, and C5.8 billion in annual sales.

    Mr Davis admits Home Hardware's quasi-co-operative business model presents some challenges because the firm has neither the deep pockets of its publicly traded rivals, nor the top-down control of a franchise operation. But he says the model also offers benefits rivals can't match.

    He cites flexibility and communication as two factors that help Home Hardware compete. For instance, individual retailers select the goods that will best meet the needs of their local markets. Management conducts regular surveys of store owners' priorities.

    Twice a year, about 70% of the dealer-owners show up for big marketing events at its headquarters, where they can meet management, talk to suppliers and generally stay in touch with what's going on. Mr Davis said:
    One of the biggest challenges we face is having to be nimble and competitive and aggressive and all of those things without having the funding that's available to publicly listed companies.
    It must be nice to be a franchise organisation, and go out and tell every branch exactly how it has to operate, but we don't have that either. We don't dictate to our members as much as we persuade them. We are a group of 1,100 retail operations out there trying to work as best we can as one big team, and I think we do it very well.

    Yet Mr Davis also recognises the need to maintain quality. The company is four years into a five-year plan that targets 42 locations for termination -- ordering dealer-owners to improve their stores or leave. He said:
    There were a number we ended the relationship with. It was a difficult exercise, and the first time we've done anything like that. But we feel pretty strongly about what the brand stands for.

    So far, 29 of those 42 stores have closed; in nine of those markets, Home Hardware has recruited new retail members.

    Mr Flanagan shares the desire to protect the brand and concedes that the need for consensus among retailers can make the company conservative and risk-averse. For instance, there would be no agreement on moves like increasing loan funding for dealers wishing to open stores in Canada's biggest urban centres, where, he says, the brand remains relatively weak.

    But Mr Flanagan is very satisfied with the service he receives from the management team, a pay-as-you-go list of options that includes help with branding, design and display materials, as well as access to experts in fields like human resources, finance, health and safety, and real estate. He said:
    If I were to sum up the Home Hardware culture in one word, it would be 'helpfulness. We are run by a board of directors that are Home Hardware dealers, so it's the dealers telling head office what we require. We're a ground-up, not an ivory-tower-down, organisation.
    Products
    Upgraded surveillance system
    The G37xx series of security systems from Uniden can offer homeowners greater flexibility
    Uniden
    The spotlight from the G3700L model
    The Guardian wireless surveillance series offers a plug-and-play set-up
    Click to visit the HBT website for more information
    Uniden has refreshed its Guardian digital wireless surveillance system range with the introduction of the G37xx series.

    The new DIY security systems offer homeowners greater flexibility and a host of practical, advanced features. The new models -- the G3720 and G3710 -- each include a seven-inch touchscreen tablet and weatherproof cameras (two and one, respectively).

    The range can be expanded to include up to four weatherproof cameras. In addition, the ability to install cameras where cables cannot reach means users can change the camera configuration quickly and easily as required.

    Suitable for monitoring the interiors and exteriors of residential properties, the G37xx series cameras communicate wirelessly via the touchscreen tablet. This can also connect to the internet for remote access from a smartphone.

    The touchscreen tablet has full High Definition (HD) 1080p resolution for clear picture quality, allowing homeowners to clearly see details such as registration plates and facial features that are critical in the event of an incident.

    Unique to the market is the introduction of an optional motion detection spotlight with a weatherproof outdoor camera. Enhancing night vision further, this deters unwelcome visitors by casting a bright light when movement is detected. Additional features include an infrared LED with infrared cut filter for true representation of daytime colour, HD picture quality and PentaZoom 2x digital zoom-in on live videos.

    Remote access via an iOS/Android app means homeowners can log on from anywhere to watch and record footage live as well as switch the optional spotlight on to deter intruders. The app also sends push notifications and email alerts whenever the system detects movement.

    Secure, digital and interference-free transmission can provide peace of mind while a two-way talk function offers interactive opportunities. The Guardian wireless surveillance series offers a plug-and-play set-up and can be ready to use within minutes.
    Companies
    Fletcher Building 2015-16 full year results
    Results for Fletcher Building FY 2015/16
    Fletcher Building
    Fletcher Building's overall strategy
    Australian plumbing market from Tradelink perspective
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    New Zealand based building products and distribution company Fletcher Building has reported positive results for FY2015/16. Sales revenue came in at NZD9004 million, an increase of 3.96% over the previous corresponding period (pcp), which was FY2014/15.

    Overall company earnings before interest and taxation (EBIT) was NZD682 million, up 4.44% on the pcp. EBIT from Fletcher's Australian operations grew particularly strong, coming in at NZD 151 million, up 31.30% on the pcp. Australia contributed 23% of the company's EBIT, as compared to 18% for the pcp.

    Net earnings before significant items were NZD462 million, up by 4.76% on the pcp.
    Results for Fletcher Building FY 2015/16
    Divisional results

    Of Fletcher Building's five divisions, only International showed a drop in EBIT as compared with the pcp, down 7% to NZD133 million. Building products increased EBIT by 6% over the pcp to NZD274 million. Distribution added 19% to the EBIT of the pcp, to report NZD176 million. Residential and land development reported EBIT of NZD84 million, up 27% over the pcp. Construction increased EBIT from NZD74 million during the pcp, to NZD78 million, an increase of 5%.
    Fletcher Building's overall strategy
    Building products

    The star performer for building products was building materials, with good performance from plasterboard and insulation sales contributing to its 21% increase in EBIT to NZD93 million. Plasterboard sales increased in volume by 11% and earnings from insulation doubled across the Australian and New Zealand markets. The EBIT from Fletcher Insulation has reportedly increased by 150%.

    In answering questions from analysts during the results presentation, Fletcher Building CEO Mark Adamson remarked that demand for insulation had been high enough in Australia that extra capacity was needed:
    I announced that we are restarting Rooty Hill [insulation factory in New South Wales] - I never thought I'd hear myself say that - simply because we're full, because we've taken a lot of market share and the management team there has done a great job. So that will certainly alleviate any medium-term pressure in Australia.

    Similar capacity problems were also encountered with plasterboard, he remarked:
    I think wallboards is starting to get up against the buffers of capacity. Every few months they manage to eke out a little bit more, and that's where the manufacturing excellence program isn't so much driving cost as driving additional capacity out of the same kit. That should see us through certainly FY 2017 and we're working on plans as to how to address that going forward. That is a tight one.

    Another standout producer was Iplex Australia, which makes plastic pipes. It managed to turn a loss of NZD27 million during the pcp, into a break even result for the current year. Mr Adamson warned, however, that future growth for this operation would be more subdued.

    Other results included an increase in readymix cement volumes by 7%, in volumes for New Zealand cement by 6%, and a decrease in cement pipe volumes in New Zealand by 8%.
    Distribution

    The overall EBIT lift of 19% compared to the pcp to NZD176 million was largely driven by steel distribution. Australian steel distribution rose by 43%, and New Zealand steel distribution rose by 22%.

    The Australian plumbing supplies distribution TradeLink saw a 2% decrease in its revenue, and the operation went through a reset during the year. According to Fletcher Building's annual report for FY2015/16, its intentions as regards TradeLink are:
    The focus has been on cost-effectively expanding the store footprint, implementing a service guarantee oriented around the core requirements of the trade plumber, and on lifting the capability of people within the business. There remains much to be done to get that business to acceptable returns but we are clear on our strategy and the early signs of customer acceptance are encouraging.

    In response to an analyst's question, Mr Adamson expanded on the company's plans for the business:
    Yes I think Tradelink, it's fair to say, is the one standout turnaround that we continue to pay the most attention to. Partly because unlike manufacturing businesses - we say Iplex have a fairly rapid turnaround, Formica Europe is already making money from a fairly average first half. Distribution turnarounds tend to be longer because you've got to get customers to buy stuff from you in your new branches.
    I think what we take faith in is not some clever magic bullet strategy, but we're very much relying on the experience of Dean Fradgley and Alan Ball and their teams. They're extremely credible. We ask them the same question that you've asked me almost every week, and they remain very, very positive. The early signs from the store rollouts that we've done, we've done seven so far, in the last three months, two of them are already turning a profit, do look promising.
    But I think it needs to be a strong conversation at the half year. I think at the half year we'll be able to be more definitive from a numbers point of view around whether that's going to be successful. They are absolutely convinced we can get that business to the 40 million we keep on talking about.

    In an investor day in April 2016, Fletcher Building provided more details about its plans for TradeLink. One key to this is an increase in Trade stores from 107 in 2016 to 165 in 2019. These will be low-cost format options, which the company tested out in the Australian Capital Territory. The plans are to build 23 new branches in Queensland, and 26 new branches in New South Wales, will 11 branches spread out through the remaining states and territories.

    Tradelink also has plans to refurbish its showrooms, through a AUD1.5 million investment. Currently Reece is thought to capture 63% of showroom sales, independent operators 26% and Tradelink 11%.
    Australian plumbing market from Tradelink perspective
    Analysis

    As an overall company, Fletcher Building remains something of a challenge to analyse, as it deals with about 20 different markets, some of which interact, and others which are at least partially independent.

    From the building supplies perspective, however, it remains challenged by the problems of most building supply companies, in that it is difficult to know what level of market activity it should optimise for. At the moment in areas such as plasterboard and insulation, it is not able to comfortably meet demand. Some of the expansion it is undertaking in these areas relates to better efficiencies, and some requires the addition of more capacity. By the end of FY 2016/17, there should be a better picture as to how those strategies will work with the developing market.

    In terms of Fletcher Building's distribution business, while much of that business continues to product good results, Tradelink in Australia continues to recover from persistent problems. As Tim Salt, the managing director of GWA Group has commented, the company seems to be very willing to improve its operations, but it has yet to deliver on this.

    Meanwhile, competitors such as Samios in Queensland are finding ways to get better market share, and Reece continues to consolidate its leading market position.
    Companies
    GWA Group results FY 2015-16
    GWA Group results for FY2015/16
    GWA Group
    Graph of bathroom and kitchen segment results
    Door and access systems results graph
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    At this stage, Australia's GWA Group has all the makings of a good turnaround story. After seeing its business decline as it persisted with a diversified business with manufacturing capacity in Australia, GWA has narrowed its focus to two product lines, and moved to offshore manufacturing in China.

    Reporting its full year results in late August 2016, the company has declared revenue of $429.7 million for FY2015/16, up by 3.12% over the previous corresponding period (pcp), which was FY2014/15. Earnings before interest and taxation (EBIT) rose by 7.51% over the pcp, to come in at $78.3 million. Normalised profit after taxes (a non-standard measure devised to make a genuine comparison with previous results) was $51.9 million, up by 14.98% over the pcp.
    GWA Group results for FY2015/16
    Company evolution

    In its FY2013/14 GWA found itself in something approaching a crisis. The company wasn't doing as well as it should, and GWA sought external advice from Second Road Consulting. The conclusions the company reached, as detailed in GWA's Annual Report for FY2013/14 were this:
    It is clear that our market context is changing and while GWA remains Australia's leading supplier of building fixtures and fittings, our markets are evolving:
    - The relationship with our buyers is becoming more equal and also less predictable, through trends such as channel consolidation and digitisation.
    - Shifts in supply chain are required for us to be more efficient and effective.
    - Value does not lie solely in the products themselves but also in the systems and experiences that come with them.
    - Industry boundaries are not what they used to be - innovations from outside of the traditional building and construction spaces are becoming relevant.

    The solutions that GWA decided to follow at that time were also detailed in the Annual Report:
    - We recognise markets are changing and will deliver products and solutions that save time for tradesmen, builders and across commercial projects.
    - We will refocus our business units on their target market segments to ensure they have unmatched understanding of customer needs, able to reach and influence the key decision makers in these segments.
    - We will free up our business units to focus on their markets by leveraging corporate functions that will enable:
    -Increased innovation and market insights;
    -Closer customer engagement and information via group information systems;
    -Supply chain effciencies and responsiveness;
    -A supportive culture and pipeline of appropriately skilled management; and
    -Unmatchable scale.

    This resulted in a number of changes that were summarised in the Annual Report for FY2014/15:
  • The sale of the Brivis Climate Systems business;
  • The sale of the Dux Hot Water business;
  • The sale of the Gliderol Garage Doors business; and
  • The phased exit from manufacturing of vitreous china and plastic sanitaryware products at the Wetherill Park and Norwood factories and the subsequent sale of the Wetherill Park site.

  • In effect, GWA pulled out of Australian-based manufacturing altogether, eliminated its heating and cooling segment, and cut down its doors & access division by selling Gliderol Garage Doors to Reliance Doors.

    The other major change was that, having driven this transformation of the company, the then-managing director, Peter Crowley, announced his plans to step aside. GWA had already found a worthy successor, Tim Salt, who was at that time the managing director of Diageo for Australia and New Zealand.

    Diageo is an alcoholic beverages company, which markets Smirnoff vodka, Baileys and Johnny Walker whiskey, among other well-known brands. It has a strong focus on both sales and increasing sales through innovations in products. Tim Salt had held his position there from 2008, and prior to that he had worked for Arnott's in a series of increasingly senior management roles from 2004. His background also includes time at Lion Nathan and Pepsico.

    Unusually, Mr Salt began his time at GWA in charge of its bathrooms and kitchens segment in September 2015. He was made CEO of GWA on 1 January 2016, and assumed the full managing director role on 1 July 2016.
    April assessment

    One of Mr Salt's first moves as a senior executive was to provide an investment market briefing on 21 April 2016. He delivered a very focused presentation that outlined the strengths of GWA, and details of how the company would make the best use of those strengths.
    GWA group structure

    In particular, what became very clear was that, after some years when GWA had not really innovated much in its sector, Mr Salt intended to increase the role of innovation in the company as a means of delivering differentiated products with a higher margin. Further, it was plain that this innovation, in contrast with many of GWA's competitors, would have a strong basis in engineering, as much as in pure style and design.

    A second focus was market alignment. Many of GWA's products were aimed at detached dwellings, and it was underweight - in terms of building approvals and even completions - in the multi-unit residential area. Also, Mr Salt indicated that the company would be directing more resources at the renovation and repair markets, due both to their size potential, and their modest contra-cyclical trend to the new build market.

    Mr Salt identified a number of emerging opportunities, such as the movement towards "ageing in place", where "safe" bathrooms could form a major part of making houses more friendly to older Australians.

    Mr Salt's third focus was on reducing costs. He could see a clear path to reducing selling, general and administrative expense (SG&A), as well as improving logistics and therefore inventory expense.
    GWA operating model
    The results

    The clearest indication that GWA has met many of its targets is that the number of brands under its management has declined sharply. In the company's Annual Report for FY2013/14 it lists 15 brands in total for its bathrooms and kitchens business. In its current annual report it lists 10. Of these, it owns just five: Caroma, Dorf, Fowler, Stylus and Clark. The other five - Hansa, Schell, EMCO, Virtu and Sanitron - are just distributed.

    With many of the fundamentals in place, Mr Salt has begun to shift some of the priorities for GWA from restructuring to leveraging established assets to gain better revenue. The priorities he lists in the FY2015/16 annual report include:
  • Drive cost out in SG&A and supply chain to improve profitability and allow selective reinvestment;
  • Build an advantaged supply chain to deliver superior new product development, quality and service at best cost;
  • Build a "fit for future" culture, engagement and capability;
  • Add value to customers through improved insights, analytics and processes; and
  • Leverage and build on core assets and brands to drive revenue and market share growth.
  • Segments
    Bathrooms and kitchens

    The company's annual report defines GWA's operations in this area as consisting of:
  • Vitreous china toilet suites, plastic cisterns, seats, urinals and basins
  • Acrylic, pressed steel and solid surface baths
  • Tapware, showers, accessories and thermostatic mixing valves
  • Stainless steel sinks and laundry tubs
  • Solutions for aged care and commercial applications

  • Revenue for this segment came in at $342 million, up by 3.6% on the pcp. EBIT also rose, by a lower 1.6%, reaching $87.7 million.

    Queensland led sales growth with an improvement of 12%, followed by New South Wales and Victoria with 6% growth. Sales in both Western Australian and South Australia declined by around 6%.

    GWA suggests that the segments return on funds employed (ROFE) has been 24.1% for the year, an improvement over the ROFE of 22.5% for the pcp. The company sees this as a result of its exit from Australian-based manufacturing.
    Graph of bathroom & kitchen segment results
    Door and access systems

    The company's annual report defines GWA's operations in this area as consisting of:
  • A comprehensive range of door hardware and access systems comprising door handles (knobs and levers), door closers, hinges and other door accessories
  • Commercial locksmithing services for security systems and safes
  • Supply and installation of electronic access control systems and associated products including CCTV, alarms and intercoms.

  • Revenue for this segment increased by 1.6% over the pcp to come in at $97.7 million. EBIT was close to flat, coming in at $7.3 million, as contrasted with $7.2 million for the pcp, an increase of 1.4%. ROFE grew from 13.2% in the pcp to 13.7% in the current year.

    Victoria led with a sales increase of 12%, followed by New South Wales at 7%. Western Australia had a 7% decline in sales revenue.
    Door and access systems results graph
    Analysts' presentation

    Underlying all of these, however, is a very strong emphasis on new product innovation. This is something he highlighted during his introductory remarks at the analysts' conference call for the current results:
    I think the successful launch of Caroma CleanFlush demonstrates how we are leveraging our investment in research and development to bring innovative new products to market. We launched this product in the 4th quarter and initial sales have been strong. The product is being ranged in over 200 Reece showrooms and that creates a positive platform into FY2017. We have also strengthened our new product development pipeline, with a core focus on improving our share in renovations and replacements, which is the largest segment opportunity for GWA.
    The second priority is to add value to our customers. We have appointed a new executive general manager of sales in the bathroom and kitchens division, Craig Norwell. Craig has already made good progress with our major customers and merchants, particularly in working more closely with them on market initiatives, and that is a key focus for us.
    So as part of that Craig [Norwell] is establishing joint planning sessions with our major customers, working on mutual targets and initiatives that will benefit both GWA and that customer's businesses. Further to that we are also working with customers on tailored product innovation plans, where we are developing specific products for them.
    To better drive growth, we are realigning GWA resources to support our major customers. That is not just sales, but includes marketing and product development, to ensure we are genuinely harnessing our full resources to build a superior understanding of our customers' businesses so that we grow with them. We have also reorganised our sales team in the door and access business to drive sales growth in the multi-residential and commercial segments.
    Our third objective is to build a "fit for future" culture, engagement and capability. On that score we are implementing leadership development programmes to drive greater accountability and agility across the organisation. We are also improving our talent management processes to better identify the key talent, and capability gaps.
    A key component here is implementing a sales capability standard in the business. Ensuring our key customer facing staff have the right skills and training to support our customers' businesses.
    Our fourth objective is to build an advantaged supply chain to deliver superior new products, quality and service at best cost. We have made good progress here, particularly with the launch of integrated business planning across the business.
    We are betting on aligning sales and supply processes to better enhance working capital utilisation, reduce inventory, and improve service deliver to our customers. In the second half, that contributed to a $14 million reduction in inventory. We have also commenced the work to decentralise our inventory into Australian capital cities, which will enable us to get product from its origin to customers more quickly and efficiently. That is being supported by track and trace capability, to provide greater visibility over orders from supplier to port, and from warehouse to customer in real time.
    These initiatives together will drive sustainable improvements in our customer service as measured in a shift in our DIFOT (delivery in full on time).
    Our final objective, driving costs out in SG&A and supply chain to improve profitability and allow selective reinvestment. We have continued to reduce our corporate overhead in the second half. We have also implemented changes to our supply network across Asia, appointing a new sea freight partner, and commencing the work to consolidate our freight operations. That is designed to reduce freight costs, improve container yield, and enable shipping direct to port. That is contributing to our overall plan to generate $13 million to $16 million in cost savings progressively from FY2016 to Fy 2019, through a combination of SG&A and supply chain efficiencies.
    In an overall sense, while we clearly have a lot of work to do, the group has made good progress on our strategy this year.
    Progress on strategy

    In response to a question by an analyst from UBS regarding future price rises for products, Mr Salt explained the role that new product development could play, especially for the Caroma brand:
    I think the market is getting more challenging in FY 2017, and we've already seen this at the lower, cheaper end of the market. As a result, our focus in FY2017 is much more about how we drive mix, and improve profitability through looking at some of the higher end products. I talked about Caroma Cleanflush as an example of that where we have seen good growth in some of our higher end toilet suites, and that is what we want to continue to focus on to drive mix more aggressively across FY2017.
    Tradelink and Samios

    An analyst from Credit Suisse asked about GWA's relationship with plumbing distributor TradeLink, which has suffered from a diminished reputation in recent years. Mr Salt went into some detail about GWA's major customer base in his reply:
    I think the best way to characterise that at the moment is that we are seeing good intent [from TradeLink], but we are not seeing any improvement, as we speak.
    So that is probably the one from the customer's  perspective that is disappointing for us. We are currently working with them on programs to beef up the first half activity on TradeLink, to build momentum, but we didn't see that reflected through in FY2016.
    We had good performance with Reece, plus 5% [in revenue on sales] and Bunnings, plus 8%, among the other top 5 players being Plumbing Plus at plus 5% and Harvey Norman at plus 12%. So we had great growth across all of them.
    And then TradeLink was a challenge for us. It is interesting in our business, though, that I'm learning that as you move in those areas, another customer will come in to take some of that business. We've found that we've had very strong growth with a group called Samios out of Queensland, which for the year has grown just shy of 60%, and they are now our seventh largest customer. They are a similar type operation to TradeLink, and they have filled a gap with some of the underperformance we've had with TradeLink.
    That said, we are very clear that we need to get back, and improve our performance with TradeLink, and we are committed to that, and certainly with the new management team that we've got in TradeLink here in Australia, through Alan Ball and Steve Lewis, they are committed to getting us back into growth with them, and that's the key thing for us.
    Approval to completion lag

    In making forecasts for 2017, Mr Salt had mentioned the benefits of a considerable backlog of work to be completed, dwellings completed statistics lag behind building approvals granted. An analyst from CitiGroup asked him if he could clarify this further:
    Completions are running at around 190,000 versus commencements and approvals that are around 230,000. So we think the lag is still somewhere around the 30,000 to 40,000 units of stock, if you like, that still has to play out through FY2017. So even if the market does come off the highs that we're seeing in that new build area, we still think that over the course of FY2017 you will see a fairly robust building schedule going through. So we don't see that dropping off as yet.
    The unknown on that, we think, will be the impact of Government restrictions on lending to foreign investors, and that is the bit that I guess the unknown, how that is going to impact when new properties become available and settlement has to go through. But at the moment we're not seeing any pressure as things stand.
    So in terms of the actual time from that, it is a bit hard for me to say what it is, but it can be up to six to nine months, I think at the moment, the delta between when something kicks off and when it is finished. That is getting longer, not shorter, driven by the lack of labour.
    Bunnings/Homebase opportunities

    An analyst from Credit Suisse asked if GWA thought there were any immediate opportunities to supply Homebase in the UK through its relationship with Bunnings in Australia. Mr Salt replied:
    I think there is no doubt that Bunnings said they would be looking at some of their suppliers in Australia to potentially work with them in the UK. We would like to think that we could be considered in that, but as yet we have not had any further conversations on that.
    It is more just an opportunity for both parties. Our focus is on making sure we get the business with Bunnings right here, and then potentially leverage over into the UK at a later date. So definitely an opportunity but no plans in the pipeline at the moment.
    GWA revenue by end market
    Analysis

    Pulling off this kind of company transformation can be very difficult. That GWA has done so well so far can be put down to the efforts of the former managing director, Peter Crowley, in making some radical changes after he realised GWA could not go on in its previous form. It looks like Mr Crowley also deserves credit for having the acumen to help pluck Mr Salt out of his role at Diageo, and plunge him into a slightly unfamiliar business - one where it looks like he is set to thrive.

    While Mr Salt's predictions that GWA's results will be somewhat cushioned throughout FY2016/17 by the backlog of residential building work to be done, there is, of course, a problem that comes with this. If building approvals do fall off during the coming 10 months, then the backlog will come to work in reverse during FY2017/18 and possibly the first half of FY2018/19 as well, as it will take time for the effects of an improved building economy to filter through to purchases of "second fix" goods such as taps, basis, sanitary suites and locks.

    At least, however, such a lag will give Mr Salt nearly a year in which to pivot GWA somewhat away from the new build market, and towards the repair and renovation market, which has both a more steady base, and a slightly contra-cyclic trend to the construction new buildings.

    The other, longer term difficulty that GWA could face, particularly in its doors and access business, is not being able to stay in touch with the rapidly evolving technology, as this sector of the business rapidly becomes part of the Internet of Things (IoT) area. While today Bluetooth-linked locks and doorbells that work via smartphone apps are not mainstream, they likely will be within three to four years. Developing and marketing systems in this area will require a different skillset.
    Bigbox
    Kingfisher results 2016-17 first half
    Kingfisher first half results FY2016/17
    Kingfisher
    Video of Kingfisher MD Veronique Laury at the 2016 DIY Summit
    Range teams at Kingfisher
    Click to visit the HBT website for more information
    UK-based global home improvement retailer Kingfisher has released its results for the first half of 2016/17. The results on the surface show promising, though not extraordinary growth, with UK & Ireland and Poland doing well, and Kingfisher's French operations relatively steady. Both Russia and Spain show a concerning lack of growth. The retail "star" remains Screwfix, which has expanded both inside the UK, and in Germany.

    The financial numbers for the company show that sales revenue came in at GBP5749 million, up by 6.82% on the previous corresponding period (pcp), which was the first half of the company's FY2015/16. In constant currency terms, the increase would have been 2.7%.

    Underlying pre-tax profit was GBP436 million, up by 13.5% on the pcp. Statutory post-tax profit was GBP321 million, up 0.94% on the pcp.

    On a regional basis, B&Q UK & Ireland returned sales of GBP1997, slipping down by 1.8% over the pcp, with like-for-like (LFL) sales coming in at 4.6% in constant currency terms. Screwfix reported sales revenue of GBP612 million, up 24% overall on the pcp, with a 14.7% increase in LFL sales.

    Sales in France were worth GBP2175 million, up 10.1% on the pcp, but posting a more modest 0.3% gain in constant currency terms, with LFL sales in constant currency dipping slightly, by 1.6%.

    Poland recorded sales of GBP587 million, up 15.3% on the pcp, 11.4% in constant currency terms. Sales in Russia fell by 10.7% on the pcp, 0.6% in constant currency terms, returning GBP157 million.
    Kingfisher first half results FY2016/17
    Bunnings/Homebase competition

    During the presentation of results to financial analysts, competition from Bunnings and its Homebase acquisition did not form part of the formal presentation, but the analysts themselves did bring it up in questions. Andrew Hughes from UBS asked if Kingfisher could detect any positive benefit from the closure of some Homebase stores. The chief financial officer of Kingfisher, Karen Witts, replied that there may have been some slight benefit, but the main driver of growth for B&Q had been the increase in online sales.

    Claire Huff from RBC followed up on Mr Hughes' question, asking if there had been any disruptive effects from the entry of Bunnings into the UK market. Kingfisher's managing director, Veronique Laury, responded that:
    On Bunnings, I'll stick to where I've been since the beginning. I think they are very valid competitors and we are really looking at what they do. We value what they've done in Australia and - but the context is very different...And I think what is important is that we are not fighting against Bunnings. Of course, we have those competitors, but we are sticking to our plan.

    Ms Laury went on to comment on some of the competitive activities of Bunnings/Homebase:
    They've done a little bit of price activity over summer on certain lines. But again, I think the starting point was that they were owned, they were 15% more expensive than B&Q. So, even with what they've done, we are still much cheaper than what they are.
    Results and transformation strategy

    The narrative that is suggested by Kingfisher, with some numbers to support it, is that the real story for the company is happening beneath the surface of its acceptable but not great results. Aside from pure performance, these company results also represent progress for Kingfisher six months into an ambitious five-year transformation plan.

    For this financial year that will see the company transform some 4% of its overall retail floor space with product range changes driven by radical changes to its supply chain. In the next financial year, this will expand to cover 20% of the company's floor space.

    The narrative suggests that the situation with Kingfisher is "wait and see". The expansion of revised product lines in the coming financial year will, the company suggests, revitalise its bottom line.

    Ms Laury introduced this as a topic in her opening remarks. She said that the transformation would:
    ...create huge value for our shareholders, as well as our customer. This presentation is going to be, let's say, about 80% to 90% about the transformation. And you should expect to have probably a little bit more about the result in such a presentation. I think this is a choice we've made because we think it's very important for you to understand where we are in terms of transformation.

    Later she expanded on this idea:
    And it is really good to say that and to have delivered that set of numbers alongside of really starting the real transformation, because - and I will come back on that and you will see in the different integration - we've really started. We are really at the heart on the transformation now, much more than where we were six months ago. So, to manage to deliver that set of result of business as usual as well as really entering into that phase of transformation I think is a good result.

    Questioned by the analyst Anthony Shiret of Haitong about whether Kingfisher's results had really been a little mediocre, she expanded further:
    I think the performance on B&Q, I will be less harsh than what you are on the performance of B&Q. I think the performance of B&Q is okay actually, and I think to have so many quarters of positive like-for-like is not what happened in the past. Anyway, having said that, we are conscious that we need to improve our customer proposition in our B&Q store. I think part of that, I was talking about the fact that, next year, we are going to touch 22% of the footages across the group. It will be true as well for B&Q.
    So, I think there is two ways to improve. I think that the offer that is going to arise in the B&Q store, to be specific about that, is going to be much better than what we had in the past.
    Transformation experiences

    Much of the presentation was given over to Arja Taaveniku, Kingfisher's chief offer & supply chain officer, whose work history includes lengthy experience at IKEA. Ms Taaveniku talked through some of the process the company was going through in revitalising its product ranges. She outlined the scope of the project in these terms:
    The result from these ranges that we have been working on in the first wave is that we are going from 28,000 SKUs on growth level down to 7,000. We are going from 842 suppliers down to 131, and it goes without saying that those 131 suppliers are, of course, given much better conditions to put up highly efficient production.

    A natural concern arising from this kind of consolidation would be that individual preferences would be washed out. However, Ms Taaveniku indicated that Kingfisher was well aware of this problem, and sensitive to how its products would "play" in different cultures:
    We have been able to do this unification, but still continue to address the local needs, because there are some. And as an example, in Poland and Romania - and I would say Russia as well - there's still a need of having light-coloured sinks...We can add that into the unified range. We're not removing that.
    In the UK, you probably know about the Belfast sinks. We are still having that in the range, so we're adding that as a local need. We have also been able to add new good functions to markets that didn't have it. Example is scratch-resistant, linen finish sinks into the UK. We didn't use to have it here and we've been able to add that. Those local ranges, they are still benefiting from the cost price reductions that we're achieving on the unified ranges. In many of them, we can use the same supplier base. The Belfast sink is a porcelain sink and we are using the same supplier base as for the unified ranges.
    On the sinks, well, it's a fewer SKUs you see on the screen, we're going from group SKUs from 516 to 113 and it's now 13 suppliers as compared with 36 before.

    One area that was emphasised not just during Ms Taaveniku's presentation, but also during the questions from analysts, is that the transformation process is less about pricing and more about delivering the products customers want through a better customer experience. As she explained:
    This plan will deliver significant customer benefits, which is the main thing with our plan. This is not a cost price reduction exercise entirely. The main thing is that it would deliver much better ranges for our customers.

    She expanded on this further:
    These ranges are easier to shop for our customers in terms of how we have displayed the merchandising and how we created the packaging. But also how we have created the range composition, what we are really offering to the customers.
    It's newer products. And as an example, two-thirds of these bulbs will now be LED and sold under our own brand, Diall, where we have really secured a good quality at the very low price.

    That said, Ms Taaveniku also noted that the changes should bring about an overall cost benefit of around 5%, with some ranges benefitting as much as 15%. However, most of the cost benefits, she states, are being reinvested in terms of offering higher quality products at lower price points.

    A core part of this transformation process is that Kingfisher is getting involved in the design process for the products. This seems to be an involvement that goes further than that of, say Lowe's Companies, or The Home Depot in the US, or Bunnings with its "captive" brands, such as Ozito and Kaboodle. As Ms Taaveniku explained:
    We are setting up the new design hub in London. Our new design director started just a few weeks ago. And if you wonder why we are doing that, recruiting those new competencies, while we used to do - we come from a culture of just buying the products from suppliers. So, we are moving into a world of Kingfisher where we're also designing our own products and owning our own [intellectual property] rights. And we will do business directly with the factories. So, for example, one part of that cost that suppliers used to have baked into their costs, the R&D, much of that we will carry ourselves.
    Transformation organisation

    Ms Taaveniku used the example of taps to illustrate how the new organisation works at Kingfisher. Firstly she pointed out that half of the part of Kingfisher she runs, Offer & Supply Chain, consists of range teams. These teams are based in the UK and France. The kitchen team operates out of the UK, and the bathroom team operates out of France, for example. There are seven range categories, each with its own category director.

    Each new product project is assigned a product lead, who looks after that project. The project begins with an assessment of what the customer needs, and how the customer buys the product. This includes the timing of when these goods are purchased, and what part they play in the daily life of the customer. As Ms Taaveniku explains, this forms the basis for the development of the product:
    They will base that whole range offer on those customer needs. They will also look on the range composition. How many taps do we need to offer for use where you want to have a relevant offer as a customer? And they will also look at what price targets should we put at on those products.

    The next step is to determine how to source the products that are required. One of the insights that Kingfisher has gained is that beginning with a strong assessment of what customer needs really are frees up the company to explore a wider range of sourcing options. As Ms Taaveniku puts it:
    When you really start with customer needs, we have realised that we are much less dependent on international brands than we have previously thought. So, you will have designers, you will have engineers that are constructing part of it.

    Part of the process is to have internal quality control and specification teams go over the product requirements as well:
    There are also quality specification people here telling - saying that this is the quality requirement we have to set on this, and this is requirement we are setting on suppliers.

    Another important team looks after how the product will fit into the Kingfisher brand story, how it will be packaged, what will be printed on the display box, as well as the writing of any instructions or warnings that might be needed.

    Once the process has reached this point, it is time for the experts in sourcing to take over.
    They are handling, managing the whole tender process. So they are the ones who are putting out to suppliers and asking who wants to be part of this tender process. They are managing all the supplier relations and also deciding who is the supplier going to be that will supply these taps.

    Next there is the commercial part of the operation, where things such as merchandising solutions, and store displays are designs. Part of that is also the product data experts, who will work out how the data produced by the product will be integrated with that of the product range to providing meaningful results.

    Finally, there are the product logistics teams. As Ms Taaveniku describes:
    In the supply and logistics, we have currently project people working on - deciding on what are the routes to market on this one. How do we supply it? Does it go directly to stores? Does it go through distribution centres or how do we supply it? They're also managing the forecast, trying to estimate how much to sell of it?

    The end result of this kind of process is an insight into the products that is not available to most other home improvement retailers. Ms Taaveniku can easily describe the core aspects of Kingfishers' tap range:
    The commonalities on kitchen taps are really the type, brand, colour and the finish, and on product commonalities. Because the product as such, well, you have the body and the spout on the tap, there are product commonalities. And as a matter of fact, 94% of our sales come from three body types, only three body types. The customer needs are, of course, to secure quality because quality is the main thing in taps, and durability. And we also see that what saving is coming up as a big demand from customers.
    ...
    New trends are coming out while industrial taps are, of course, a very big new trend. We can also see that is coming, more demand for colours, other colours than only stainless steel. We have been able to reduce the number of group SKUs by 84%.
    Analysis

    Kingfisher's approach to product sourcing and ranging is quite unique in the home improvement industry. One way of thinking about this is that Kingfisher is moving away from a demand-driven model, towards a needs-based approach. If we think about demand as a demonstrated capacity in a market to purchase a product, then we could say that needs relate to the intent and potential to purchase elements from a narrow category of products.

    A pure demand-driven approach comes close to not registering one of the market resources that Kingfisher has mentioned extensively in the past, customers who abandon renovation projects (such as bathrooms), simply because the task becomes too difficult for them.

    Bunnings, for example, is very much a demand-driven retailer, and known for its laser-like focus on what customers want and what they buy. This fits with the statement by the CEO of Bunnings, John Gillam, that "the margin is the outcome". Demand and price have a close relationship, and the role of the retailer is to deliver a product at the "trigger price" necessary to make a purchase possible. Margin, then, is not something extracted from the customer, but rather the outcome of the entire sourcing process.

    Building the customer base from such a demand-driven approach is a highly complex task. Demand seldom expresses itself in terms of just a single product. Generally, it expresses itself in an intricate network of products. Someone installing a new door, for example, will need (obviously) the door itself, hinges and a lock. But they are also likely to need the tools to install the lock - a holesaw, a jig to make sure the lock is mounted correctly, and potentially a bit for a router as well. They might need a jig for the hinge installation as well.

    Satisfying all of those demands, all at the same time, in an easily accessible way, creates something new for Bunnings: a customer. What defines the customer is simply this: Bunnings first. In other words a Bunnings customer is someone who will begin most home improvement tasks by visiting Bunnings, because they are reasonably confident that they will find everything they need there, in one stop.

    HNN has become increasingly convinced that this creation of the customer, and the customers themselves, are the primary economic units for Bunnings' management. While total retail sales remains an important metric, what every Bunnings store is very much about is the creation of customers.

    The Kingfisher approach is quite different. Its role is less about satisfying a known demand, and more about transforming a need into a definite demand. The main tool used to achieve this in retail is the product narrative. These product narratives, which basically link things together with a "this goes with that goes with that" structure, become more effective the more specific they can be.

    One area where these two approaches produce very different outcomes is in regards to how vertically integrated the retailers choose to become in regard to the products they sell. With its demand-driven approach, Bunnings has almost no vertical integration into product production and marketing under its own brand name.

    Bunnings does have a number of major "captive" brands, such as Ozito and Kaboodle, as well as more minor ones, such as Clever Closet. Bunnings' relationship to these captive brands is not one of close design involvement, however. It is aware of demands in the marketplace, and communicates these to these brand suppliers, but it also expects the brands to innovate independently as well.

    Kingfisher has adopted a much more vertically integrated approach. Its primary insight is that, to a larger extent, "sourcing is sourcing". That is to say that the processes the company undergoes when sourcing a product from an external source, or by developing a product internally then seeking a supplier of that product, are very similar. That is because it is looking beyond demand, and is researching the core, basic needs of its customers.

    Vertical integration for Kingfisher leads to very specific products, and ones that closely integrate with each other from the point of view of the customer. That enables the company to establish a very tight narrative, and that tight narrative aids the customer in moving from generally expressed needs to specific demand for specific products.

    A good example of this in the Australian market can be seen with Reece bathroom products. Customers enter a Reece showroom with a vague sense of what they want. The tight integration of its products by Reece enables them to pick and choose the "look" they do want.

    It's important to note that neither approach is generally a "winner" or superior to the other approach. The Kingfisher approach, for example, requires massive investment of capital, and a highly talented pool of people to implement, factors which increase its risk.

    The Bunnings approach carries less risk and more certainty, but depends on a very quick reacting, agile organisation to keep it operating at maximum profitability.

    How these factors will play out in the UK market will be interesting to see. At a guess, each company will likely find success in different categories, with Bunnings doing better at the more "prosumer" end of the market, and where purchases are less integrated, while Kingfisher will do better with highly integrated purchases.
    Products
    Triple Hammer tool
    The kit for Hitachi's WH18DBDL2 Triple Hammer tool
    Hitachi Power Tools
    The WH18DBDL2 Triple Hammer Impact Driver is part of its cordless line
    Hitachi's promotion for the WH18DBDL2 Triple Hammer Impact Driver
    Click to visit the HBT website for more information
    Hitachi Power Tools' latest addition to its 18V brushless Lithium-ion cordless line is the WH18DBDL2 Triple Hammer Impact Driver.

    This professional impact incorporates a third anvil for ultimate torque, less vibration and faster tightening speed, according to the manufacturer. It is powered by Hitachi's new compact 3.0Ah battery that delivers the same capacity as an 18V 3.0Ah Lithium-ion battery, but in about half the footprint and weight.

    By incorporating a third anvil (thus the name Triple Hammer) compared to the standard dual-anvil system, this tool is able to achieve 1832 in/lbs (207 N*m) of torque, 4,000 max BPM, as well as reduce the vibration produced when using the tool. Weighing just 2.9lbs (1.32kgs), the WH18DBDL2 tackles heavy applications like tightening and loosening carriage bolts, driving lags and sinking deck screws with minimal effort. Additionally, it can drill into wood, metal and concrete.

    Being equipped with four different speed settings, a professional end user can tackle a wide variety of applications with just one tool in hand. It delivers a no-load speed from 0 to 2,900-rpm and an impact rate of anywhere from 0-4,000 BPM.

    The tool's ergonomic grip, lightweight and centre balance design is evident during continuous use operation. The WH18DBDL2 has a brushless motor, which plays a large part in decreasing the weight, while increasing runtime per charge as well as improving the overall life of the tool.

    Hitachi has also acquired IP56 certification, to add a degree of protection against dust and water exposure.

    This Triple Hammer Impact Driver has a white LED light, a low battery indicator, metal belt hook, 1/4-inch hex chuck for easy bit replacements and a responsive variable speed trigger to ensure the end user has a productive working environment, while achieving the appropriate amount of power for the application.

    The WH18DBDL2 Triple Hammer comes with two compact 3.0Ah Lithium-ion batteries, a rapid charger and redesigned stylish carrying case.

    The Hitachi compact 3.0Ah battery (model BSL1830C) is a brand-new addition to Hitachi's battery platform. These batteries have the same capacity as a conventional 18V 3.0Ah Lithium-ion battery, while the new footprint is 3/4-inch shorter in height and 0.6lbs (0.27kgs) lighter in weight (compared to Hitachi battery model BSL1830. The batteries are also equipped with Hitachi's Multiplex Protection Circuit to prevent over-load, over-charge and over-discharge, further extending the lifetime of the battery. They are compatible with all Hitachi 18V Lithium-ion slide type tools for more flexibility across Hitachi's cordless line.

    The Rapid Charger (model UC18YSL3) cools the battery during the charging cycle to prevent overheating and comes with a colour light indicator to clearly indicate the stage of charging the battery has achieved. The charger is produced with a USB port that can charge smartphones and other mobile devices for added jobsite convenience.

    The carrying case for the WH18DBDL2 Triple Hammer comes with two compartments; one designed to store the tool, batteries and charger, and the other to organise and safely hold a number of accessories.
    Products
    DeWalt adds blower to lineup
    DeWalt's new 12 Amp Handheld Blower is built for residential and jobsite conditions
    Pro Tool Reviews
    The DWBL700 model has been added to its outdoor power equipment range
    This blower provide construction pros with the professional-grade features
    Click to visit the HBT website for more information
    DeWalt has introduced a new professional-grade corded blower to its outdoor power equipment range. The 12 Amp Handheld Blower (DWBL700) is built for jobsite conditions. There is no mixing, cans or combustibles - and there are weight savings as a result of it.

    The new DeWalt 12 Amp Handheld Blower will provide construction pros with the following professional-grade features:
  • Performance - 409 CFM and 145 MPH
  • Durability - three times the motor life (vs. Toro 51619), impact-resistant Xenoy(r) housing, and pro warranty
  • Speed control - variable speed trigger and speed lock
  • Attachments - flat concentrator for stubborn debris (increases air speed to 189 MPH) and 1-inch round concentrator for blowing out holes and crevices in masonry (increases air speed to 210 MPH)

  • The DeWalt 12 Amp Handheld Blower comes standard with a three-year limited warranty, one-year free service contract, and 90-day money-back guarantee.
    The view from Pro Tool Reviews

    There is clearly still a market for corded blowers despite DeWalt's commitment to its 40V Max handheld and backpack blowers. That is going to be the segment that wants to avoid the mess, noise, and maintenance of gas blowers and the premium price tags that accompany Lithium-ion models.

    The design is reminiscent of the 40V Max model, minus the rotation-reducing bend in the tube. Performance is on par with the better battery-powered blowers on the market today - at least on paper - with one notable exception.

    With so many DeWalt 20V Max tools on the market, it may be surprised to find that dragging a cord around would be preferred to the cordless blower already in the system. That said, the bigger the space, the faster end-users can be done with more power on their side.
    Companies
    JELD-WEN expands its portfolio
    Breezway has been rated as a trusted window and glazing brand in Australia
    BusinessWire
    It has benefited from the louvre window's unique design for passive ventilation and high-end style
    Breezway is the third acquisition in Australia by JELD-WEN over the past 12 months
    Subscribe to HNN weekly e-newsletter
    JELD-WEN recently announced its purchase of Breezway, a manufacturer of residential and commercial louvre window systems based in Brisbane (QLD).

    With this acquisition, JELD-WEN broadens its product offering. Terms of the acquisition were not disclosed.

    However a report in The Australian estimates that Breezway sold for a price thought to be as high as $100 million. Its owner, private equity firm Crescent Capital held the division within its ArcPac Building Products business for about three years.

    Breezway, which has a development centre in Brisbane, is leveraged mainly to the Australian and New Zealand detached housing market and has been among the top two players in its markets of louvre windows and garage doors.

    It began manufacturing louvre windows in 1947 and prides itself on being at the forefront of window technology and design, with a constant stream of product improvements including automation and climate management systems. Peter Farmakis, executive vice president and president of JELD-WEN Australia, said:
    Like JELD-WEN, Breezway has a long history of innovation. It's a perfect fit for our focus on elevating the design and style that windows bring to beautiful spaces.

    Breezway is the third acquisition in Australia by JELD-WEN over the past 12 months. Previous Australian acquisitions include TREND Windows & Doors and Aneeta Window Systems. They are now part of JELD-WEN's existing family of brands in Australia that includes Stegbar, Corinthian, Regency, Airlite, William Russell Doors, and JELD-WEN Glass.

    Related:
    JELD-WEN acquires Australian window company - HNN
    Acquisitions continue for JELD-WEN - HNN
    Companies
    Hilti turns 75
    Hilti celebrated its 75th anniversary around the world
    KHL
    Hilti's BX 3-ME battery actuated fastening tool
    The company will focus strongly on increasing productivity in the construction industry
    Subscribe to HNN weekly e-newsletter
    On the occasion of its 75th anniversary, construction technology group Hilti pays tribute to its tradition of innovation.

    In 1941, engineer Martin Hilti and his brother Eugen established Hilti Maschinenbau in Schaan, Liechtenstein where they began producing engine parts, lighters and kitchen mixers. With their focus on innovative blot gun technology and direct sales, they soon created the cornerstone of today's global Hilti Group. It has over 23,000 employees in more than 120 countries.

    The events celebrating the company's anniversary reaffirm the continuity of the group's management. Michael Hilti, the son of founder Martin Hilti, became CEO in 1990 and served as chairman of the board for 13 years and remains a member of the board of directors. He said recently that the creative restlessness of innovative minds has always and will always be the engine of the company.

    In 2015, Hilti inaugurated a new innovation centre for more than 450 employees at its headquarters in Schaan. In the same year, it released the BX 3-ME battery actuated fastening tool.

    The tool is the first one in its category that generates enough power to set fasteners and nails into hard surfaces such as concrete or steel. The end-user benefits from a high level of comfort, low noise, a slight recoil and dust-free work.

    In addition to a wide range of premium power tools, site positioning equipment and other devices, Hilti also offers a service model targeting large contractors and rental companies. Through Hilti Fleet Management, a fixed monthly charge covers all tool, service and repair costs. The idea is to simplify financial planning for customers, while all tools in the fleet are replaced at regular intervals with tools of the latest generation, thus helping to avoid downtime and ensuring compliance with the latest safety standards.

    Going forward, the company will focus strongly on important trends in the construction industry. For example, increasing productivity will be a constant theme and it is currently being reinforced through digitalisation and modern industrialisation.

    The acquisition of the German PEC Group can be seen in this light. The move will strengthen Hilti's market position in the fastening solution segment and optimise its access to Asian markets.

    Related:
    The retail future: power-tools as a service? - HNN
    Construction power tool market to be disrupted - HNN
    Reports
    Ladies becoming tradies
    Recent data revealed one in 10 trades students at Box Hill TAFE in Victoria are females
    Herald Sun
    Hipages.com.au now has 28,600 tradeswomen members
    A TAFE college on the Gold Coast (QLD) offers an annual "Try a Trade Day" for female high school students
    Subscribe to HNN weekly e-newsletter
    Australia's largest online network of trade professionals, hipages.com.au, now has 28,600 tradeswomen members. Last year was the strongest year for women joining Hipages: almost 5000 signed up, a 490% increase on the year before. This year is on track for a similar boost. By comparison, the number of male tradies on Hipages grew by 259% in 2015.

    About 6500 of Hipages' women tradies are based in Victoria. It's 1000 more than a year ago, though they make up just 14.4% of the total.

    Hipages chief operating officer Roby Sharon-Zipser said the multiple trade specialties offered by tradeswomen on the website showcased the diversity of skills and qualifications of lady tradies. She said:
    This shows that, in an industry traditionally male-dominated, there is no job a woman cannot do. It is very exciting to see more and more tradeswomen entering the industry and being recognised for the great work they do.

    Helen Badger, who chairs the National Association of Women in Construction, said more women were entering construction and renovation industries as they realised "there's no career you can't do because of your gender".

    Recent Box Hill Institute of TAFE figures revealed one in 10 trades students are females.

    Ms Badger said they were proving to be jacks-of-all-trades, cropping up as painters, carpenters, electricians, landscapers and arborists. Many are starting their own businesses.

    Rebecca D'Angelo established Mrs Splashback in Bentleigh (VIC) about 18 months ago with her tradie husband. They have found the business is popular among women who feel male tradies "aren't paying attention to them".

    Sally Liddell, who has run North Melbourne's Right Connection Electrical for two-and-a-half years, said she received inquiries on a weekly basis from women who wanted to follow in her footsteps.
    NSW building boosts lady tradies

    Statistics compiled for The Daily Telegraph by Hipages show women now represent about 17%, or one in seven, of NSW's tradies.

    A factor in the growth of female tradies in NSW could be the number of jobs currently available in the building industry. The latest ABS statistics show Sydney reached a record month of housing approvals in July with 6341 homes approved for construction - the highest monthly rate since ABS records started in 2011.

    Building is now better paid than most white-collar jobs, with the average NSW builder earning $77.85 an hour. The average lawyer earns about $37 an hour.

    Supporting and Linking Tradeswomen president Fi Shewring said word is getting out to young women that becoming a tradie is a viable career. She said girls as young as 17 were signing up for apprenticeships.
    Gender gap closing in QLD trades

    More than 1000 Queensland tradeswomen are listed on Hipages. The female tradie trend hasn't gone unnoticed, with TAFE Queensland Gold Coast offering an annual "Try a Trade Day" for female high school students. General manager Jenny Dodd told the Gold Coast Bulletin:
    At TAFE Queensland Gold Coast, we aim to ensure that young females wanting a trade career feel supported in their search for an apprenticeship. In our endeavour to achieve this goal, we decided to launch the girls only 'Try a Trade Day' to inspire more young females to take up a trade career, by providing them with hands on experience across various trades.
    Products
    EDGE pushes runtime and performance
    Porter-Cable's 20V MAX Lithium-ion Brushless Impact Driver PCCK647LB in action
    Porter-Cable
    The new 20V MAX Lithium-ion Brushless Drill/Driver (PCCK607LB)
    The 20V MAX Lithium-ion Brushless Impact Driver features more runtime and shorter tool length
    Click to visit the HBT website for more information
    Porter-Cable's 20V MAX* Lithium-ion Brushless Drill/Driver (PCCK607LB) and 20V MAX* Lithium-ion Brushless Impact Driver (PCCK647LB) are both part of the new Brushless EDGE[tm] family of tools. They are extensions to the 20V MAX Get Linked System(r) tools. These two tools operate on any Porter-Cable 20V MAX Lithium-ion battery.

    (*Note: Maximum initial battery voltage [measured without a workload] is 20 volts. Nominal voltage is 18.)

    Integrating brushless motor technology for the first time in its system of tools, these two brushless products offer up to 50% more runtime** to minimise downtime on the jobsite.

    (**Note: PCCK607LB vs. PCC601 and PCCK647LB vs. PCC641, using 2-inch screws into 2x pine.)

    The 20V MAX Lithium Ion Brushless Drill/Driver (PCCK607LB) boasts longer runtime as well as 20% more power and improved bit retention compared to the prior model (PCC601). Its efficient brushless motor, high-speed transmission, and 1.5Ah battery deliver up to 370 Max Watts Out (MWO) to maximise drilling and fastening speeds.

    A two-speed gear transmission delivers 0-450-rpm in low speed for high-torque applications and 0-1,800-rpm in high speed for maximum fastening speed. Since compact size is an important feature for professionals, the 20V MAX Lithium-ion Brushless Drill/Driver is just 7.4 inches in length and weighs only 3.3lbs (1.5kgs) with its battery.

    Compared to its predecessor (PCC641), the 20V MAX Lithium-ion Brushless Impact Driver (PCCK647LB) features more runtime and shorter tool length. The brushless motor and transmission generate 1,400 in/lbs (158.18 N*m) of maximum torque for large fasteners and the variable speed trigger delivers 0-2,700-rpm.

    The Impact Driver is equipped with a 1/4-inch quick chuck for fast and easy one-handed bit changes. This trim tool is 5.8 inches in length and weighs only 2.9lbs (1.32kgs) with its battery.

    Both brushless unit kits come with two Lithium-ion professional-grade batteries and each tool hosts an on-board state of charge indicator to gauge battery life over the course of a job. Each tool is designed with an over-moulded grip for comfort and an LED work light that stays on for 20 seconds at a time to help illuminate dark work areas.

    There are rubber bumpers on the sides of the tool and a belt hook for storage at arm's reach.
    News
    HI News V2 No. 15: The geography of competition
    Download the latest issue of HI News Vol. 2, issue no. 15
    HI News
    Techtronic Industries results for FY2016 H1
    Chervon buys SKIL from Bosch
    Click to visit the HBT website for more information
    This issue of HI News features the mapping of hardware retailers around Australia and what it means in terms of competitive strategy in the industry.

    Just click on the following link to download this edition:
    HI News V2 No. 15: The new geography of competition

    In its first half results for 2016-17, Techtronic Industries reports good growth in its power tool segment, but contraction in its floor care segment. Makita's first quarter results shows a differentiated approach from the other "big five" power tool brands.

    We also take a look at the latest available hardware retail statistics from July 2016 and see some significant macro influences emerging.

    James Aylen, general manager of Home & Timber Hardware Group announces his departure in our indie store update. In addition, we provide an overview of big box retailers including Bunnings informing consumer affairs authorities that it will not be matching prices from the Masters inventory sale.

    Looking at the European and US markets, we include stories on how Bunnings is evolving the Homebase stores in the UK and Ace Hardware president and CEO John Venhuizen discussing the relevance of local neighbourhood stores.

    In supplier news, China-based Chervon buys the SKIL business from Bosch and we explore the impact of the Masters closing down sale on Dulux and Hills Industries.

    New products in this edition include the Blossom smart irrigation system, tiles that produce a 3-D look, Makita's fast charging battery and high performance MDF panels from Gunnersen.
    Editorial
    Lowe's alleges poor form by Woolworths
    The corporate headquarters of Lowe's in Mooresville, North Carolina
    HNN Sources
    The Kobalt 24-volt drill
    Analysis of Lowe's merchandising services assortment
    Give to Amnesty International
    Hydrox Holdings, Woolworths' failed home improvement joint venture with US big-box home improvement retailer Lowe's, continues to do damage to Woolworths even as it draws its final breaths.

    Two prongs of the three-prong exit strategy Woolworths has formulated seem to be going well. GA Australia is handling a slow sell-off of $700 million in inventory from Hydrox's Masters Home Improvement stores. The sale of the Home Timber and Hardware Group (HTH) to Metcash for $165 million seems to be remaining on track, with completion expected in early October 2016.

    The third prong, however, which involves the disposal of the property assets of Masters, is in danger of becoming somewhat bent and twisted at this stage. Woolworths had planned to dispose of these assets by selling them to an investment group, Home Investment Consortium Company Pty Ltd (aka Home Consortium) for a sum which reports peg at somewhere between $750 million and $820 million.

    Lowe's disputed this resolution, announced by Woolworths' newly minted managing director Brad Banducci immediately prior to the company's results announcement. Woolworths seems to have at first suggested that Lowe's consent might not really be required. Since then it has moved on to saying that the contract between Lowe's and Woolworths requires arbitration, and has put forward High Court chief justice Murray Gleeson as its candidate for this arbitration.

    Lowe's has moved directly to request that Hydrox be placed in voluntary liquidation. It disputes that arbitration would be possible, citing actions by Woolworths which it has termed "oppressive conduct"' and acts of "bad faith". In the case of such liquidation, the Court would appoint a liquidator.

    Lowe's is currently attempting to prove its allegations of less than fully ethical conduct by Woolworths. It has requested a range of documents from Woolworths, and begun to describe the events that led up to the closing down of Hydrox.

    In an affidavit from the assistant general counsel for Lowe's, Robert O'Neale, Lowe's claims that immediately prior to Christmas 2015 Woolworths proposed selling half of its 66.6% holding in Hydrox to Lowe's for $580 million, effectively swapping roles, with Lowe's becoming the senior partner in the joint venture, and Woolworths the junior partner.

    More recently, Woolworths valued the 33.3% share of Hydrox held by Lowe's at $180 million. That would be 31% of the $580 million Woolworths wanted to charge Lowe's for an additional one-third share.

    The affidavit also claims that at this time Woolworths valued its Home Timber and Hardware Group (HTH) wholesaling business at $255 million. HTH was recently sold to Metcash for $165 million, $90 million less than the proposed figure.

    Lowe's has put forward additional details of how the deals surrounding the disposal of Masters' assets were put in place. This includes a colourful account of the US directors of Hydrox being informed that the company was in danger of trading insolvent, which could result in criminal charges, and even their imprisonment. Meanwhile, it is claimed, Woolworths may have made moves to reassure its own representatives that this would not happen.

    Lowe's objections to the deal with Home Consortium put forward by Woolworths appear to be that this deal may have had regard for factors other than obtaining maximum return. Home Consortium plans to make the ex-Masters properties available for a range of retail operations, including those of consortium members Spotlight and Chemist Warehouse. It is notable that while Woolworths is noted as a possible future tenant, neither Coles nor Kmart are mentioned.
    Analysis

    It is easy to be distracted by the soap-opera-like elements of this dispute. Putting those to one side, one of the most interesting questions to ask is: why has Woolworths been so adamant in resisting voluntary liquidation? By continuing this dispute, the company is risking a high degree of damage to its reputation. If the deal with Home Consortium is a good one, surely a liquidator would go ahead with it, or put something in place that was at least equally as good?

    On a simple level, it may be that Woolworths is not used to losing, and doesn't know quite what to do when it does find itself clearly on the losing side. The truth is that the kind of near-invincibility that Woolworths thought it enjoyed for over a decade simply doesn't exist in retail anymore, and especially not in the supermarket business in Australia.

    Whatever the cause of Woolworths' current difficulties, however, one thing we can be fairly certain of is that its ongoing drama with Lowe's is going to have little effect on Australian home improvement retailers. With inventory sales in progress, Masters is still set to close entirely by 11 December 2016.

    Until next time,

    Betty

    You can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

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    HNN iPad App
    Bigbox
    Big box update
    Bunnings' price guarantee does not apply to stock liquidations such as the Masters inventory sale
    HNN Sources
    Bunnings has been denied a store at Tura Beach (NSW)
    Woolworths executives have resigned from the board of Hydrox Holdings
    Click to visit the HBT website for more information
    Bunnings will not be matching prices with goods sold during the Masters closing down sale; Bunnings is not building a store at Tura Beach (NSW) for now; Bunnings Warwick and Bunnings Hastings (New Zealand) both move to bigger sites; and Hydrox Holdings board lose Woolworths and Lowe's executives.
    Bunnings not matching Masters prices

    Bunnings CEO John Gillam has clarified his position on the Masters inventory sale. He has reiterated that Bunnings will not be reducing prices, and reminded consumers that Bunnings does not price match in this way.

    The Masters sale will likely see Bunnings miss out on $200 million to $230 million in sales over two months. However, with the Masters competition ended, a further $1200 million will be available in the hardware/home improvement market for calendar 2017.

    While results for the first and second quarters will be affected negatively, sales in the third and fourth quarter will be boosted. The net effect for 2016/17 will likely be positive at around a $150 million gain. The effect in 2017/18 should be a gain of around $500 million.

    HNN has reported earlier remarks Mr Gillam made in reference to the potential fallout from the Masters exit.
    HI News 2.3: Wesfarmers-Bunnings H1 results, page 12

    According to Fairfax Media, it is understood Bunnings has informed both the Australian Competition and Consumer Commission as well as the state-based consumer affairs authorities that it would not extend its "if you happen to find a lower price on a stocked item, we'll beat it by 10%" promise to undercut the closing down sale prices at Masters.

    Bunnings appears to be taking action to get ahead of any customer complaints from what could be a three-and-a-half-month closing down sale at Masters stores.

    Wesfarmers has already warned Bunnings could face some "short term volatility of trading margins" as a result of the Masters wind-up.

    Bunnings' price guarantee has never applied to stock liquidations and sources close to the big box retailer said there were concerns that cutting prices to below cost, just to beat Masters discounts could put it in breach of consumer law. A Bunnings spokesperson told Fairfax Media:
    It may be unlawful and it is not responsible for us to price match or beat stock liquidation prices where large volumes of stock are sold below cost. We believe this undermines our focus in delivering long-term value for customers and may damage competition in the industry as a whole.

    There is a lot of speculation over exactly how much stock there is in Masters, with hardware insiders telling Fairfax Media there is inventory in the stores, distribution centres as well as "on the water" in containers that haven't arrived in Australia yet.
    Bunnings rejected on rezoning

    The NSW Planning and Environment Department has refused the rezoning of two blocks of land at Tura Beach (NSW) for a Bunnings store.

    Minister for Transport and Infrastructure and Bega MP, Andrew Constance said he would meet with the big box retailer after its application was denied.

    Bunnings general manager - property, Andrew Marks said the company was disappointed with the state government's decision. He told the Merimbula News Weekly:
    The proposed new Bunnings Warehouse Merimbula would represent an investment of over $17 million and provide employment for over 70 local residents, as well as approximately 140 jobs during the construction phase. Bunnings appreciates the support of the Bega Valley Shire Council and will now evaluate its options to bring jobs and investment to the Tura Beach community.

    Mr Constance is also disappointed at the outcome but believes the matter shouldn't be written off yet. He aid:
    We need the job opportunities that come with Bunnings setting up in our community. There has to be a compromise so everyone wins. Planning has been sensitive to residents adjoining the land but ultimately there has to be a way through this.

    Council has twice endorsed rezoning the land to allow Bunnings to further explore its options and draft a development application. But voting was always close and the council staff recommendation, in the past, has been against rezoning to B5, business development.

    In rejecting the rezoning the Planning department said there was a need to protect the character of Tura Beach; rezoning was incompatible with the existing neighbourhood business precinct; there was a potential conflict with the adjoining seniors living development; and Bega was the major regional centre.

    Tura Beach resident, Chris Kunz has been a vocal supporter of the Bunnings development and said he believed there is an obligation on council to ensure that the regional strategy reflected the real situation. He said:
    Tura no longer fits the village marker with small shops just supplying people in the vicinity. The Tura Woolworths has the biggest turnover of any Woolworths in the shire.

    Council said there were already a number of suitably zoned sites in the shire that would support a development of this nature, and that it was keen to work with the proponents and advance the idea for the benefit of the community.

    Related:
    Big box update: Bunnings plans Tura store
    Bunnings Warwick moves location

    Bunnings will set up shop on a bigger site in Warwick (QLD). Bunnings general manager - property, Andrew Marks confirmed speculation it was taking over a bare Canning Street lot to build a warehouse. He told the Warwick Daily News:
    We can confirm we have recently submitted a development application for a new warehouse in Warwick. This development is in the very early stages of planning and we look forward continuing to work with authorities throughout the process.

    The confirmation comes after almost two years of speculation over whether the current site in Palmerin Street would move or be upgraded. In 2014, a Bunnings spokeswoman told the Daily News the Warwick store would be moved to a "bigger and better site if one were to become available".

    In February 2014, Southern Downs councillors voted in favour of allowing fill lot to be placed on the vacant site at the corner of Canning and Condamine Streets for the building of what a report termed a "bulky goods store".

    When the initial story came about over the move for the Bunnings to the vacant lot, reader feedback reflected concern about how the new building would face floods. The land, behind the KFC and BP service station on Albion Street, was hit hard in the 2011 floods.

    The initial 2014 application claimed the project would not worsen flood flows in the event of a future deluge.

    Photo credit: Warwick Daily News

    Related:
    Big box update: Warwick store move unconfirmed - HNN
    Bunnings moves to bigger NZ site

    Bunnings is moving to a larger store in Hastings (New Zealand), spending NZ4 million on stock and refurbishment. It will span more than 4000sqm and include a nursery area and parking for about 100 cars.

    Bunnings New Zealand general manager Jacqui Coombes said Bunnings Hastings was expected to employ about 50 people, with the existing team of 25 joined by about 25 new recruits.

    The new Bunnings Hastings is expected to be open in December this year and should give it a chance to compete with Mitre 10 Mega. Bunnings has had difficulty finding a suitable site for a large store in Hawke's Bay, Hastings - the present site is small by the company's standards.

    In 2004, Bunnings had an option to purchase the current Mitre 10 Mega site but let the option lapse while waiting on ratification from its Australian head office, allowing the Hawke's Bay-based Ricketts family to secure the property.

    In 2011 the Environment Court turned down Bunnings' appeal for zoning of a 10,263sqm site because it was zoned for food production.

    Bunnings closed its Napier branch in 2014 with the loss of 23 jobs, saying it was too small and it was actively looking for a suitable site in the area.
    Hydrox board loses Woolies execs

    The Australian reports that Woolworths has officially cut ties with its home improvement chain Masters after a mass resignation of Woolworths executives from the board of Hydrox Holdings, the joint venture with US hardware big box retailer Lowe's that owns Masters.

    They will be replaced with senior staff from Australian insolvency firm, KordaMentha.

    There has also been a clean sweep of Lowe's directors sitting on the Hydrox Holdings board with its nominees resigning, including Lowe's chairman and chief executive, Robert Niblock who has stepped down, according to documents issued by the corporate regulator.

    Woolworths has made KordaMentha founder and partner Mark Korda a director of Hydrox Holdings. Along with three other executives, David Winterbottom, John Mouawad and Ryan Shaw, they now form a majority of directors on the board that controls the soon-to-be closed Masters stores.

    Mr Winterbottom is a Sydney-based partner of KordaMentha and Mr Mouawad is an executive director of the firm.

    However, KordaMentha's founder and his colleagues now being in control of the Masters boardroom does not signal the hardware chain is about to be plunged into administration or immediate liquidation.

    A spokeswoman for Woolworths told The Australian the resignation of Woolworths executives and replacement by KordaMentha executives was simply to help with the orderly wind-down of the Masters chain, which will include a $1.5 billion sale of its properties, hardware inventory and Home Timber & Hardware business. Mr Korda is a consultant to Woolworths.

    Woolworths chief financial officer David Marr, its chief strategy officer James Goth, chief legal officer and company secretary Richard Dammery and group director Colin Storrie have stepped down from Hydrox Holdings.

    Mr Dammery has been leading the protracted negotiations with Lowe's since February to settle on a price for the supermarket giant to buy back Lowe's one-third stake in Masters. He said in a statement:
    Mark and his team are experienced directors in complex restructuring and closure situations. They were appointed to the Hydrox board to replace me and the other Woolworths appointed directors in order to allow us to focus on our day-to-day responsibilities.

    Lowe's has appointed a number of its legal officers to sit on the Hydrox Holdings board, taking up three seats, with Woolworths' nominees from KordaMentha keeping four directorships.

    Australian lawyer, Anthony Bancroft from the firm of Gilbert & Tobin has been nominated by Lowe's as an alternative director on the Hydrox Holdings board. Gilbert & Tobin is acting for Lowe's in its Federal Court action against Woolworths.
    Retailers
    Indie store update
    James Aylen, general manager, Home Timber & Hardware Group will leave his position in October
    HNN Sources
    Beaumont Tiles Castle Hill has been acknowledged for its sales performance
    Mitre 10 New Zealand is featuring store owners in its latest TV campaign
    Click to visit the HBT website for more information
    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.
    Careers
    Seeking opportunities
    Klingspor is searching for a sales professional
    HNN Sources
    A retail sales consultant is wanted to join Austral Bricks in Melbourne
    Blackwoods is seeking a Brisbane-based account manager
    Visit the Mecca Website
    Abrasive supplier, Klingspor has an opportunity for a salesperson with knowledge of the Brisbane market; a front line sales representative for Austral Bricks is needed; and Blackwoods has a Brisbane-based role.

    To read more about each role, simply click on the company logos.
    Industrial sales at Klingspor

    Growth in Klingspor's Australian business has led it to seek a sales professional to join its team. Experience in abrasives is not essential for this position but a good understanding of industrial dealers in the Brisbane area is preferred.
    Klingspor requires a sales professional
    Retail consultant for Brickworks

    Brickworks is looking for an experienced retail sales consultant to join its Austral Bricks office in Deer Park (VIC). The role involves ensuring retail customers receive the ultimate customer service experience and promoting Brickwork products to this segment of the industry.
    A retail consultant for Brickworks
    Brisbane-based account manager

    Wesfarmers-owned Blackwoods is seeking a motivated, passionate and results driven account manager to be part of the team based out of one of its Brisbane locations. The successful candidate will report to the area sales manager.
    Account management at Blackwoods in Brisbane
    Bigbox
    Europe update
    The Homebase transformation is ongoing
    HNN Sources
    The B&Q avatars with their human store colleagues
    This year's spoga+gafa event had with over 39,000 visitors
    Click to visit the HBT website for more information
    Commentators are divided on how the Bunnings' transformation of Homebase will go down in the UK; high-tech avatars are being used at a number of B&Q stores; spoga+gafa 2016 had a slight increase in attendance; and revenue increase at Grafton Group for its first half.
    Homebase conversion process

    A number of commentators and UK-based observers have weighed in on the transformation of Homebase into Bunnings UK.

    According to UK industry publication Retail Week, Homebase is in early stages of being changed into Wesfarmers' DIY brand Bunnings.

    It writes that first impressions are looking good. Like-for-like sales at Homebase have increased 7.5% in the four months since Bunnings parent company Wesfarmers acquired the retailer.

    HNN has covered Bunnings' acquisition of Homebase extensively.
    HI News Vol. 2 No.10: Br-entry, Bunnings explains global strategy, page 37
    HI News Vol. 2 No.1: Bunnings acquires Homebase, page 3

    Upon making its GBP340 million purchase of the business in February, Wesfarmers unveiled plans to remove concessions from Homebase stores and to stop selling decorative and soft furnishings lines. It will gradually turn Homebase into a hard-end, home improvement retailer and core ranges are being rapidly reshaped to fit. There will be more tools and fewer cushions.

    Retail Week Prospect analyst Duygu Hardman points out that this is a dramatic shift away from Homebase's traditional proposition. She told Retail Week:
    Homebase's offer was differentiated before, but now its products are going to be similar to B&Q, Wickes and Screwfix, with an emphasis on trade.

    Referring to Screwfix's double-digit growth, Ms Hardman added: "This could be a good move, because trade has been one of the strongest growth areas in the market, mainly because of the Do-It-For-Me trend."

    Bunnings is also targeting a broader range of products and aims to hold more stock in stores as it moves away from the former Homebase model.

    Under Home Retail Group's (HRG) ownership, Homebase was developing its multichannel and online capabilities and benefiting from synergies with then-HRG stablemate Argos. Ms Hardman said:
    With consumer attitudes towards DIY shopping changing and younger shoppers preferring to go online or to more convenient locations, it seemed that Homebase's former omnichannel focus was a wise one.

    But she remains cautions: "I'm sure Bunnings will continue to leverage omnichannel capabilities, but changing stores into big warehouses like its signature mega-sheds in Australia may not necessarily be the root to success."

    B&Q, which currently stocks up to 45,000 products in an average store, is seeking to cut down stock levels, realigning its business away from big sheds towards a multichannel approach.

    Homebase's marketing slogans have changed, and in store, prices are being slashed. Its new strapline, "Always low prices" resembles Bunnings' marketing approach in Australia with its well-known "Lowest prices are just the beginning". Ms Hardman said:
    Previously Homebase had a very different marketing strategy, driving the quality of goods and appealing to female DIY consumers. The new marketing campaigns target more of a core DIY consumer - older and often male consumers.

    The way price is communicated has also changed. Similar to Bunnings' approach in Australia, large orange price labels are affixed to items of stock.

    Ms Hardman believes Homebase's new price focused campaigns and value-led credentials could present a challenge to B&Q. She said:
    Homebase can afford to cut prices because Wesfarmers and Bunnings are so big. They already have immense supplier networks and well-established direct sourcing capabilities in place. This puts them in a very strong position.

    The UK's first pilot Bunnings store is on track to open as soon as October, and between four and six Homebase conversions are pencilled in for the 2017 financial year.
    Bunnings' UK environment

    In the West Australian, Kim MacDonald writes that Morgan Stanley analyst Tom Kierath believes Bunnings will poach at least half of the $1 billion in extra annual sales it is targeting, on top of Homebase's current sales, directly from B&Q.

    The article goes on to day that Bunnings is entering Britain at a time when consumer confidence is at its highest level in almost a decade and employment is at record highs, with unemployment at only marginally above 5%.

    Even if it does stare down B&Q's parent Kingfisher, there may be challenges emanating from Wesfarmers' typically brash approach. It displayed its trademark brutality it sacked Homebase's entire executive staff.

    The move could well put the workforce offside by fuelling speculation of further job cuts, which IBISWorld's Britain-based Chris Edwards expects is likely. (It should be noted Mr Kierath does not think job losses are likely, given Bunnings' focus on customer service.)

    Managing director of British retail research agency Conlumino, Neil Saunders points out that morale is not the only potential pitfall in marginalising the locals.

    There are features of the British household to which Australian managers are not particularly well attuned, such as rising damp in walls. He tweeted:
    On the surface, retail in a foreign country can seem obvious and easy. In reality it never is. There are nuances and hidden traps.
    Wesfarmers' bold $4b plan for UK Bunnings - The West Australian

    WA-based business commentator Tim Treadgold visited the Homebase London Battersea store and gave it a 5/100, calling the store a "disaster zone" that was low on customers, with poor ranging. He said the garden centre was the best part of the store, but time, money and competition from B&Q and Wickes are issues Bunnings will have to face.
    Wesfarmers fighting on two fronts with Homebase in far flung Britain - Business News Australia
    B&Q tries out avatar service

    Home improvement retailer B&Q is responding to new research that reveals UK customers' reluctance to seek advice.

    Statistics confirm that 70% of Brits refuse to ask for advice and 26% would rather go online than consult a real person. In light of this research, B&Q is trialling a hi-tech customer service channel using "advice avatars" to help encourage people to overcome their phobia of asking for assistance.

    High-tech avatars were twinned with real life colleagues at the B&Q Wallasey store, to help customers with DIY tasks. The avatars, dubbed "iB&Qs" took live advice and tips directly into customers' homes, linking in real time with store colleagues. Each avatar is equipped with its own orange apron and a unique "I" name badge to match its human partner. For example, team member Megan Peters controlled iMegan.

    When looking at why the UK is so reluctant to ask someone for help, the research shows that 70% of people think they can manage on their own, 29% are too embarrassed to ask and 24% simply don't want to impose.

    Mums were edged out of the top spot for those who give the best advice in favour of those with professional expertise and experience. Of those who do feel comfortable asking for advice, they are more likely to ask for directions than they are for home improvement tips.

    The iB&Q trial is supported by team members across 300 stores, as well as a colleague takeover of Twitter and Facebook accounts as B&Q staff respond live to requests for tips and advice. DIYers can also find further help online at B&Q's YouTube channel and DIY.com, which feature 300 how-to articles and 250 videos. Richard Sherwood, B&Q customer and marketing director, told Retail Times:
    Some customers may be nervous about asking for advice, but help is always at hand at B&Q. Whether you're planning a project, buying your tools or materials, or needing a bit of guidance during your home improvement, our colleagues can help you in person, online, and from other new technologies in the near future.
    More attendees at spoga+gafa 2016

    This year's spoga+gafa event closed on 6 September 2016 with over 39,000 visitors from 106 countries. This compares favourably to last year's event that attracted 37,000 visitors from 108 countries, representing an almost 6% increase.

    Katharina C. Hamma, chief operating officer of organiser Koelnmesse said 60% of attendees came from abroad and the remaining 40% were from Germany.

    In terms of exhibitors, 2,032 companies from 57 countries (83% from international markets) chose spoga+gafa as the platform to present their latest products and services. John W. Herbert, general secretary of the European DIY-Retail Association (EDRA) said:
    This year's gafa was successful for our members from EDRA and GHIN (Global Home Improvement Network) ... I spoke to the four members of the our second largest Japanese member Komeri with over 1.000 stores and they were delighted with what they experienced and are taking time to look at other the stores in the region. Home Depot were also well represented with a delegation of buyers from the US and Canada.

    EDRA/GHIN has 121 home improvement retail members operating in 102 countries with over 23,000 stores and members' sales exceed EUR230 billion. For these associations, spoga+gafa is a recommended trade fair.

    spoga+gafa 2016 covered 225,000sqm of floor space and all four product sections were presented along the entire length of the trade fair boulevard. It showcased a wide range of ideas for the garden and outdoor category.

    In 2017, spoga+gafa will be held from 3 to 5 September.

    Related:
    spoga+gafa 2015 increases "internationality" - HNN
    Grafton Group's Irish boost

    Builders merchanting firm Grafton Group has reported revenue growth of 13% to GBP1.23 billion for the first six months of the year. The company posted an adjusted pre-tax profit of GBP68.4 million, representing a 12% increase.

    Average daily like-for-like revenue growth in the period from July 1 to August 21 was 1.8%, Grafton said, with the UK merchanting business reporting marginally positive growth. However its Irish merchanting business had growth of 11.2%, in line with the first half.

    Its core UK business which includes the Selco brand saw a near 1% year-on-year fall in adjusted operating profit to GBP46.9 million, despite revenue rising by over 8% to GBP884 million.

    The company said it has implemented a number of measures to help mitigate the competitive pressures in the UK market. These included organisational restructuring which resulted in an exceptional cost of GBP1.2 million in the period. Grafton said it planned further measures in the second half that will result in an exceptional charge of GBP20 million for the full year but should deliver benefits in 2017.

    The UK merchanting business has continued to see flat trading in the early part of the second half of the year - with pressure particularly noticeable in the plumbing and heating businesses. Chief executive Gavin Slark told the Irish Examiner:
    As with anything in life, the worst position to be in is one of uncertainty. Once you know what is happening you can plan accordingly. We can't pin everything happening in the UK market on Brexit but there is uncertainty because of it and that will continue until we know the terms and timeline [for Brexit].
    There are some fundamentals [in the UK market/economy] that will remain strong; the UK remains a mature and sophisticated economy.

    Grafton said its Irish business benefitted from strong growth in the residential repair, maintenance and improvement market and the early stages of recovery in the new housing and commercial property markets. Its Woodies DIY business also performed well due to increased household spending in the sector.

    Sales at its Irish merchanting arm rose almost 20% to GBP158.3 million, and were up 12.6% on a constant currency basis. Operating profit at the unit was 43.5% higher at GPB10.7 million. It was up 35.1% on a constant currency basis.

    The company said Belgium continued to be a challenging market but trading conditions in the Netherlands are expected to be positive as the economy and housing market there recovers.
    Retailers
    USA update
    Ace Hardware president and CEO, John Venhuizen
    HNN Sources
    Lowe's reboots customer engagement with in-store robots
    US-based True Value Company has reported a rise in revenue in Q2
    Click to visit the HBT website for more information
    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.
    Products
    Smart yard systems
    Blossom's controller hardware is manufactured in China
    OC Register
    Blossom currently attracts 3-star reviews on Amazon
    Blossom founders raised money through investors and a Kickstarter campaign
    Click to visit the HBT website for more information
    David Witting lives in Southern California and was enjoying July 4th fireworks with a few friends on his backyard deck when, suddenly, his garden sprinklers went off. He said:
    I didn't have to rush into my garage with a flashlight to find the controller. I just pulled out my phone and turned them off in a second. It was pretty cool.

    This is what the "smart yard" is about.

    Mr Witting's irrigation system can be adjusted from an app on his iPhone that connects to the controller in his garage. Through his home WiFi, the controller also pulls satellite and local weather data from the internet. It automatically turns off his sprinklers when it rains.

    Mr Witting lives in a place where drought continues and water supplies are shrinking, where his tech-friendly systems could be crucial to conserving enough water for a growing population.

    His system is designed and manufactured by US-based Blossom, and is one of the latest inventions in the fast-expanding market of home automation.

    Manrique Brenes, Blossom chief executive and co-founder, holds 14 patents covering home networking and industrial Ethernet applications. He has worked with Blossom co-founder Kaido Kert at Skype and Microsoft. Mr Brenes said:
    Traditional irrigation controllers are just timers. They go off on a given schedule. But plants consume water as a function of the weather. As it gets cooler, they need less. And if it rains your sprinklers should turn off. What we do is 'smart watering'.

    With real-time weather data accessed through the cloud, watering in each section of a yard can be tailored to layout and vegetation.

    The two colleagues began shipping Blossom's first product, a 12-zone controller, in March 2015 after raising money through investors and a Kickstarter campaign.

    The 12-zone model is sold at selected Home Depots, Best Buys and online.

    A smaller, more modest version, Blossom 8, which covers up to eight zones, launched in June. It is offered on Blossom's website and on smarthome.com, with a broader rollout planned over the next two months.

    In California, where water is often priced in tiers with the higher tiers costing more, Blossom can lower homeowner bills by as much as 30%, the company estimates. The controllers connect to existing wiring, valves and sprinklers. Most users say installation is easy, taking less than half an hour.

    From the start, however, Blossom has faced competition. A Denver-based start-up, Rachio, sells a 16-zone smart water controller. It can work with other smart-home systems such as the Nest Protect smoke alarm, turning on sprinklers when smoke is detected.

    Rachio's 16-zone device is more expensive as well as larger than Blossom's 12-zone controller. And it garners superior reviews on Amazon: 4.5 stars out of a possible 5, as compared to Blossom's 3 stars. Recently, Rachio launched an 8-zone version that has also garnered 4.5 stars. Mr Brenes said:
    Much of our development has focused on our cloud-based infrastructure and we have returned to enhancing our Blossom App with new features.

    And Blossom's ambitions aim well beyond selling individual units to homeowners. Its founders are in talks to partner with Scotts Miracle-Gro that released a "connected yard" platform and a mobile app called "Gro" at the SXSW interactive festival this year. GRO app's information on individual plants, their geography, planting and fertiliser schedules could be integrated with Blossom's watering system.

    This video shows how Blossom works:


    Related:
    The smart home moves outside - HNN
    Smart sprinkler controller at Lowe's - HNN
    Companies
    Techtronic Industries results for FY2016 H1
    TTI Group results FY2016 H1
    Techtronic Industries
    Joe Galli, CEO of TTI, interviewed on Bloomberg TV
    The Radius Light from Milwaukee illuminates large worksites
    Subscribe to HNN weekly e-newsletter
    Hong-Kong-based global power tools and floor care company Techtronic Industries Group (TTI) has reported its results for the first half of FY 2016. Overall sales were US$2686 million, up by 8.6% on the previous corresponding period (pcp), which was the first half of 2015. Excluding fluctuations in foreign exchange transactions, the increase in revenue would have been 9.7%.

    Gross profit underwent a 9.9% boost over the pcp to come in at USD969 million, delivering a 0.5% boost in gross margin to 36.1%. Earnings before interest and taxation (EBIT) were USD201 million, up 11.3% over the pcp. This resulted in a net profit for the half of USD177 million, up 11.6% on the pcp.

    Expenditure on research and development expanded to USD71 million, up 8.4% over the pcp, with selling, distribution and advertising costs also rising, by 11.3% to USD400 million. Capital expenditure (CapEx) rose to USD81 million, a 22.2% increase over the pcp.
    TTI Group results FY2016 H1
    Regional

    Earnings were somewhat affected by currency exchange fluctuations. North American sales were USD2023 million, up 9.7% on the pcp, and would have been up 10.1% without currency effects. Sales for Europe, the Middle East and Africa (EMEA) were USD465 million, up 5.5%, but would have been up 7.3% in a stable currency situation.

    For "rest of world" (ROW) sales (which includes Australia), the figure was USD197 million, up 4.8% on the pcp, and would have been up 11.4% without currency fluctuations.
    Power equipment

    Overall, the segment recorded sales of USD2204 for the half, up by 12.6% on the pcp, and up 13.6% in local currencies. The operating profit also rose, coming in at USD185 million, up by 15.4% on the pcp.

    The TTI industrial/construction power tool brand Milwaukee saw an increase in sales of 20.2% in local currencies. For the brand, North American sales grew by 19.9%, EMEA sales grew by 22.0%, and ROW sales grew by 20.3%.
    Floor care and appliances

    This segment contracted during the half. Sales were reported as USD481 million, down by 6.7% on the pcp. Operating profit also fell, down by 20.8% at USD16 million.
    The CEO speaks

    The CEO of TTI, Joseph (Joe) Galli, delivered his usual enjoyable and enthusiastic appraisal of the company. He began by pointing out that, while floor care results had declined, the rest of the company was doing very well. He also noted that one reason for floor care being down was due to a strategic reallocation of resources:
    Remember this business includes appliances which we're exiting. We have a lot of OEM business that we have moved away from and there's parts of that business that are no longer strategic or profitable. So the top line is down but we have tremendous enthusiasm about our floor care business out over the next three years.
    It's not a business that's going to change overnight but you will see and I'll show you today some direction. We are very, very confident that floor care will contribute to this company's profit growth as we go forward and I think our credibility is pretty good because 82% of the company is setting record after record with one six month period of success after another.

    Mr Galli returned to the topic of the floor care segment near the end of his presentation, outlining its future strategy:
    So in floor care our results are down in the first half. Our enthusiasm about the business is high. Why? We have an outstanding plan in floor care here to develop this business in terms of sales and profit. We believe the future in floor care is cordless, robots, and commercials. So those three areas. We're going to focus on cordless floor care products, on robots which is a brand new area for us, and on commercial which is a massive opportunity for the floor care business.

    Perhaps the biggest surprise of this strategy was for the robots -- by which Mr Galli means Roomba-type floor sweepers and cleaners. Elaborating on this strategy, he said:
    Now remember, when you look at our floor care results, we've never had robots. The robot market is almost as big as the entire upright vacuum cleaner market. It's a massive market. It's an area where cordless matters a lot because these are all cordless and guess what, we are very very good at cordless technology. So we're optimistic that we can compete and flourish in a robot market that has a lot of promise.

    Mr Galli also outlined the development of a new research and development facility established just for the floor care business:
    And I can tell you in the last six months which you don't see when you look at the results that we announced, we established a new global floor care headquarters in Charlotte, North Carolina. The headquarters is a very exciting dynamic product development environment consistent with what we've done with Ryobi and Milwaukee. We have significantly upgraded our floor care teams both in North America and in Europe. So we have a much stronger and I would say we have a floor care team that's aligned much more closely with TTI's core competence of high speed product development and really obsessing over what the customer really wants and then finding ways to solve those questions better than our competitors.

    In speaking of the power tool business, Mr Galli began by describing Ryobi as having become the "number one brand" in the DIY sector. He went on to discuss the latest product to come out of Milwaukee, a 9 amp-hour, 18-volt battery, which he described as "the world's most powerful battery for a power tool".

    He next described Milwaukee's recently developed cordless mitre saw. He said that the ten-inch saw differed from those of Milwaukee's competitors by being custom-designed for cordless, featuring both a large sawing diameter and lightweight construction. Other recent innovations from Milwaukee he mentioned included its newly released cordless nailguns, a full-sized cordless polisher, and a cordless drywall screw gun.

    The area that Mr Galli focused the most on, however, was lighting. He described how Milwaukee was replacing the halogen lighting that is common on many construction sites with LED-based lighting using cordless technology.
    Here's an example. This is a light we call a Radius light. This is a light that you would put in a room like this if this room was under construction and it was dark. You'd have a light like this that would light up the room so that workers can get their job done. Historically all these lights that we compete with are floor mounted and they're huge. So in the middle of this room you would have a giant light, so that workers can get their work done.
    Now the problem with that is first of all you have to plug it into a generator which makes a lot of noise. Secondly halogen is 150 degrees Fahrenheit, it's dangerous, and third how do you work if the middle of the room has a big giant light in it, so you have to you have to manoeuvre around the light. So we have the ceiling-mounted light called a Radius light. By the way, it's connected to One-Key, so your iPhone can be used to set where to point the light, when to turn it off and on. These lights can connect together so you can put ten of these in a room in a large ball room, interconnect them, and control them on your iPhone.

    (An edited transcript of Mr Galli's presentation is presented in this issue of ITN.)
    Analysis

    It's interesting to note that the share price of TTI fell by close to 10% around the release of its results. That is likely partially caused by currency exchange rate concerns, but also the underperformance of the company's floor care/appliances segment -- despite the high performance of its power tools segment.

    In the end, being an advanced company in an area dominated by more traditional companies has advantages and disadvantages. On the plus side is the possibility to discover and capture new markets before competitors do. On the minus side, however, there will be times when the market, judging performance by conventional metrics, will miss some of what you achieve.

    The main way in which TTI is different from most other power tool companies is that it is something that is sometimes called a "front-loading" company, while the other companies are "back-loading".

    The way back-loading companies work is to have a base set of established power tools, and then to offer innovations as a premium line -- at a premium price -- above these. Over time -- usually two to three years -- the premium line becomes the base line, and a new premium line is developed.

    Front-loading companies do the reverse. They develop new, innovative products and launch these immediately as the new base line. The previous generation of products is discounted in various ways, and offered for sale as an "almost but not quite as good" line.

    For a very competitive company such as TTI/Milwaukee, this has some obvious advantages. While the competitors slowly develop and release to market new innovations, TTI releases rapidly and often. This not only makes the company's products look good in comparison, it also drives upgrades among loyal customers.

    It's hardly overstating the case to say that TTI has now developed products that are designed to out-compete products of its competitors - products that have yet to be released, or, in some cases, not even developed yet.

    The Ryobi QuietStrike is a case in point. This uses hydraulic action instead of the spring-driven anvil of an impact driver to help drive screws. In TTI's Ridgid oil-pulse driver, this delivers faster driving times and reduced noise. In the QuietStrike -- for domestic use -- Ryobi has tweaked this to concentrate on less noise. It's a great customer insight, and a tool that will be unique in the market for some time.

    Front-loading companies find themselves often facing up to two difficulties. The first is simply that they develop so fast, they start to outpace the market slightly. Milwaukee is just on the verge of that at the moment, and, at least in terms of market releases, it is concentrating more on widening the application of its existing technologies than continuing to release advances.

    The second difficulty is that sometimes the areas front-loading companies choose to invest in do not make much sense to investors. TTI's floor care business doesn't look all that good at the moment, for example. However, for front-loading companies where you need to look at is how areas such as this integrate with the company's core business.

    As Mr Galli indicated, one of the main areas the floor care business will expand into will be robot floor cleaners. As TTI's highly-respected chairman, Horst Pudwill, pointed out in some comments at the results presentation, TTI has some expertise that applies in this area, such as cordless, battery operation, the high-efficiency electric motors, and compact, lightweight design.

    However, there is just as much technology needed that TTI does not have access to, such as robotic "vision" to determine obstacles, and machine learning to help the robot navigate a floor space. While systems exist that can be bought-in from third-parties, it's likely TTI will want to develop these further.

    Could that investment be deployed elsewhere? Are there any similar devices for which a market is developing? Yes. Robotic lawnmowers.

    Bosch Power Tools -- which is a division of Bosch itself transitioning from being back-loading to front-loading -- has released a down-sized robot lawnmower this year. As a guess, we are probably about 18 months out from seeing a Ryobi version.

    The possible integration goes deeper than that. What if the cordless vacuum cleaner in the kitchen also gets a Ryobi Li-ion battery -- or a battery identical and interchangeable with Ryobi but with a slightly different brand? Then there's the remote surveillance camera on the front gate, the hotplate serving plate for the dinner table, a toaster you can set down anywhere, a cordless hairdryer, mixer, and so on.

    Over the next five years, the floor care business might be the entry point for TTI products to move from the garage to the kitchen and living room.
    Construction infrastructure

    Some of the same kind of integration thinking applies to TTI's Milwaukee brand, especially as it is used in construction. Its One-Key Bluetooth-based, internet of things (IoT) integration has so far been highlighted as a cordless power tool management and control system. It assists with tool location and inventory. Tool use can be monitored. Tool settings can be pre-established and downloaded for use in specific tools.

    Mr Galli has, however, indicated another use for the technology in this presentation. In highlighting the company's move into construction site lighting, he chose as his example Milwaukee's Radius light, which is due out in a One-Key version in October 2016. These lights can be tied together using One-Key, enabling a number of them to be turned off and on with a single smartphone, and providing monitoring of battery charge.

    As Mr Galli mentioned, these lights can be mounted on the ceiling in the centre of a work area. From that position, what else might they provide? They might support both Bluetooth connectivity, and a wireless router, establishing a WiFi network. That could provide real-time access to tool data from a remote location.

    These lights could also incorporate a video camera, or three video cameras, each with a 120 degree angle of view. And, perhaps also a speaker. With all of these tied into the WiFi network.

    That would mean, effectively, that someone could sit in an office on the other side of the world and monitor what was going on in the construction of a building, on a multi-floor, multi-worksite basis. With safety being the major concern on any construction site, it would be possible for a remote monitor to observe potentially unsafe work practices, shut down any Milwaukee tools being used via One-Key, and use the remote speaker to explain what has gone wrong.

    Effectively, one of the ways in which TTI could develop would be away from only providing power tools for use on construction and industrial sites, and towards providing a complete technical infrastructure for construction.

    HNN is not, of course, entirely sure that is the direction in which TTI will go. What does seem to matter is that of all the power tool companies active today, TTI would seem to be the only really positioned to take full advantage of this kind of technological development.
    Companies
    UK's Toolstop selling DeWalt handsets
    A review of the DeWalt MD501 phone
    Mobile News
    The new phone pairs rugged looks with tough durability, ideal for tradies
    The DeWalt MD501 phone has a 13-megapixel camera
    Subscribe to HNN weekly e-newsletter
    Global Mobile Communications (GMC) has signed up UK-based retailer Toolstop to supply DeWalt MD501 handsets. The agreement will see the device made available online via Toolstop.co.uk.

    GMC managing director Stephen Westley claims 5,000 of the phones have already been sold since its launch in May this year - and will account for GBP7 million of its revenues over the next 12 months. He told Mobile News:
    Nobody has ever sold a smartphone in this kind of retail environment before. Tradesmen won't necessarily look in a conventional phone shop for a work phone, but they'll spend the majority of their time in a tool shop.
    Having the brand in this environment is beneficial to both ourselves and Ingram. Tradesmen already see DeWalt as a high-quality and well-established brand. I'm confident this agreement will help us achieve our targets.

    In April, GMC signed a three-year deal with Ingram, an American distributor of computer and technology products, to distribute the MD501. Power tool maker DeWalt first entered the mobile market after partnering with RugGear, a manufacturer of "tough mobile phones".

    The new phone pairs rugged looks with tough durability - it is rated IP68 for water resistance (up to 2-metres of immersion for 30 minutes), 810G for drops (survives 2-metre drops to concrete), and can work in temperatures from -20 degrees up to 60 degrees centigrade. The MD501 can also work with gloves, even though it's a full touchscreen device.

    DeWalt doesn't actually manufacture the MD501 - that job is handled by GMC - the company is just providing the brand on the device. In addition to its rugged specs, the MD501 has LTE (Long-Term Evolution) support (for UK and European networks), a 13-megapixel camera, 1.3GHz processor with 2GB of RAM, 5-inch 720p display, 3,950mAh battery, Qi wireless charging and Android 5.1 Lollipop.

    DeWalt also said it has amplified loudspeaker for clearer speakerphone calls at noisy jobsites.
    News
    HI News V2 No. 14: Masters' last stand
    Download the latest issue of HI News Vol. 2, issue no. 14
    HI News
    Mitre 10 returns as a key comer commercial partner on The Block
    The Housing Industry Association see more spending on renovations
    Click to visit the HBT website for more information
    This edition of HI News focuses on the story of Masters Home Improvement, from the opening of its first store in Braybrook (VIC) to the sell-off of its inventory and property sites.

    Just click on the following link to download this edition:
    HI News V2 No. 14: Masters' last stand

    Bunnings' full year results are included in this issue along with the latest quarterly results from home improvement retailers, Kingfisher, Lowe's and Ace Hardware as well as bathroom and kitchen plumbing supplier, Methven.

    Local retail group, Beaumont Tiles is aiming to have 130 stores by June 2017 and listed lighting retailer, Beacon Lighting admits Masters' discounting had an impact on its revenues.

    In our regular section on statistics that are relevant to the industry, we take a look at the growing influence of multi-unit dwellings over the more traditional, detached housing market.

    We feature news on suppliers KIngspan and seed company Mr Fothergill's, and listed Australian plumbing company Reliance Worldwide will have its SharkBite product stocked at Lowe's.

    Other news includes Mitre 10 returning as a major commercial partner in the current season of The Block TV series and the Housing Industry Association's forecast on renovations.

    The products highlighted in this issue include a smart home video doorbell, a ladder system for easy transportation, a paint accessory for quick touch ups and flooring from Boral.
    Editorial
    Masters' last stand
    Masters is holding sales to clear inventory
    HNN Sources
    Great bargains on minions
    Not such good deals on a fridge
    Give to Amnesty International
    The final collapse of a major retail enterprise can, it seems, be every bit as exciting as its launch.

    In late August 2011, when Woolworths launched its first Masters Home Improvement (Masters) big-box store in Braybrook, a suburb in the outer North-West of Melbourne, Victoria, it seemed that a whole new way of doing home improvement retail was about to enter the Australian market. Based on principles borrowed from US partner Lowe's, the new stores would be of higher amenity, and include new categories such as whitegoods and high-end kitchens.

    Fast-forward to August 2016 (nearly exactly five years later), and it is evident that this new enterprise has failed significantly. Not only have the hardware retail operations of Woolworths managed to rack up around $3.2 billion in total losses, but the other operations of what was once one of Australia's highest-flying corporations are also experiencing tough times. It's so bad the company has posted a $1.23 billion loss for FY 2015/16. Much of that was made up of write-downs, but even outside that, earnings from its supermarket and discount department store Big W have failed to meet even downgraded expectations.

    (This is an abridged version of the complete article. To read the full original, please download issue 2-14 of our publication HI News. That is available at the following URL):
    Download HI News 2-14

    On 24 August 2016, Woolworths announced that it had finalised plans for its exit from the joint venture home improvement company Hydrox Holdings (Hydrox). Hydrox is 67% owned by Woolworths, and 33% owned by Lowe's, the US-based big-box home improvement chain. The announcement stated that the company's assets would be split into three parts: the Home Timber & Hardware Group (HTH), which would be sold to Metcash for $165 million; the inventory assets of Masters, the sale of which would be managed by retail inventory liquidation specialist GA Australia; and the Masters property assets, including its store sites, and property obtained for the purpose of later development, which would be bought by a group of investors calling itself the Home Consortium.

    While Woolworths presented these deals - in a somewhat terse press release - as being all but fait accompli, on 29 August 2016 Lowe's made a move that indicates this is anything but the case. Lowe's has made a filing with the Federal Court of Australia, which asks that the Court appoint an independent liquidator to oversee the winding up of Hydrox. Lowe's has issued a press release explaining its actions, which states:
    Lowe's Companies, Inc. today filed a motion requesting that the Federal Court of Australia appoint a liquidator to oversee the equitable and orderly wind up of the Masters Joint Venture vehicle, Hydrox Holdings, as part of a liquidation process that has been initiated by Woolworths.
    ...
    Despite every effort to reach a fair resolution with its JV partner, Lowe's has been left with no other option but to seek the guidance of the court to achieve an equitable and orderly wind-up of the Masters business. Lowe's has acted in good faith at every stage in both the development and operation of Masters, and has been at all times an engaged investor, a committed partner and proud employer. On the other hand, Woolworths has engaged in oppressive conduct, including by invalidly and in bad faith attempting to terminate the JV.

    Subsequent reports have clarified that Lowe's believes it was, among other issues, given inadequate time to review lengthy documents related to decisions on how Hydrox would be wound up, a claim that Woolworths so far seems to have deflected. As things currently stand, both parties will complete their submissions to the Federal Court in New South Wales by 15 September 2016, and events will proceed from there.

    Fairfax Media is reporting that the Home Consortium remains confident that the sale will go ahead. There is no indication as to the basis for this claim.
    The windup basics

    As of 24 August 2016, we know that the joint venture company that owned the hardware retail operations of Woolworths and Lowe's, Hydrox Holdings, has plans to dispose of its assets in three parts. These are:
  • Home Timber & Hardware Group (HTH). These operations (owned by the holding company Danks Holdings Pty Limited) will be sold to Metcash's hardware division, Mitre 10, for $165 million. This sale should complete by the first half of October 2016.
  • The remaining inventory allocated to Masters. GA Australia, part of the US-based Great America Group, which is a subsidiary of B. Riley Financial Inc., will take over the sale of these goods. The Great America Group has special expertise in the sale of this type of inventory.
  • Masters' property assets. This is by far the trickiest of the three parts. These assets will most likely be acquired by Home Consortium. This is a group of retail property investors, along with key retailers such as Chemist Warehouse and Spotlight Group.

  • What appears to have been suggested is that Home Consortium has agreed to acquire 100% of the shares in Hydrox. However, Woolworths can only provide the 67% of those shares it owns. The other 33% has to come from Lowe's. Exactly how that is going to happen is not at all clear.

    In the long run, the discount sale of ex-Masters inventory stock, and the acquisition of HTH by Metcash/Mitre 10 are the more important aspects of this for the home improvement retail industry. The inventory sale will affect earnings during September and October 2016 for many retailers. The combined force of Mitre 10 and HTH will help to define much of what happens in independent hardware retailing during 2017/18.

    Nonetheless, we should probably start by examining what will happen with the Masters real estate, as this is likely to shape both public perception and much of the reporting on the home improvement retail industry for the next six months or so.
    The end of Masters

    For the home improvement retail industry, there are really only two details that will matter past January 2017: Masters is to completely exit the industry, probably by 11 December 2016; and some 15 of the Masters sites will, under the current arrangement (and likely any different future arrangement as well), go to Bunnings.
    The dispute

    The background to the current dispute between Woolworths and Lowe's, at least as it has been publicly discussed, is that an agreement has been in place that states if Lowe's chooses to end the Hydrox joint venture, the two partners will provide their own valuation of its worth. Should the partners not be able to agree on a shared valuation amount, then a third valuer agreeable to both parties would be appointed.

    What seems to have happened is that the two valuations are very far apart. It would also appear that the two parties have, in their discussions, not been able to agree on a third valuer.

    If those statements somewhat reflect the reality of the situation (and we can't know), then Lowe's move to have a court-appointed liquidator determine the value of the enterprise would be quite logical and valid.

    At a guess, Lowe's has a number in mind for its total involvement in Hydrox that it wants to reach. In announcing its write-down of Hydrox-related assets for its FY 2015/16, Lowe's had this to say:
    As previously announced, the Company provided notification to Woolworths Limited, its joint venture partner in Australia, of its intent to begin the process of exiting its investment in the joint venture, which operates Masters Home Improvement stores and Home Timber and Hardware Group's retail stores and wholesale distribution in Australia. Woolworth's owns two-thirds of the joint venture, and Lowe's owns one-third. The [USD]530 million non-cash impairment charge, which includes the cumulative impact of the strengthening U.S. dollar over the life of the investment, was based on the Company's best estimate of the value of its portion of the joint venture, and is subject to possible adjustment based on completion of the valuation process.

    Lowe's is estimated to have invested $1110 million into Hydrox. As recently as October 2015, Masters listed the put option held by Lowe's as being a potential $866 million liability.

    A likely number, given the current circumstances, might be USD400 million ($565 million), which would put the value of Hydrox at around USD1200 million ($1595 million).

    Fairfax Media initially reported the sale price to Home Consortium as being $725 million, but later changed this to over $800 million. If that is a payment for two-thirds of the business, that would mean the value of the Lowe's one-third share of the business would be $400 million. However, Fairfax Media is reporting estimates that Lowe's has instead been offered around $180 million.

    The filing by Lowe's in the Federal Court would indicate that Lowe's believes that any independent arbitrator would be likely to award it substantially more than whatever sum it has been offered.

    (As a side issue, it is currently unclear how much, if any amount at all of the $165 million that is to be paid to Woolworths for the HTH holdings of Hydrox will be paid to Lowe's.)

    The three most likely outcomes are: 1) the case before the Federal Court will appear likely to succeed, and Woolworths will seek to resolve the matter by offering Lowe's a greater share of the proceeds of the Masters' sale; 2) the case actually does succeed, and an administrator is appointed to oversee the liquidation; or 3) The case does not succeed, and the arrangement currently in place goes ahead.

    Of the three, the first outcome is the most likely at the moment. If the third succeeds, the deal will go ahead. Even if the second outcome happens, a deal with Home Consortium might still go ahead (though that is closer to just a 50% probability). Bearing that in mind, it's worth taking a closer look at the details of this deal.
    The details of the deal

    Unfortunately, very little information has been released directly about this aspect of the Masters liquidation, with the information instead shared with a few journalists at Fairfax Media and News Corporation. For the public and investors in Woolworths, what seems to be a very complex deal is covered in a few terse paragraphs of Woolworths "update" on its home improvement business, released on 25 August 2016. The basic facts are:
  • An Australian company named Home Consortium has agreed to acquire 100% of the shares of Hydrox.
  • Woolworths has granted Home Consortium a call option (right to buy) over its 67% stake in Hydrox.
  • Woolworths has terminated its joint venture agreement with Lowe's, as a result of a dispute about how to value Lowe's share of the joint venture.

  • Home Consortium is made up of three main groups of investors. The driving force behind the company are investors currently involved with aged-care operator Aurrum. According to reports in the Australian Financial Review (AFR), these include: the chairman of Aurrum, David Di Pilla, who was formerly with UBS; UBS managing directors Robert Vanderzeil and Matthew Grounds; Greg Hayes; Mary Shaw; and Alex Shaw.

    Two retail companies are also involved. The first is Spotlight Group, which operates both fabric stores under the Spotlight brand, and outdoor equipment/fashion stores under the Anaconda brand. This company is owned by Zac Fried and Morry Fried. The second retail company is the Chemist Warehouse chain, which is owned by Mario Verrocchi and Jack Gance.

    The total number of properties to be transferred in this deal has been reported elsewhere as 82. In fact, however, there were 97 properties made available in the original packages of properties. The former number results from the pre-allocation of 15 properties to Wesfarmers for use by its home improvement big-box retail chain, Bunnings.

    In a press release dated 24 August 2016, Wesfarmers has courteously outlined the broad details of this deal. To quote directly from that release:
    Assuming the above-mentioned consent is obtained, the transaction between Home Consortium and Bunnings will provide Bunnings with 15 new sites comprised of 6 freehold trading locations (to be leased from Home Consortium), 2 freehold development sites (to be leased from Home Consortium) and 7 leasehold trading locations. 11 of the 15 sites will be replacement stores and 4 of the sites will be new locations.

    In a further comment from the managing director of Wesfarmers, Richard Goyder, more light is shed on the nature of the transaction. Mr Goyder states:
    The 15 sites covered by this agreement is a small proportion of the overall 97 locations that were offered, and they are of high quality and a good fit with our existing store portfolio and pipeline. 11 of the 15 locations will be replacement stores and provide us with a great opportunity to improve our offer in these areas. We're also pleased to have the opportunity to bring the Bunnings offer to 4 new locations.
    Wesfarmers press release on potential purchase of ex-Masters properties

    Outside of the Bunnings allocation, there are 61 properties currently operating as retail outlets, comprising an estimated 700,000 square metres of floorspace. This means that 21 of the properties are proposed development sites. The Spotlight Group is believed to be interested in acquiring the 21 undeveloped sites.

    Speaking to the AFR, Mr Di Pilla suggested the remaining retail space would be acquired by a wide range of Australia's mall-based retailers. These include: JB Hi-Fi, The Good Guys, Super Amart, BBQs Galore, Boating Camping Fishing, Super Cheap Auto and Amart Sports. The operations of both Spotlight Group and Chemist Warehouse will feature prominently in the retail space provisioning. Woolworths is also likely to open supermarkets at some of the sites, along with outlets for its Dan Murphy's liquor retail business.
    Retail effects

    Outside of the closure of Masters, the addition of four new Bunnings Warehouses in new locations, and the expansion of another 11 Bunnings Warehouses in new premises, much of what Home Consortium does with the retail space will not affect the home improvement retail industry.

    It is likely, however, to have a marked effect on the other aspects of retail, especially in Sydney and Melbourne. With increasing road congestion, consumers have become more reluctant to travel distances of over five or six kilometres to get their shopping done. The addition of a wide range of what well be "mini-malls" to retain in these major cities could begin to undermine both the larger, more established shopping malls, and some of the surviving strip shopping areas.
    Analysis

    How much will these changes affect the day-to-day operations of hardware stores both already associated with Mitre 10, and those currently associated with HTH?

    In the short term, during the remainder of 2016, any effects are likely to be fairly muted. In 2017 some of the initial challenges will relate to both getting the delivery logistics working in an effective and efficient manner, and integrating the entire operation into a single IT system.

    For the first half of 2017, there is likely to be a certain amount of "churn" in the members of Mitre 10. Some of this will come from those who find it difficult to get along with aspects of that enterprise, and some will come simply from hardware stores that think it is not a bad idea to "step out" of those arrangements for at least a couple of years while things get sorted out.

    The real effects of these changes are going to be felt during FY 2017/18. It is at that time that the underlying strategies of Mitre 10 will begin to emerge. Will it seek to own more of the stores that carry its banner, either wholly or in a joint venture arrangement? Will it use the Sapphire upgrades as a means to exert more control over the stock stores choose to carry? Will the company adopt a more conciliatory attitude toward members, or continue its current hardline, driving style?

    Most importantly, will Metcash actually begin to invest in Mitre 10 in direct proportion to its EBIT contribution, or continue to rely on it as an earnings source to help drive its expansion in the independent supermarket business?

    We can't know. One thing is clear, however: Mitre 10 is going to receive more attention, both from investment analysts and the media than it has in the past. It will be interesting to see how it chooses to deal with that.
    Who is at fault for Masters' failure?

    This has been a source of endless speculation over the past six months. The two main camps are those who think the idea was simply "wrong" from the start, or deeply flawed at best, and those who think the idea had potential, but the execution was very poor.

    One of the more interesting patterns in the media reporting on the Lowe's/Woolworths conflict over the value of Hydrox, is an effort by some Australian journalists to somehow assign most of the blame for the failed Masters enterprise to Lowe's.

    Certainly Lowe's played its part, but there seems little doubt that Woolworths made many significant mistakes. In a slightly wry comment at the 2016 Wesfarmers Strategy Day, Mr Gillam seemed to make an offhand reference to one of the major mistakes Woolworths made. Asked to disclose more information about the strategy Bunnings is pursuing in its UK expansion, Mr Gillam noted that he would not reveal more and that "we are currently seeing the consequences" of what happens when you telegraph planning and strategy to the market - a likely reference to the failure of Masters.

    As HNN has reported in the past, the failure of Masters seems in many ways more of a Bunnings story than a Masters story. As impossible as it seems today, it was as though the then-management of Woolworths did not see the possibility of Bunnings responding swiftly to the threat, doing even better deals with distributors, expanding its store fleet, upgrading the amenity of its stores, and actively competing with Masters for property.

    For anyone who has any doubt about how big a part Woolworths played in the failure of Masters, HNN strongly recommends reading the legal case of North East Solution Pty Ltd v Masters Home Improvement Australia Pty Ltd [2016] VSC 1 (28 January 2016), which is available on the Austlii site:
    North East Solution Pty Ltd v Masters Home Improvement

    Not only does this provide a clear illustration of the poor management of the property acquisition process at Masters, there are also some haunting similarities to the current conflict between Lowe's and Woolworths.

    The Australian law firm Corrs, Chambers, Westgarth provides a good summary of the case:
    In North East Solutions Pty Ltd v Masters Home Improvement Australia Pty Ltd and Woolworths Limited, the parties entered into an arrangement whereby North East Solutions Pty Ltd (NES) agreed it would develop a Masters store for Woolworths at a particular site in Bendigo. Once the store had been developed, Woolworths would lease the store for a period of 12 years, with options for a further five terms of six years each.
    So as to not to delay the development of the store whilst the suite of technical and design documents was being prepared, Woolworths agreed that NES should commence the development as soon as possible, and that because a precise price could not be ascertained without the suite of technical and design documents, Woolworths would contribute the difference between the estimated cost of building a Bunnings store and a Masters store on the site.
    The arrangement also included a provision that allowed either party to terminate the arrangement if the parties, acting reasonably and in good faith, were unable to resolve any disagreement that arose in relation to Woolworths' contribution of the construction costs (being the difference between the estimated cost of building a Bunnings store and a Masters store on the site).
    Ultimately a disagreement did arise as to Woolworths' contribution to the construction costs, and Woolworths terminated the agreement on that basis. NES commenced proceedings against Woolworths, arguing that Woolworths did not negotiate "reasonably" and in "good faith". Woolworths countered by arguing that the relevant provision of the arrangement was not sufficiently certain to be enforceable, and was instead, merely an "agreement to negotiate".
    Justice Croft found that, in the circumstances and having regard to the express terms of the arrangement entered into by NES and Woolworths, that the parties committed to act reasonably and in good faith in an attempt to resolve differences in relation to a cost estimate. The object of this process and of the clause itself was to enable the parties to quantify the difference in cost as between the development of the site as a Bunnings store and the development of the site as a Masters store, costs which Woolworths had already committed to pay.
    Good Faith In Commercial Contracts: The Journey And The Destination

    The end conclusion of Justice Croft stated:
    In conclusion, for the preceding reasons, I do find on the evidence that Woolworths, in breach of cll 2.2(b) and (c) of the Agreement for Lease, did not act reasonably and in good faith to resolve differences in relation to the estimate of the Landlord's Works Costs by NES and terminated the Agreement for Lease for reasons that were not permitted under the agreement.

    The outcome of the court case was an award of nearly $11 million in damages, paid by Woolworths to North East Solutions.

    Until next time,

    Betty

    You can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

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    Bigbox
    Big box update
    Residents do not want a Bunnings store in Panorama (SA)
    HNN Sources
    Could China Lesso Group be a threat to Bunnings?
    Masters staff will be integrated into Woolworths and its other businesses
    Click to visit the HBT website for more information
    Bunnings will have to rethink its plans for a store in Panorama (SA) after local residents refused the development; challenges to the proposed Bunnings Warehouse at Coolum (QLD) are gathering steam; Bunnings' 3000sqm store is set to officially open inside Toombul Shopping Centre (QLD); Bunnings has gained approval for a new store in Virginia (QLD); a Chinese company has been described as a "threat" to Bunnings in a mainstream newspaper; and Woolworths CEO said Masters staff will be integrated into its other businesses.
    Bunnings Panorama bid defeated

    Residents have rejected Bunnings' proposal to open a store in Panorama (SA) after Mitcham Council's Development Assessment Panel turned down the hardware retailer's $42 million proposal.

    After a four-hour debate, residents made the decision to refuse the development on the grounds it did not suit the area, was too big, out of character and would create traffic issues. Say No to Bunnings Panorama Group Spokesman Peter Bryant told Adelaide Now:
    What I am most impressed with is as a community member I feel like we have been genuinely listened to.

    About 10 residents spoke on behalf of about 80 people at the meeting, raising concerns about traffic in residential streets, car parking, more traffic lights and the building's design.

    Amanda Price-McGregor, who spoke on behalf of Domain Mitre 10 in Westbourne Park, Banner Mitre 10 in Blackwood and Mitre 10 Barrow & Bench in Malvern, said if the development was approved, local hardware stores could be forced to shut their doors. She said:
    It will have a detrimental impact on other businesses (in the area) ... It cannot be supported.

    GT Legal spokesman Mr Adrian Tisato, representing about 12 residents, said even though the development would create jobs, more in the area would be lost. He said:
    This does not take into account the jobs that will be lost in the surrounding areas.

    James Levinson, from Botten Levinson lawyers on behalf of Bunnings, said the development would have benefited the community.
    Opposition gathering in Coolum

    Local residents challenging the proposed Bunnings Warehouse at Coolum (QLD) hope to gather more support for its upcoming legal battle following a community meeting recently.

    Bunnings is appealing the Sunshine Coast Council's rejection of its original 12,150sqm proposal.

    Community group Development Watch is a co-respondent to the appeal alongside the council while Coolum Residents Association president Mark Bizzell confirmed it too would co-respond, supporting the fight against the proposal.

    Coolum Business and Tourism president Malcolm Chilman would not take a position on the Bunnings proposal.

    Development Watch president Lyn Saxton told the Sunshine Coast Daily she expected some to be put off from joining the legal battle for fear of incurring legal costs.

    Coolum resident Fiona Sykes said a survey conducted as part of submissions on previous Bunnings proposals had indicated many local businesses were not operating at capacity already, and she feared the Bunnings development could lead to business closures and job losses.

    Her survey had found 18 local businesses in relevant trades (hardware, landscaping etc.) were currently operating below full staff capacity. The data showed that 127 employees were currently employed by those stores but 184 people could be employed if the stores were at 100% capacity.

    Ms Sykes said that indicated the area was not ready for a Bunnings and that the introduction of the retail giant could see jobs lost.

    An economic development report handed to councillors in June indicated even the scaled-down, 5850sqm Bunnings proposal would deliver an extra 70 retail jobs.
    Small format store opening

    Bunnings will soon officially open inside Toombul Shopping Centre in Queensland. The 3000sqm store on the site of the old Bi-Lo recently served its first customers and hopes to partner with community groups keen to host fundraising cake stalls rather than the traditional sausage on bread. Store manager Jodie Ianna told the Courier Mail:
    As much as they are very similar to the warehouses, it's obviously a slightly restricted range. We have full ranges in most of our hardware and paint is very close to the full offer.

    The Toombul store is about half to a quarter the size of Bunnings Warehouse outlets.
    Bunnings building in Virginia

    Bunnings has received development approval for a new warehouse in Virginia (QLD), a nine-minute drive down the same road from the Toombul branch.

    The big box retailer was given the green light for a 10,012sqm warehouse, 4368sqm timber trade area, 3329sqm nursery area, and 388-space underground car park, soon after the Toombul store opened its doors.

    The site is just 5km from the small format store at Toombul, and 8km from Bunnings Albion.

    Bunnings general manager - property Andrew Marks has not given any indication when works on the Virginia store would start. He told the Courier Mail:
    While we don't have any timings around the development at this stage, we will continue to keep the local community updated as things progress.
    Another "threat" to Bunnings?

    China Lesso Group Holdings, a major Chinese building materials and homewares company has been characterised as a "looming threat" to Bunnings. It is buying two sites in Sydney as it lays the foundations for a local operation.

    The Hong Kong-listed group has bought a bulky goods site in the inner western suburb of Auburn and is picking up a warehouse development in the western suburb of Prospect.

    China Lesso manufactures a large range of building materials and interior decoration products from about 20 "production bases" in mainland China. The company's move into Australia may be driven by its diversification from its core business that also includes plastic pipes and pipe fittings - into e-commerce.

    It set up Lesso Mall, a platform for hardware, electrical equipment and building material products in China, last year out of a warehouse in the central Chinese city of Wuhan. The firm now hopes to take this global. China Lesso said in its annual report:
    With continued investment in information technology and logistics, enhanced customer services and more diverse products including hardware, electrical equipment and building materials, the introduction of Lesso Mall to the southern China market has already generated a revenue of 621 million yuan.

    The group also warned that this would be a challenging year in China because of market volatility but said its Lesso Mall would be developed into a competitive business.

    The Chinese company purchased the Auburn site for $65 million. The office park has been identified as more suitable to being a large goods centre and could serve as a pick up point for products bought from Lesso Mall.

    China Lesso is also eyeing the acquisition of a parcel of industrial land in Sydney's Huntingwood East. The 21.56ha of vacant industrial land carries general industrial zoning and fronts the M4 Motorway and Great Western Highway.

    The property is being sold by the NSW government. A spokesman for Property NSW told The Australian that "following evaluation of tenders received, a contract for sale was exchanged early August 2016".

    China Lesso hopes to develop Lesso Mall into an e-commerce business for sourcing of hardware, electrical equipment and building materials. It is planning to expand to Toronto, Bangkok and further in the US.
    Masters staff integration

    Woolworths said most of the staff from Masters can be redeployed across its other businesses.

    The company's soon-to-close home improvement businesses employed around 7,700 people - about 6,300 in Masters and the rest in Home Timber and Hardware (HTH).

    The HTH staff are likely to be safe in their jobs, with the operation being bought by Mitre 10 owner, Metcash. Woolworths chief executive Brad Banducci has offered hope for the Masters staff. He told the ABC:
    Everyone of those team members will have an opportunity to come and work somewhere else within the Woolworths group. We recruit 30,000 people a year, so it's not like we can't accommodate it. But even if we have to be slightly over-resourced in the short-term, I think it's incredibly important for us in terms of the culture we want to build in our business.

    The president of the Shop Distributive and Allied Employees' Association (SDA) - the union that represents retail workers - Gerard Dwyer said he was working with Woolworths, as well as its rivals, to find new roles for the workers. He said:
    We've actually already commenced discussions with Masters, with HTH and also with Bunnings.
    Careers
    Seeking opportunities
    Evolve Lifewares is searching for a general manager
    HNN Sources
    A national sales manager role at Melbourne-based Agcare
    Super Retail Group has an opportunity for a business development manager
    Visit the Mecca Website
    New business opportunities have led Evolve Lifewares to seek a general manager; Agcare has a position for an experienced sales manager selling into the home and garden channel; and the Super Retail Group has a new position for a business development manager.

    To read more about each role, simply click on the company logos.
    Hands-on general manager

    Evolve Lifewares is an SME that supplies a wide range of products to hardware, supermarket, DDS (Discount Drug Stores) and specialty retailers in both Australia and New Zealand. A general manager is required who will be deeply involved in all stages of product, range and market development.
    Evolve Lifewares is searching for a general manager
    Home and garden specialist

    Melbourne-based Agcare has an opportunity for a national sales manager to sell its range of weed and pest control products. Key responsibilities include research and analysis of the current market environment and developing new distribution networks to grow sales.
    A national sales manager role at Agcare
    Growing wholesale at SRG

    The Super Retail Group (SRG) commercial team has an opportunity for a business development manager. The purpose of this role is to grow the sales and profits of the wholesale business through the identification and development of new business opportunities within the convenience and specially retail markets.
    Business development manager wanted at SRG
    Companies
    The Block seven
    The cast of The Block 2016 season 12
    B&T
    Mitre 10's Accent is the official paint of The Block
    Aldi's brand integration in The Block is very effective
    Subscribe to HNN weekly e-newsletter
    Mitre10 is among the commercial partners of season twelve of The Block TV series. Other partners include ALDI, Domain, McCafe, Stayz, Suzuki and Telstra.

    The seven partners will integrate their brands across all facets of Australia's longest running realty reality program, as five new teams of renovators go head-to-head to modernise the derelict headquarters of a historic Australian soap and candle factory in Melbourne. Lizzie Young, Nine Entertainment director of innovation, partnerships and customer experience told B&T:
    Advertisers' appetite for quality Australian content has never been more apparent, and when you consider five of the seven commercial partners on the next season are returning year-on-year it demonstrates the impact such a format has when it comes to delivering real outcomes for clients.

    Returning for its ninth season to help build The Block, Mitre 10 will launch an online how-to series featuring Mitre 10 ambassador and The Block host, Scott Cam.

    As the official supermarket partner, ALDI will fuel The Block, feeding contestants as well as inspiring consumers with a range of affordable Special Buys. ALDI will also give one viewer the chance to win $30,000 in cash.

    New partner, Telstra, will harness the power of the renovation format to unveil its connected home of the future, showcasing the latest smart home technology innovation.

    Property portal Domain will have a weekly 360-degree photo series that brings viewers closer to the Sunday room reveals.

    McCafe will feature The Block All Star and resident "Foredan", Dan Riley as a quality controller across a weekly content series on 9Now, profiling him in its TV commercials and with coffee opportunities within the show.

    As the official car partner, Suzuki will keep The Block moving with its latest Suzuki Vitara Turbo and Suzuki Baleno models, and a viewer car giveaway.

    As a new partner for The Block, holiday rental site Stayz will offer viewers the chance to win one night's accommodation for two at The Block in their apartment of choice, along with a $20,000 giveaway to spend on Stayz escapes all over Australia.
    Audience numbers

    The Mumbrella website reports that last year The Block posted its lowest finale audience to date, with 1.57 million tuning in for the grand final, climbing to 1.81 million when Dean and Shay Paine were declared the outright winners.

    Since 2010, the show's premiere and grand finale, traditional audiences have slowly diminished. However Ms Young asserts the audience is simply consuming the show in different ways. She told Mumbrella:
    We've spent this year addressing that and ensuring our content distribution strategy meets what the audience wants and to that end we launched 9Now, our live-streaming and video on demand product in February, and we've got 1.5 million signed up subscribers to that product - and that means for this season of The Block it is available to the entire audience anytime, anywhere, on any device.
    And with our new affiliate arrangement with Southern Cross Austereo we now have coverage all around Australia of The Block as a brand and with that comes our ability to drive The Block as a fan and to drive fans to consume it either on linear broadcast or on 9Now.

    Related:
    Is DIY TV over - HI News, page 19
    Retailers
    Beaumonts aim for 130 stores
    The new Beaumont Tiles Clearance Outlet is behind its flagship store in Grote Street, Adelaide
    Adelaide Now
    Beaumont Tiles is aiming to have 130 stores nationally by the end of June 2017
    The company is on track to deliver 15% year on year growth
    Click to visit the HBT website for more information
    Beaumont Tiles has launched a new clearance centre in the Adelaide CBD as part of a push towards 130 stores nationally by the end of June 2017.

    Managing director Bob Beaumont said the tile, bathroomware and stone products company was on track to deliver 15% year on year growth despite a slow retail environment.

    Mr Beaumont referred to the performance as "excellent'' and put it down to the company's strong brand and the eastern states property boom. He told Adelaide Now:
    In a hot housing market it's more and more expensive to sell and buy another house so many people are renewing what they have. Rather than just doing one aspect of a home, they're ripping out and starting again, room by room.
    It may be a slow retail market but we're growing at over 15% a year due to growth in the number of outlets - we will crack 110 outlets next month - and the strength of our brand.
    The Beaumont Tiles moniker has enormous credibility and our focus on a broader range, especially in designer ware, is winning us more business in upmarket housing and in commercial sectors.

    In South Australia, Mr Beaumont said trading conditions were expected to remain challenging due to the pervading negative sentiment. However there are pockets of opportunity.
    In SA there is a lot of infill housing and we have not come under the influence of high-rise apartments as strongly as other states.
    Retailers
    Retail update
    Beacon Lighting expects sales and profit growth in 2017
    HNN Sources
    JB Hi-Fi has been given regulatory approval by the ACCC to acquire The Good Guys
    The Dick Smith website now owned by Kogan, has generated $6.5 million in sales
    Click to visit the HBT website for more information
    Beacon Lighting profit increases 8% after a weaker June half; the Australian Competition and Consumer Commission (ACCC) gave JB Hi-Fi the thumbs up to buy The Good Guys; Dick Smith boosts Kogan results; and The Good Guys partners with UK kitchen retailer Lakeland.
    Masters lighting impacts Beacon

    Beacon Lighting executive chairman Ian Robinson said he expects sales and profit growth in 2017 after aggressive discounting by Masters curbed its profit growth in 2016.

    The lighting retailer should return to double-digit profit growth this year once the Masters chain stops using downlights, desk lamps and globes as loss leaders. Beacon has blamed aggressive discounting by Masters and the weak Australian dollar for a slump in June-half earnings that restricted full-year profit growth.

    Chief executive Glen Robinson said sales and margins were squeezed when Masters, which is progressively clearing stock before being wound up, advertised price reductions of 40% on lighting nationwide. According to the Financial Review, Mr Robinson told analysts:
    This was the first time we'd seen these large DIY players advertising lighting on a national basis on TV.

    He revealed that Beacon's net profit had fallen 14.6% in the June half, cutting underlying profit growth for the year to just 5.1%.
    You're going head to head with a national player advertising on TV with average offers for 40% off all lights - they'd almost be selling at cost price or below cost. It's not sustainable for the future but there's no doubt it affected us in the second half.

    The company has lifted full-year statutory net profit 8% to $18.3 million. First-half profit increased 22% to $11.1 million, but profits fell 14.6% to $6.7 million in the second half.

    Sales rose 7.7% to $193.2 million, less than half the rate of growth in 2015, and same-store sales rose 2.7%, compared with 10.4% in 2015.

    However Mr Robinson said same-store sales had returned to growth in the first five weeks of the new year.

    Due to Masters' discounting, Beacon struggled to pass on currency-related price rises and gross margins fell from 65.3% to 61.8% in the June half.

    Earnings before interest, tax, depreciation and amortisation (EBITDA) rose 6.5% to $29.2 million, in line with the company's May guidance but well short of earlier forecasts of about $32 million. EBITDA fell 10.2% in the June half.
    More stores

    Beacon opened five stores in 2016, taking its network to 96, and plans to open six stores this year while growing its wholesale, lighting solutions and solar businesses and expanding overseas through e-commerce.

    Independent research had identified scope for a further 50 stores, which would take the network to 146, up from Beacon's previous target of 130 stores.
    JB Hi-Fi gains ACCC clearance

    JB Hi-Fi has been given regulatory approval by the Australian Competition and Consumer Commission (ACCC) to acquire whitegoods retailer The Good Guys but it is not clear if any takeover will go ahead.

    The decision comes after the electronics retailer declared it was in preliminary discussions to acquire its $800 million retail rival in May, with The Good Guys simultaneously weighing an IPO.

    The ACCC concluded that JB Hi-Fi and The Good Guys focus on different product categories and customers, so an acquisition would not significantly reduce competition. ACCC chairman Rod Sims said:
    JB Hi-Fi has traditionally focused on selling consumer electronics, with stores located mostly in shopping centres or CBDs. On the other hand, The Good Guys has mostly focused on whitegoods and other home appliances, with stores generally located in home centres or similar locations.
    Other retailers such as Harvey Norman have a much higher degree of overlap with the Good Guys than JB Hi-Fi.

    The ACCC admitted in a statement the deal did pose some worries given JB Hi-Fi's potential expansion in the home appliances sector, with the crossover in TV sales a particular focus. Despite this, competition was deemed strong enough to withstand a combination of two retail sector heavyweights. Mr Sims said:
    JB Hi-Fi and the Good Guys are clearly in competition with each other to a degree. [However], on balance, the ACCC did not consider that the acquisition would substantially lessen competition in any market.
    We considered that the combined company would continue to face strong competition from Harvey Norman and other existing retailers such as Betta, Retravision, Bing Lee and Radio Rentals.

    In response to the ACCC decision, JB Hi-Fi said it has yet to make a decision on any formal offer for The Good Guys. The company said:
    JB Hi-Fi understands that The Good Guys are looking at a range of options including an IPO on the ASX. JB Hi-Fi evaluates all possible opportunities against a range of factors and would only pursue an acquisition if it made compelling financial sense for its shareholders.

    The Financial Review reports that chief executive Richard Murray is keen to buy The Good Guys to accelerate his three-year old home appliances strategy. An acquisition of The Good Guys would boost JB Hi-Fi's sales from $3.9 billion to almost $6 billion, add $110 million to earnings before interest, tax, depreciation and amortisation - before synergies estimated to be worth as much as $40 million - and lift its total store footprint by 100 stores to 294.

    Billionaire Gerry Harvey said his retail chain Harvey Norman had approached The Good Guys to look at its books as a stepping stone to making a possible takeover bid, but to date has been ignored and not allowed to conduct any due diligence.

    Mr Harvey said even if Harvey Norman did make a bid for The Good Guys, an offer that topped everyone else, they could still be knocked back.

    IBISWorld estimates The Good Guys has a 12.5% slice of the domestic appliance market, while JB Hi-Fi has 13.9% and Harvey Norman is the biggest player with 15.3%.
    Dick Smith delivers for Kogan

    The Dick Smith website now owned by Kogan, has generated $6.5 million in sales in its first two months of operations, according to CRN magazine.

    Kogan acquired the website from the failed bricks-and-mortar retailer earlier this year for just $2.6 million after Dick Smith fell into administration. It reopened two months later as an online-only store.

    The acquisition included Dick Smith's branding, website, customer database and 1.2 million active subscribers. Kogan also revealed that Dick Smith had 32,000 active customers since re-launching in May.

    Kogan and Dick Smith's combined subscriber base topped 3.7 million for the year with 702,000 active customers.

    In its maiden financial report since becoming a public company in July, Kogan reported revenue of $211.2 million for the year ending 30 June, an increase of $10.9 million from the previous year. Kogan returned to profit with $800,000 for the year, up from a $300,000 loss in financial year 2015.

    Kogan's other new business, Kogan Mobile, was relaunched last year on the Vodafone 3G and 4G network. The telecommunications business grew its revenue by $100,000 to hit $500,000 for the year.

    Chief executive Ruslan Kogan said third-party domestic products out-performed expectations off the back of expanded vendor partnerships, including Microsoft and Dell. Third-party domestic products now count for 24.2% of Kogan's sales, compared to 38.6% for third-party international and 37.2% for private-label products. He said:
    The above-forecast expansion of the third-party domestic product division demonstrates the increased propensity of third-party brands to choose Kogan.com as an online retail channel partner. Our ability to instantly talk to over 3.7 million Aussie consumers provides a compelling platform for leading consumer brands.
    Kitchen concessions at The Good Guys

    The biggest kitchenware retailer in the United Kingdom, Lakeland, has partnered with The Good Guys, to roll out 12 "shop-in-shops" across the country by Christmas. It has negotiated a concession-style deal with The Good Guys, hoping to open 100 retailing locations in Australia over the next two years.

    Lakeland will also look to establish its e-commerce offering and first stand-alone bricks-and-mortar stores on Australian shores by early 2017.

    Tony Preedy, Lakeland's director of marketing and international development, told Fairfax Media that is a good fit for the retailer "both commercially and culturally." He said:
    The Good Guys is the market leader in kitchen electricals, so it seems like a very good marriage - their strength in electricals could be married to Lakeland's strength in non-electrical kitchenware and housewares.

    Mr Preedy hesitates to compare the business to fast-fashion retailer Zara, but said: !We are a fast-product company - we sell more than 4000 products and we introduce around 150 products a month...consumers who come in every six to eight weeks are likely to see a considerable amount of change each time they visit.

    The partnership enables Lakeland to quickly build scale and brand awareness through The Good Guys' national network of stores, identify the right locations for standalone stores, tap into The Good Guys' local supply chain and logistics expertise and overcome issues such as Australian specifications for electrical appliances.

    For The Good Guys, the licence agreement allows the chain to grow sales by expanding into complementary categories, attracting new customers, and moving into high-street locations and shopping centres with a new retail offer. The Good Guys chief executive Michael Ford told Fairfax Media:
    The Lakeland partnership forms part of The Good Guys' growth strategy and adds a whole new dimension to our 'Everything for the Cook' offering. As the market leader in Australia for large and small kitchen appliances, kitchenware is a logical category extension for us..

    David Gordon, retail expert and director at LZR Partners, believes The Good Guys' strategy makes sense, as the retailer is not strong in the kitchenware sector, being better known for its whitegoods. He SmartCompany:
    Partnering with Lakeland creates an area of capability and specialisation that they didn't have previously. Lakeland's standalone stores will be the first time The Good Guys will be opening up a secondary brand, so it will be interesting to see how that goes.

    The licence agreement will proceed whether or not The Good Guys' owner, Andrew Muir, decides to pursue an $800 million to $1 billion initial public offer or accepts an offer from suitors such as JB Hi-Fi and South African-based discounter Steinhoff, which owns Freedom Furniture, Harris Scarfe and Best & Less.

    Mr Ford has made no secret that he would prefer an IPO so the retailer can spread its wings after being constrained in the past by its joint-venture ownership model, which is now being unwound. He sees scope to open as many as 40 stores over the next five years.
    Reports
    HIA sees more renovations
    Annual spending on renovations is set to grow past $33 billion per year, according to the HIA
    Your Investment Property
    New home commencements are expected to fall away for the next three years
    The HIA has released its latest National Outlook forecasts
    Subscribe to HNN weekly e-newsletter
    New home building is set to fall away in coming years as Australians turn their focus to renovations according to forecasts from the Housing Industry Association (HIA).

    According to the HIA's latest National Outlook, the current construction cycle is set to slow after peaking this year which will coincide with growth in the renovation sector. HIA chief economist Harley Dale said:
    The current new home building boom is unlike any other that has come before it. It is the longest and largest in Australia's history and has provided an unprecedented economic boost to the nation, without which domestic demand would be in or close to recession. This cycle is marked by substantial regional divergences in the levels of activity in various markets around the country; and the mix of dwelling types being built has changed dramatically.
    As the down cycle in new home building unfolds, the record pipeline of medium/high density dwellings in particular creates considerable uncertainty as to the timing and magnitude of the decline in construction.

    While this year may be the beginning of the end for the new home construction cycle, it is set to be the year growth in the renovation sector kicks into gear.

    The HIA expects the strongest growth in renovation spending in more than 10 years as annual spending on renovations is set to grow past $33 billion per year. Dr Dale said:
    National renovations investment got off to a great start in 2016, growing by 2.2% in the March quarter. HIA expects that renovations activity grew by 4.2% in 2015/16 - the fastest rate of increase in over a decade. Further growth over subsequent years is forecast to take renovations activity to a value of nearly $33.2 billion by 2018/19.
    New housing

    According to the HIA, new home commencements likely peaked over the 2015/16 financial year with 232,500 and will fall away for the next three years. Commencements are set to bottom out over 2018/19 at 166,500.
    Retailers
    New store growth at Ace Hardware
    Westlake Ace Hardware increased its revenue in the second quarter
    Businesswire
    Ace Hardware achieved near record highs in the second quarter
    The outdoor living category did well for Ace Hardware in Q2
    Click to visit the HBT website for more information
    US hardware retail cooperative, Ace Hardware has reported second quarter 2016 revenues of USD1.4 billion, an increase of USD8.7 million or 0.6% from the second quarter of 2015.

    Net income was USD63.4 million for the second quarter of 2016, an increase of USD3.5 million from the second quarter of 2015 and the second highest in company history. President and CEO John Venhuizen said:
    New store growth was the primary driver of our record revenue. While records are nice, we are not satisfied with the growth as the enterprise and our retailers are working far too hard to settle for modest increases...

    For the first six months of 2016, the 2.4% increase in retail same-store-sales reported by the approximately 3,000 Ace retailers who share daily retail sales data was primarily the result of a 2.2% increase in average transaction size.
    Revenues

    Consolidated revenues for the quarter ended July 2, 2016 totalled USD1.4 billion. Total wholesale revenues were USD1.3 billion, an increase of USD6.7 million, or 0.5%, as compared to the prior year second quarter.

    Increases were noted across many departments with outdoor living, paint and lawn and garden showing the largest gains.

    Retail revenues from Ace Retail Holdings - essentially sales from Westlake Ace Hardware -were USD87.4 million in the second quarter of 2016. This was an increase of USD2.0 million, or 2.3%, from the second quarter of 2015.

    Same-store-sales increased 1.6% compared to the prior year with the largest increases in outdoor living and lawn and garden.

    Ace added 42 new domestic stores in the second quarter of 2016 and cancelled 29 stores. This brought the company's total domestic store count to 4,315 at the end of the second quarter of 2016, an increase of 59 stores from the second quarter of 2015.

    Total wholesale revenues were USD1.3 billion, an increase of 0.5%. The company's Ace Wholesale Holdings LLC subsidiary contributed USD4.1 million of incremental revenue in the second quarter of 2016, which was an increase of 4.4% from the prior year second quarter.
    Companies
    Supplier update
    Reliance Worldwide's SharkBite product will be distributed through Lowe's
    HNN Sources
    Mr Fothergill's hopes to increase sales to Homebase
    Kingspan is eyeing more acquisitions
    Subscribe to HNN weekly e-newsletter
    SharkBite products will be available at Lowe's stores; Mr Fothergill's sees opportunities with Wesfarmers-owned Homebase and challenges with Brexit; Kingspan is contemplating more acquisitions; and Fortune Brands focuses on plumbing expansion.
    Lowe's stocking Reliance products

    Recently-listed plumbing supplies company, Reliance Worldwide has announced a deal that will see its core product hit the shelves of US home improvement retail chain Lowe's, although potentially at the expense of shelf space at The Home Depot.

    In a statement to the Australian Stock Exchange, Reliance said it had signed a single supplier agreement with Lowe's to supply its SharkBite-branded push-to-connect (PTC) fittings to its network of 1700 stores.

    The nature of the single supplier contract means Lowe's will only stock the Australian group's products in that particular range, although Reliance is able to continue selling the products to Lowe's competitors, including current customer The Home Depot.

    The deal does, however, force the cessation of its current exclusive agreement with The Home Depot, meaning the latter is free to introduce competitors to SharkBite in the range. The company said:
    Reliance is confident that these changes will position the SharkBite product range optimally for the long-term in the US market. The PTC product category has excellent growth prospects and this will be aided by SharkBite products being sold and marketed as widely as possible across all sales channels.

    The rollout into Lowe's will be implemented through 2017 and 2018, with no material impact seen on profit for fiscal 2017.

    Related
    Supplier update: Plumbing company IPO - HNN
    Mr Fothergill's is optimistic, realistic

    Joint managing director John Fothergill of seed company Mr Fothergill's recently told Horticulture Week that potential increased sales through Wesfarmers-owned Homebase is being tempered by uncertainty over Brexit.

    A flat year in like-for-like seed sales has been helped by gains at UK independent garden centre group, the Tillington Group and late-season mail-order sales as the weather picked up.

    Mr Fothergill said the Suffolk company is "lucky to have a long-standing good relationship with Bunnings in Australia" among its 20-25% of export business. He said:
    We work hard to support them. They expect a lot from their suppliers but they are fair. There's clearly an opportunity for them in the UK.

    Mr Fothergill also said Homebase "moving away from private label is good and moving away from seasonal sales and promotions to everyday low pricing, [Bunnings'] brand message in Australia, makes sense".

    He believes new owner Wesfarmers is "bringing a greater sense of confidence to Homebase" while Brexit means a possible "impact on consumer confidence and export opportunities" and "uncertainty that no one likes", especially with trading relations with European seed suppliers, the single market, tariffs and phytosanitary regulations.

    Mr Fothergill's said its Jekka McVicar herb ranges have been successful, while products such as salad Pot Toppers and Microgreens have appealed to those with small urban gardens.

    Scotts Miracle-Gro also has a strong relationship with Bunnings in Australia and has high hopes for more business in the UK. Scotts is launching a Levington Essentials range to match rivals in the competitively priced market at garden event Glee.
    Kingspan looks to acquisitions

    Kingspan is eyeing acquisitions in India and Latin America as the Irish building materials group looks to diversify further into new, high growth markets. The company already owns Kingspan Environmental and Springvale Insulation.

    Rainwater harvesting systems maker, Tankworks Australia recently reached an agreement to join Kingspan Group.
    Tankworks Australia joins Kingspan - HNN

    County Cavan-based Kingspan reported a 19% rise in global sales in the first six months of 2016, taking revenue to EUR1.47 billion. Profits were up 50% to EUR167.3 million in the same period, the company said. Its first half financial results were bolstered a big increase in margins.

    Ireland was Kingspan's fastest growing market in the period - with sales up almost 50% to EUR59.5 million from EUR40.4 million during the same period in 2015.

    Chief executive Gene Murtagh said sales to the Irish construction sector are still as much as 60% to 70% below peak levels, but that the market here has seen continuous improvement since 2010.

    Kingspan, which back in 2005 relied on Ireland and the UK for around 80% of its sales, has since diversified, with mainland Europe now its largest market for the sale of insulated panels used in the construction industry. Sales of such panels rose 26% in the six months to June 30, with particularly strong demand in Western Europe and North America. Ireland is now a relatively small market for Kingspan.

    The UK, with sales of EUR410 million in the first six months of the year is Kingspan's biggest single market. Despite warnings that June's Brexit vote would dampen demand from the construction sector, Mr Murtagh said there is no evidence so far of a slowdown there.

    Since the June 23 vote, Kingspan's UK order book has increased by 7%, the company said.

    However big swings in the value of sterling before and since the UK vote to leave the European Union, have had an impact, according to Mr Murtagh.

    Every 1% move in sterling versus the euro has an impact of around EUR1.5 million on Kingspan, he said. But he described the impact so far of the UK vote as "nothing compared to 2009".

    Kingspan was one of the few companies to foresee Ireland's property market collapse following the 2008-09 financial crisis,
    Fortune Brands plumbing

    US-based Fortune Brands Home & Security announced the creation of a Global Plumbing Group (GPG) to transform its plumbing business. Chris Klein, chief executive officer, Fortune Brands said:
    The creation of the GPG platform provides the foundation to accelerate growth in our plumbing segment, providing the critical infrastructure to support a multi-brand, -channel and -geography plumbing business. Most importantly, the GPG enhances the potential for future growth opportunities as we look to grow plumbing sales to USD2.5 billion by 2020.

    GPG paves the way for more acquisitions, joint ventures, supply agreements and distribution agreements.

    As a first step toward future growth and expansion, Fortune Brands recently acquired kitchen and bathroom supplier Riobel, based in Canada. Riobel has about USD40 million in annual sales.

    The company also signed an agreement to acquire ROHL, a Californian luxury brand. It has around USD70 million in annual sales. Both companies will be placed under the GPG with Fortune Brands.

    Fortune Brands Home & Security is headquartered in Deerfield, Illinois (USA). The company's four operating segments include cabinets, plumbing, doors and security. Its products include MasterBrand Cabinets; Therma-Tru entry door systems; and Master Lock and SentrySafe security products under The Master Lock Company.
    Products
    3D imaging tool for renos, DIY
    WalabotDIY allows users to see through plasterboard, cement and other materials
    Vayyar Imaging
    It is designed for home renovators, construction workers and DIY enthusiasts
    WalabotDIY can also easily snap photo screenshots for use in offline analysis
    Click to visit the HBT website for more information
    Vayyar Imaging is the 3D-imaging sensor company whose technology makes it possible to see through objects, liquids and building materials. It has released a 3D imaging tool for consumers called WalabotDIY.

    Created especially for the home renovator, construction worker and DIY enthusiast, WalabotDIY gives users "Superman-vision" to see through plasterboard, cement and other materials to determine the location of pipes, wires, and even rodents' nests. Vayyar Imaging CEO and co-founder, Raviv Melamed said:
    WalabotDIY takes the guesswork out of your next renovation or repair project. It makes all kinds of home repair and renovation tasks easier - everything from hanging a gallery wall, mounting shelving, locating a pesky leak or drilling into a wall without the fear of hitting a pipe or electrical wire.
    How WalabotDIY works

    WalabotDIY is compatible with all Android smartphones 5.0 and higher, equipped with USB OTG, and connects magnetically to the back of the phone.

    After downloading the WalabotDIY app via Google Play and a short calibration process, WalabotDIY can be used to scan the wall, and the wall images are then projected on the smartphone's screen.

    It also helps users know precisely how deep to cut or how far to drill to avoid damaging pipes, wires, and objects hidden behind walls. The robust 3D imaging sensors detect both the depth and location of objects and easily "sees" through up to four inches or 10 centimetres of concrete or plasterboard.

    WalabotDIY also has an adjustable sensitivity setting for optimal calibrations on specific renovation and construction projects, offers two sensing modes of pipes and raw data, and can easily snap photo screenshots for use in offline analysis.
    Products
    Smarter home security
    Ring allows users to access a video doorbell and speak through it either from home or remotely
    Digital Trends
    ADT Pulse security features have been integrated into the Ring app
    Home deliveries can be checked remotely
    Click to visit the HBT website for more information
    ADT has announced a partnership with Ring, the developer behind the Ring Video Doorbell.

    On it's own, Ring allows users to access a video doorbell and speak through it either from home or remotely. It also offers a zone monitoring system that will alert users if there is activity in designated zones.

    The way the new system works is by integrating the ADT Pulse security features into the Ring app. Once users access the video doorbell through which they can see and talk to visitors, they will also be able to check the locks on doors and turn on lights with Pulse. All this is done through one app, giving users easier access to their features in one convenient place.

    Ring claims that most burglars will ring the doorbell on a potential target home, presumably to assess whether homeowners are in or not. With the ability to quickly see if someone suspicious is lurking on the steps and then quickly turning on a light in a darkened home, homeowners are much more likely to dissuade potential intruders from proceeding. The convenience of being able to do this from a smartphone further adds to the security users feel.

    Currently, there are no industry standards in the field of home automation. Perhaps further partnerships between these smart home companies will pave the way for such standards. That, in turn, will make things even more convenient for users.

    ADT boasts the ability to monitor homes and offers remote access to alarms, lights, and doors. The company has a history of partnering with other smart home companies such as Nest thermostats and August smart locks.
    Retailers
    Metcash-Mitre 10 buys HTH for $165m
    Stores in the HTH network
    Metcash
    A Mitre 10 ad
    Home Timber & Hardware ad
    Click to visit the HBT website for more information
    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:


    And this is a Mitre 10 ad:


    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.
    Bigbox
    Masters closed up by 11 December 2016
    GA Australia details
    Woolworths
    Spotlight Group
    The Aurrum Group
    Click to visit the HBT website for more information
    Woolworths has announced that it is close to finalising its exit from its home improvement joint venture with US-based Lowe's. In a press release, the company explains that it has divided up the assets of Woolworths/Lowe's joint venture Hydrox Holdings into three parts. These are:
  • The Home Timber and Hardware Group (HTH)
  • The Masters Home Improvement inventory
  • The Masters real estate assets
  • HTH

    The first, HTH, is set to be acquired by the hardware operations of retailer Metcash, Mitre 10. The majority of HTH (excepting two corporate-owned stores and a distribution centre in the state of Victoria) will be sold to Metcash for $165 million. The sale is expected to be completed in the first weeks of October 2016.
    Masters inventory

    The Masters inventory will be sold by GA Australia. GA Australia appears to be a subsidiary of the Great America Group, which is a wholly-owned subsidiary of B.Riley Financial Inc. According to its "landing page", GA Australia has helped with "strategic store closings" for companies such as Eddie Bauer, Office Depot, and Tractor Supply Co (a regional hardware group in the US).
    About GA Australia

    According to the press release:
    The underwritten recovery is subject to certain adjustments and is estimated to deliver gross proceeds of approximately $500 million.
    Masters real estate

    The deal for Masters real estate assets seems less certain that the other two. According to the press release:
    Subject to Lowe's consent, Home Consortium (Aurrum Group, Spotlight Group and Chemist Warehouse) has proposed to purchase the Masters properties through acquisition of 100% of the shares in Hydrox. The transaction will include 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites.

    At the moment, Woolworths states that it expects to realise $500 million from all three transactions. This includes a commitment by Woolworths to pay $105 million for three Masters sites. Woolworths will also take on 12 freehold leases held by Masters.
    Closing down Masters

    Should all three of these deals go ahead, Masters is expected to be fully closed by 11 December 2016. Woolworths CEO Brad Banducci is quoted in the press release as saying:
    The agreements provide certainty to our Masters team, suppliers and customers. It is the right resolution for our shareholders. The Home Consortium transaction remains subject to Lowe's consent.
    Woolworths' top priority remains to do the right thing by our employees, customers, suppliers and shareholders. We will provide a certain and transparent timetable to all our stakeholders during the exit process.
    Since the sale process began, our 7,700 staff in the Home Improvement businesses have worked extremely hard in an uncertain environment and we sincerely thank them for their commitment.

    Mr Banducci further stated:
    We will work hard to find Masters employees jobs within the Group, or pay full redundancy where suitable roles are not available.

    The press release also notes that all gift cards will be honoured, and that contracted work, such as for kitchens, will be fully completed.

    The Home Consortium that will control the Masters sites is described as having the following plans for its acquisition:
    The Home Consortium will seek to implement plans to repurpose the existing Masters sites into multi-tenant, large format centres anchored by a selection of Australia's leading home, hardware, family and lifestyle retailers (subject to landlord and authority consents where required).

    The Aurrum Group is an aged-care provider. Spotlight Group Holdings manages the Spotlight fabric stores and the Anaconda camping stores under its Spotlight Retail Group banner. It also has a substantial property portfolio, managed by the Spotlight Property Group. Chemist Warehouse operates a chain of discount chemist outlets, and is owned by Mario Verrocchi and Jack Gance. It has recently expanded its operations into China through online marketplace Alibaba's Tmall facility.
    Analysis

    The details about the dispute between Woolworths and Lowe's remains covered by confidentiality. As the press release states:
    Woolworths has today exercised its right to terminate the JVA with Lowe's and WDR, and the associated option contracts arising under the JVA, as a result of a dispute about the process to value Lowe's shareholding under the option mechanism in the JVA. The confidentiality provisions in the JVA survive termination of the JVA and accordingly no further comment will be made about any dispute between the shareholders.

    It seems likely that this dispute will continue into 2017.

    Further details will become available at the announcement of results for the full-year FY2015/16.
    Products
    Easiest-to-use ladder system
    The Multi Slide Extension Ladder Rack from Rhino-Rack
    Rhino-Rack
    It can be used for smaller vehicles including single and dual cab utes
    The ladder rack system is fully OH&S compliant for users
    Click to visit the HBT website for more information
    Transporting ladders for tradies can be fiddly, especially if they are not operating a van. With that in mind, Rhino-Rack has designed the Multi Slide Extension Ladder Rack.

    Most ladder racks are up to 3-metres long, and in their original form are only really useful on vans. The Rhino-Rack Multi Slide Extension Ladder Rack is shorter, and can be used for smaller vehicles including single and dual cab utes.

    At 1.5-metres, the Multi Slide Extension Ladder Rack can still carry long ladders, and has similar features that Rhino-Rack's other ladder racks do. This includes side rails that prevent lateral movement, as well as a rear strap, which reduces excess rope and straps. This means users only need the one strap to secure the ladder to the rack.

    The ladder rack system is fully OH&S compliant and has been rigorously crash-tested to ensure that the product is as tough as it gets. It is also constructed from anti-corrosive materials. The system is compatible with any ute with a canopy via Rhino-Rack's range of vortex and/or heavy duty bars (sold separately).
    News
    HI News V2 No. 13: Taking back DIY
    Download the latest issue of HI News Vol. 2, issue no. 13
    HI News
    Can Indies take DIY back?
    Bosch delivers its 2015 results
    Click to visit the HBT website for more information
    The latest issue of HI News is focused on how independents can regain some of the DIY market away from other retailers.

    Just click on the following link to download this edition:
    HI News V2 No. 13: Taking back DIY

    We also pose the question as to whether the future of home improvement retailing will involve offering power tools as a service through leasing.

    The main social media channels - Facebook, LinkedIn and Twitter - are analysed to see which platforms would work best for advertising for hardware retailers. We also describe the specific steps that can be taken to put together a simple and cost effective social media campaign. It could be better than using paper-based promotional flyers.

    Bosch Power Tools delivers its 2015 results and emphasised its cordless outdoor power equipment range.

    Our quarterly feature, Paintorama explores the latest results of major paint companies including PPG, Sherwin-Williams and AkzoNobel.

    There is the usual updates on big boxes, indie stores, suppliers and a round up of home improvement news from the US and Asia.

    New products include a fencing stapler. Lufkin measuring tapes, a digital level, natural pest control and Milwaukee's pre-release outdoor power equipment tools.
    Editorial
    Can Indies take DIY back?
    The consumer paint: easy to use, long-lasting
    HNN Sources
    The Worx WorxSaw
    How to get serious with IKEA
    Give to Amnesty International
    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?
  • What works

    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.
    The consumer paint: easy to use, long-lasting
    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.
    Bosch Sweet Home drill winner

    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.
    Other tools

    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.
    The Worx WorxSaw

    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.
    Bosch Easycut 12

    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.
    Implementation

    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.
    Conclusion

    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,

    Betty

    You can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

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    Bigbox
    Big box update
    Bunnings launches an appeal for its proposed store at Coolum Beach (QLD)
    HNN Sources
    A decision on Woolworths' home improvement businesses could be made soon
    BWP Trust achieved a strong profit result
    Click to visit the HBT website for more information
    The battle to have a Bunnings store at Coolum (QLD) is ongoing; green light for Bunnings Doncaster; the proposed Bunnings Panorama store is undergoing an assessment process; Bunnings Yarrawonga is now owned by a Chinese investor; Woolworths should decide on who will own its home improvement businesses soon; and a $310.5 million profit for Bunnings Warehouse Property (BWP) Trust.
    Bunnings Coolum continues to polarise

    Bunnings Group Ltd have lodged an appeal with the Planning and Environment Court over the Sunshine Coast Council's rejection of its original proposal for a 12,150sqm development at one of the major entry points to Coolum Beach (QLD).

    The hardware chain has also started public notification on a third development application for the site, having been knocked back twice already by the council.

    Bunnings' actions have infuriated some community members including Development Watch president Lyn Saxton who told the Sunshine Coast Daily they would be joining the council as co-respondents to the appeal. She asked:
    What's the purpose of having the third application that hasn't been decided on and going to court with the first one?

    Ms Saxton labelled the moves "pushy tactics" from Bunnings and said she did not expect the council to "give in" on the third application for a scaled-down, 5850sqm Bunnings along with a service station (300sqm) and restaurant (300sqm). She said the council's reasons for rejection of the previous proposals were not changed by the size difference of the latest incarnation. Ms Saxton said:
    Council can't now turn around and approve the third one. The reasons for refusal will not have changed. The reasons for objections for us and in the council decision was not because of the size.

    She believes there were a number of areas where the previous applications hadn't complied with the planning scheme.

    Sunshine Coast mayor Mark Jamieson said he respected the "democratic right" Bunnings had to lodge the appeal and added it was important each application was assessed independently by the council. He said he could also understand the community's frustrations with the process.

    The economic development branch was "broadly supportive" of Bunnings' claims the development wouldn't significantly impact or compromise the role of Coolum Beach. But the strategic planning department advised the project would service a catchment far wider than the local community and would be likely to negatively impact hardware and specialty stores in the area.

    Bunnings' general manager - property, Andrew Marks, said he was "very disappointed" the council had refused the application and the appeal had been lodged as a result, saying a Bunnings Warehouse in Coolum would provide a number of benefits to the community.

    The public notification period for the latest proposal on the site will wrap up on August 25 which is the last day submissions on the proposal can be made.

    Related:
    Big box update: Bunnings fights for Coolum - HNN
    Bunnings tries a second time to build in Coolum - HNN
    Bunnings Doncaster will be built

    Construction on the Bunnings store in Doncaster (VIC) is set to go ahead after Manningham Council gave the green light to the latest version of the plans.

    The $73 million development will go up next door to Westfield Doncaster shopping centre and include 250 apartments - 99 flats on top of the 11,000sqm multi-level store as well as two apartment towers. There will be 350 carparks for shoppers.

    Initially the Bunnings development threatened a legal battle between the retail giants, with Westfield concerned it would affect future growth of its huge Doncaster complex, which has recently announced a massive $500 million expansion.

    There were further worries about traffic chaos created by the proximity of the apartment towers on top of the Bunnings store and Westfield, but the retail giants ironed out the problems with the towers moving to the other side of the development site and the hardware store shifting even closer to Westfield.

    It is not yet known when construction will start, but Andrew Marks, Bunnings' general manager - property told News Corp. the development would be undertaken in three stages and was designed in line with Manningham Council's vision for Doncaster Hill.

    Related:
    Big box update: Bunnings still in Doncaster - HNN
    Assessment for Bunnings Panorama

    Plans to build a $42 million Bunnings store in Panorama (SA) will be assessed by October, seven months later than initially expected.

    Amendments to the plans were submitted to the local council late last year. However, in February the big box chain delayed the application "to allow new information to be considered".

    A Mitcham Council spokesperson said Bunnings had submitted a number of amended plans to address community and council concerns. The spokesperson told Adelaide Now:
    The application is currently being assessed and it is anticipated that a report will be presented to the Development Assessment Panel within the next three months.

    The council wanted extra information about landscaping, hours of operation and heavy vehicle access, while residents were concerned about traffic issues.

    The Say No to Bunnings Panorama spokesman Peter Bryant said he was still concerned about the company's application. The group has collected more than 2000 signatures against the development since October last year. He said:
    Resident sentiment hasn't changed when it comes to having a giant bulky goods outlet dropped on their doorsteps, particularly one with no economic or planning justification.
    We're still concerned about the impact of an extra 5000 car and truck movements in our suburbs every day and around an intersection already at capacity. We remain hopeful the Mitcham Council will protect our community by saying no to a Bunnings at Panorama.

    Panorama Clapham Community Group spokesman Neil Baron was comfortable with the delay, providing community concerns were addressed. He said:
    It appears they are doing the right thing to meet the needs and requests of the locals. They won't make everyone happy, but that is the way of the world.

    Bunnings general manager - property, Andrew Marks said the company had worked collaboratively with the council to amend plans.
    This includes providing additional technical information in recent months in order for council to make a proper assessment.

    Related:
    Big box update: Bunnings could rethink Panorama store - HNN
    Big box update: Bunnings attracts protest and support - HNN
    Bunnings Yarrawonga has Chinese owner

    A mainland Chinese investor has purchased the Bunnings Yarrawonga store in regional Victoria for $11.5 million on a sub-5% yield, according to the Financial Review.

    Selling agent CBRE said it was the first time a Chinese investor had acquired a Bunnings Warehouse, and the sub-5% yield was a record for a Bunnings store outside a major metropolitan region.

    Bunnings stores have become among the most-sought-after retail properties by private investors because they are supported by long leases.

    Recently it was revealed that New Zealand commercial property investor Ben Cook was the buyer of the 14,760sqm Bunnings Warehouse in Sydney's Eastgardens that sold for a record $56 million in October.

    The sales campaign for the Yarrawonga Bunnings was steered by Justin Dowers, Mark Wizel, Kevin Tong and Joseph Du Rieu of CBRE Retail Investments. Mr Wizel at the start of the sales campaign:
    There is evidence that buyers are gaining more confidence in the performance of key regional cities within Victoria, stemming from increased government expenditure in these regions, along with improved living conditions (mostly related to affordability) driving population growth.

    Related:
    Big box update: Construction starts on Bunnings Yarrawonga - HNN
    Big box update: Bunnings in Yarrawonga - HNN
    Woolworths' hardware decision coming soon

    The Street Talk column in the Financial Review reports that a decision on Woolworths' home improvement businesses could be made by the end of the week.

    Street Talk understands the wealthy Sydney-based Salteri family, is among the group of wealthy investors, that have submitted a competitive offer for the Masters sites and have already started sounding out retail partners.

    The Salteris helped to establish Transfield Holdings that has interests in infrastructure, renewable energy and industrial services, along with services company Tenix, which is now owned by Downer EDI.

    Private equity multinational Blackstone, which submitted final offers for the Masters business and the Home Timber and Hardware business, was still waiting on an update from Woolworths and its adviser Citi as of August 14. In the same position is the consortium of big box retailers backed by property group Charter Hall, which bid only for Masters. However, both are understood to remain in the race.

    Although Blackstone and Charter Hall both bid for Masters, it is believed Blackstone is also prepared to take on the asset's leasehold liabilities, which could amount to $1.2 billion when all the rent on vacant properties is taken into account.

    Sources also told Street Talk that Anchorage Capital Partners is the frontrunner to acquire Home Timber and Hardware and may be close to securing exclusivity on this part of the deal.

    For now, it has currently displaced Metcash as the leading bidder for the HTH business. A company spokeswoman said: "Metcash is still part of the sale process being run by Woolworths."
    BWP Trust achieves $310.5m profit

    The property boom has delivered a bumper $310.5 million profit to Bunnings landlord BWP Trust, courtesy of $202.6 million portfolio revaluations. That represents a 48% increase on the 2015 result.

    As private investors, searching for yield, pay more for Bunnings-leased stores, the value of the BWP Trust portfolio rises.

    Recent Bunnings transactions are yielding around 5%. The capitalisation rate for the overall BWP Trust portfolio tightened 56 basis points over the year to 6.77%. Even without the portfolio gain, BWP Trust's underlying profit lifted 6% to $107.9 million.

    Total return over 10 years hit 13.5% a year, its highest level in the past five years. However the trust faces a quandary. New stores are too expensive to buy, and nor does BWP Trust want to necessarily sell off the ones it owns. No acquisitions were made in the last year. Managing director Michael Wedgwood told the Financial Review:
    We're looking at everything at the moment, but at current pricing we just can't make the numbers add up.

    Citi analyst Adrian Dark noted during an analyst call that, even as investors place a premium on BWP's security of income, the average lease length across its portfolio is steadily declining. It is now at 5.9 years.

    Mr Wedgwood and his team were quick to point out that the structure of leases has changed - with more options - and the great majority of Bunnings' were expected to go well beyond the 5.9-year figure. He said: "It is only one indicator of the risk of the portfolio."

    Related:
    Big box update: BWP Trust monitors Masters sites - HNN
    Retailers
    Indie store update
    Tuckey's Mitre 10 in Halls Head (WA) has shut up shop
    HNN Sources
    Home Timber & Hardware customers in the Wimmera gain assurance from Metcash
    Ripper Hardware just opened in Mandurah (WA)
    Click to visit the HBT website for more information
    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.
    Careers
    Seeking opportunities
    A business development position is available at AMES
    HNN Sources
    Valspar has an opening for a regional sales person in NSW
    A tools and hardware buyer is needed at Catch Group
    Visit the Mecca Website
    AMES Australasia is looking for a Sydney-based individual to work at Cyclone Tools as a business development representative; Valspar is searching for an experienced regional sales manager; and a category buyer for tools and hardware is needed at e-commerce company, Catch Group.

    To read more about each role, simply click on the company logos.
    Selling the Cyclone brand

    As part of the AMES Australasia Group, Cyclone Tools has a role for someone who is looking for a career in sales and product merchandising at its Sydney office. The company states: "Extensive training and development and our long term talent management program will give you a career, not just a job."
    A business development position is available at AMES
    Regional sales role at Valspar

    The regional sales manager at Valspar will have a proven sales management background and existing commercial relationships. Based at its head office in Norwest Business Park in Sydney and reporting to the NSW state sales manager, this role will lead and direct the activities of the NSW trade sales team.
    Valspar has an opening for a regional sales person in NSW
    Online tools and hardware

    Catch Group is seeking to appoint an experienced tools and hardware buyer based at its Mulgrave (VIC) head office. The successful candidate will be tasked with strategically managing the category to maximise revenue and profit targets. Catch Group's websites include catchoftheday.com.au, scoopon.com.au, mumgo.com.au, groceryrun.com.au and yumtable.com.au.
    A tools and hardware buyer is needed at Catch Group
    Companies
    Bosch builds more tools than ever
    Adding connectivity modules to tools
    Bosch
    Bosch Easycut 12
    Bosch Ixo garden accessories
    Subscribe to HNN weekly e-newsletter
    German-based power-tool manufacturer Bosch has released results for its 2015 year. The company claims that it has produced more power-tools during the year than in any prior year. It produced 50 million in total, which was almost twice the number produced in 2005.

    Sales for 2015 increased by 4% to reach EUR294 million. Over 90% of Bosch sales take place in Europe. The company places a premium on innovation, claiming that 40% of sales are derived from products that have come to market over the past two years.

    In its annual report for 2015, Bosch outlined differences it sees in making tools for developed and emerging markets. As regards developed markets, the report states:
    In developed markets, the focus is on improving productivity, and increasingly on health and safety aspects such as dust, noise, and vibration. Innovations such as the world's most powerful small angle grinder offer improved ergonomics and a high level of user protection, for example. Inventory management is also an important issue for professional users.

    In emerging markets, Bosch sees different forces at work:
    These tradespeople first have to be convinced of the benefits of changing from traditional hand tools to power tools. They need affordable power tools that are robust and easy to maintain. Power Tools is making great efforts to cultivate emerging markets such as China, India, Russia, Brazil, and Africa. Following successful pilot projects in China and Russia, a complete range of products will now be launched gradually in these emerging markets.

    The company sees two main trends dominating both the profession and the DIY market:
    First, there is growing demand for powerful rechargeable tools. Second, the rapid development of the internet and increasing use of smart-phones and tablets open up additional possibilities for intelligent solutions and services.

    The latter trend fits neatly with one of the overall Bosch company's longer term strategic goals: to become a key supplier of Internet of Things (IoT) technologies:
    Our goal is to become one of the world's leading IoT (Internet of Things) companies. We operate on all three levels of connectivity - intelligent and connected devices, software platforms, and applications and services - in order to provide additional benefits to customers. More than 40 percent of our product categories are already web-enabled, and this is rising rapidly. MEMS sensors are a key technology for connectivity, and we have extensive expertise in this area.
    Bosch in the garden

    This year, Bosch is emphasising in particular the role of its power-tools for the garden. These have been developed through a new process at Bosch, which makes use of a user experience oriented team, led by Marc Jost-Benz. The president of Bosch Power Tools, Henning von Boxberg, explained in a press statement how this process works:
    We have set up a new team tasked with focusing solely on user experience. The aim is to make working with Bosch garden tools as easy as possible for the user. To do this, we involve users in the development of products and services from the very beginning and adapt both functions and designs to the needs of the target group in question.

    The "UX" design process has four stages. In the first stage Bosch interacts with actual customers to discover what they really need in a particular tool. In the second stage the company organises interdisciplinary workshops to analyse those needs, and to begin developing solutions. In the third phase the analytical work is used to develop working prototypes. The fourth stage loops around to the first stage again, with customers exposed to the new prototypes, who help the company refine its solutions.

    Mr Jost-Benz emphasises the importance of that first step:
    We go out to meet the customers as much as possible. We listen and observe carefully and thoroughly in order to find out what work they carry out and how they use products on a daily basis: What challenges are associated with this usage? How have they solved problems so far? What do they want?

    He points to a number of developments this process helped to identify. In particular, the Bosch team found out that many homeowners with smaller lawns wanted to own a robotic lawnmower, but that there were none that really suited their smaller lawns. This led to the development of new Indego autonomous lawn mowers that were scaled down.

    The company has four tools it says have been developed through this process that is highlighting at the moment: The Indego robotic lawnmower; EasyCut 12 sawing system with uses Bosch's new NanoBlade; the Ixo Garden, which adds a range of garden attachments to the Ixo cordless screwdriver; and a new range of high-pressure washers.
    Indego

    The new Indego 400 and Indego 400 Connect autonomous lawn mowers have been designed to work with lawns that are less than 400 square metres in area. They are smaller units that produce only 50% of the noise of previous Indego mowers. A main feature of these mowers is their ease of programming, which can be done via a smartphone. The program enables the mowers to operate according to a calendar and a timetable, ensuring that their operational times are truly convenient for homeowners. As Mr von Boxberg puts it:
    You can control the Indego 400 Connect easily and conveniently on your smartphone or tablet from anywhere - the sofa in your living room, on the way to work or even while on vacation. That is what we call "Smart gardening".
    EasyCut 12

    This small saw is designed to replace jigsaws and saber saws in the garden, as well as making craft woodworking projects easier as well. The Bosch executive responsible for the development of the product, Henk Becker, says:
    With NanoBlade, Bosch is taking sawing to the next level. With the EasyCut 12, all users can saw easily, vibration-free and effortlessly. This is ideal for applications in the garden: When cutting branches, these branches no longer sway back and forth as a result of the sawing motion.

    Mr von Boxberg describes how the saw works:
    At present, anyone who wants to trim tree branches or shrubs has to rely on jigsaws or sabre saws. In particular, people with little sawing experience find it difficult to guide the saw accurately and safely, due to the typical stroke movement with high vibrations. Our solution is a saw blade with a revolving micro chain consisting of chain links that are four millimetres in size similar to a chainsaw, but miniaturised. No more stroke movement, no more vibration.
    Our "NanoBlade" is also long-lasting and does not require maintenance: It is not necessary to oil, sharpen or re-tension the chain. The micro-chain does not become jammed either, even when used with resinous wood. The position of the 900-gram EasyCut 12's saw blade is advantageous: It allows you to saw off branches close to the edges. You can cut at any position along the 65-millimetre blade.

    The EasyCut makes use of a standard Bosch 12-volt cordless tool battery, which is interchangeable with a wide range of Bosch tools. (Bosch is changing the designation of these batteries from the previous 10.8-volt to the 12-volt designation, reflecting the maximum voltage produced by the battery, in line with common usage in the US.)

    The tool is expected to launch on the European market in early 2017, and to be priced at around EUR140.
    Bosch Easycut 12
    Ixo Garden

    The Ixo cordless screwdriver is something of a market phenomenon in Germany and other parts of Europe, and has become the household tool of choice for many, with a range of attachments and adapters. Bosch is adding yet another attachment, a grass and shrub trimmer. This can take care of small edging tasks, or help to shape small ornamental shrubs.

    As Mr von Boxberg explains:
    Many people in cities live in houses without their own garden. They often only have a small balcony or patio, on which they grow plants in pots or beds. To maintain these little oases, they need a small, handy grass and shrub shear, which they can use to shape small box trees, for instance.

    Developed originally in 2003, the Ixo now has a range of nine different attachments.
    High-pressure washers

    Bosch sells its high-pressure washers in three lines: the Easy class for simple jobs, the Universal class which suit general purpose needs, and the Advanced class for tougher jobs. Bosch is replacing the old Universal class with a range of three new washers. It is also adding two new washers to its Advanced line-up.

    The three UniversalAquatak offer water pressure from 125 bar to 135 bar, and water flow rates of between 360 and 410 litres per hour. All of them feature a new spray head, which converts between a fan jet of water, a rotary jet, and an intense pencil jet with a turn of the spray nozzle. The new models provide 10% more power, Bosch claims, and are also significant quieter to operate.

    Mr von Boxberg points to other advantages as well:
    Moreover, we are also now offering a high-pressure detergent nozzle. It distributes the cleaning foam generated over the surface to be cleaned extremely quickly - the user can work rapidly and achieve thorough results. In addition, the high-pressure washers are especially practical and are easy to position wherever they are needed: The extra-long extendable handle and large wheels make light work of transportation.

    The two Advanced models join the existing two Advanced models, offering even more cleaning power at the top end. They feature a new four-cylinder pump and offer up to 160 bar of pressure and water flow rates of up to 570 litres per hour. The top of the line model offers metal spray components to assure its longevity under sustained use.
    Connected tools

    Bosch also continues to release information about its range of connected power-tools designed mainly for professional (tradie) use. The company has announced that it will be releasing a set of seven connected tools for the Northern autumn of 2016.

    These tools promise to offer a number of features not seen on power-tools before. This includes what the Bosch is calling its Human/Machine Interfaces, which are intelligent displays directly on the tools, which can also be configured by mobile phones using a Bluetooth connection and apps developed by the company.

    These consist of a combi-laser, two screwdrivers, two combi-drills, an angle grinder and a workplace light. According to Wolfgang Hirschburger, vice president engineering for professional tools in industrialised markets:
    The long-term goal is to network all of Bosch's professional power tools and thus to offer users added value.

    These developments build on Bosch's existing TrackMyTools system, which provides Bluetooth modules which are stuck onto tools, or attached to their cords, and provide some tracking capabilities through a custom Bosch smartphone app.
    Adding connectivity modules to tools
    Analysis

    As HNN has written in the past, there seems to have been a period in the history of the Bosch power-tool division when innovation was not funded. Over the past three to four years, the company has woken up, and is beginning to at least announce tools that have real potential.

    That said, the specifications for its connected tool system have changed quite dramatically over the past six months. When first announced the tools were to feature a plug-in module that would provide monitoring and connection features. From the more current announcements, it seems more likely that the connected tools will have these features built directly into them. This might reflect the power-tools division beginning to adhere more closely to the overall corporate objectives as regards IoT capabilities.

    The real question for Bosch is whether it will be able to keep up with the innovations produced by the current leader in connected tools, Techtronic Industries (TTI) Milwaukee brand. The Milwaukee One-Key system is already offering most of what Bosch would seem to be offering for release sometime after September in 2016. It is highly likely that Milwaukee will be releasing the next iteration of its system in early 2017.

    That said, the relationship does work the other way as well. With the vast resources of Bosch behind it Bosch Power Tools might be able to find a way to skip a generation of development, and produce a real challenge for TTI. With the TTI half-year result due to be released before September 2016, it will be interesting to see what the always engaging CEO of TTI, Joe Galli, has to say.
    Companies
    PPG results FY 2016 H1
    PPG results 2016 H1
    PPG
    PPG presentation: innovation investment
    PPG Results 2016 H1: heat map
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    US-based paint and coating manufacturer PPG has reported a slight decline in revenue for the first half of FY 2016. The revenue for the half came in at USD7,736 million, down by 0.33% on revenue for the previous corresponding period (pcp), which was the first half of FY 2015.

    Earnings before interest and taxation, however, show a sharp increase, up over 27% on the pcp, to USD1,206 million. Additional provisions for income tax, however, have reduced the gain in reported net income for the half, which is reported as USD717 million, a more modest gain of 8.8% on the pcp.
    PPG results 2016 H1
    Analysts' presentation

    In prepared remarks at the start of the presentation of the company results to analysts, the PPG president and CEO, Michael McGarry, offered this description of how the company's architectural paint division had performed during the second quarter of FY 2016:
    After improving for three consecutive quarters, volumes declined very modestly in the architectural EMEA [Europe, Middle East and Africa], primarily due to unfavourable weather patterns and flooding across portions of Western Europe during the second quarter. Architectural coatings declined by more than 20% in both Brazil and China reflecting slowing end-use market conditions in those countries. Countering these declines was above market architectural coatings growth in Mexico and Australia.
    Sales volumes also declined in architectural US and Canada in aggregate with varied results by channel. Company-owned stores increased volumes by low single digit percentage as we begin to see initial benefits from prior investments to improve our store networks and expanded penetration into certain end-use submarkets. Volumes selling on the independent dealer network consistent with prior quarters due to overall modest but continued structural decline within the channel. Despite the volume decline, this channel continues to create shareholder value for PPG as we are able to effectively manage our cost and maintain good returns.
    Volumes were lower in the national retail accounts or DIY channel, this was due in part to comparison to solid volume growth in last year's second quarter coupled with current year customer initiatives to structurally lower their inventory levels. However, our product sales to the DIY end-customers also known as point-of-sale or out the door sales were higher year-over-year benefiting from sales of some of our new and recently launched products.
    Local currency architectural coating sales increased in Mexico at more than the expected rate of double Mexican GDP as we have further market penetration and the addition of over 100 new store locations year-to-date in 2016. Architectural volumes continue to expand rapidly in Central America, particularly in Panama and Costa Rica due to the Company's efforts to establish the presence in the region leveraging our prior year acquisitions of Comex and Consorcio Latinoamericano.
    Overseas markets

    Asked about the performance of architectural paint in overseas markets, Mr McGarry was positive about sales in Europe. He noted a slowdown in sales for Britain during June 2016, but said this had recovered in July 2016, which was above July 2015. He sees similar sales trends throughout much of Europe.

    In regards to a steep, 20% fall in sales in China, Mr McGarry puts this down both to the decline in the construction market there, and the consequent necessity for PPG to tighten its terms of credit. He noted that sales of premium paint actually rose in China, though it remains a smaller segment in that market.

    In terms of PPG's acquisition of the Latin American part of the Comex company, Mr McGarry continues to see positive growth trends for that business:
    We're bringing the PPG products into Comex. That has continued the acceleration that Comex sales, that's why we're more than two times GDP. The Comex team continues to perform at a very high level. We've been pleased, we've added over 100 stores in the first half of the year, so we're adding this store every other day, basically, we anticipate having over 170 stores by the end of the year.

    In Australia, PPG reports that its sales of architectural coatings are growing at above the market rate.
    DIY paint market

    In response to an analyst's question about the company's initiatives in its DIY paint category, Mr McGarry responded:
    When you look at the DIY space, if you've been in a Home Depot store they have recently launched two new Glidden products, Glidden Diamond and Glidden Essentials, both of those products are performing quite well. In Walmart they also have a Glidden Complete that's going. And then if you look at Menards, we have a super-premium price point, Paramount and that has been performing as well. So I think as these new products get deeper footholds in the minds of our DIY customers, we expect that to continue to be a positive for the business.

    PPG has also commented that there has been a slight decline in paint sales into one of its big-box customers, as that business introduces new systems which reduce the amount of inventory it needs to carry.
    Independent dealer channel

    Mr McGarry, in response to another analyst question, clarified some of the difficulty PPG is facing in the market, in particular with the independent paint dealer channel:
    What I would tell you first of all is that you have, you know, our share of the dealer market, so we are probably a little overweighted in that area and that continue to be a decline. Then don't forget we bought a broken Akzo business and we are radically fixing that at a good clip. That's been a good acquisition. It's returned a lot of value. We've outperformed in the synergies and now our goal is to get that growth rate up to match the industry average or better. And then finally with the DIY segment and as I mentioned earlier on the call, we have worked with our channel partners to bring out some additional products in that regard.

    PPG's vice-president of finance, Vince Morales, indicated that while the independent dealer channel was not outperforming, it still represented reasonable value from PPG's perspective:
    We know the pace of decline in the independent dealer channel. We're able to match that or actually exceed that with cost outs. So this remains a good return channel for us, the shareholder value creation channel, it's going to be a long time before that channel evaporate. So we are pleased with the cash flow, it's a low investment channel and again a channel we're not displeased to part of.

    Mr McGarry added further clarification about PPG's attitude to this channel in response to another analyst's question:
    We've been consistent in saying that it's in a slow decline, low single digits as the big boxes as well as the company-owned store network takes share in that regard. I do not envision that that trend line is going to change, and so the other issue you have is that for some of these independent dealers, they have no succession plans. And so sometimes as they get older, they decide to either sell out or they decide to close their doors. So it's something that we are managing very closely, like Vince mentioned that we are able to adjust our cost structure to match this decline rate. It's a very profitable segment for us, so we're very happy to have these customers, but it is a drag if you will on the overall growth rate of the business

    Building up the independent dealer channel was one of the initiatives that PPG entered into after its acquisition of the US architectural paints division of Azko-Nobel. In March of 2014, PPG described its expansion in this area:
    The 2013 acquisition of AkzoNobel's North American decorative coatings business significantly enhanced PPG's stable of brands available to serve the pro through the independent dealer network, and it made possible the creation of a new, dealer-exclusive brand that will combine the heritage of the PPG Pittsburgh Paints and DEVOE(r) brands. The completely new PPG Pittsburgh Paints brand, which will launch in late 2014, will incorporate some of the best-known Devoe paint sub-brands under the PPG Pittsburgh Paints parent brand and be available to professional customers only through independent dealers.

    "The uniting of the strong equities of the PPG Pittsburgh Paints and Devoe Paints brands into this completely redesigned brand offers a powerful option to dealers who want to support a brand that will not be in company stores and home centres," [PPG director of pro marketing, architectural coatings, Tom Dougherty] said. "We're really excited to be able to offer this option to our dealers as one of many in our portfolio."
    In addition to the soon to be relaunched PPG Paints and PPG Pittsburgh Paints brands, the other strong brand options from PPG for independent dealers include the PPG Porter Paints and GLIDDEN(r) brands.

    Finally, a recent PPG acquisition of a minority equity stake in The Coatings Alliance enables the company to add the super-premium C2(r) Paint brand to its industry-leading dealer portfolio.
    Simply put, the independent dealer is a critical component of our strategy to reach the professional customer, and we are really proud to be able to work with our dealers to offer many options.
    Raw materials

    In response to an analyst's question about raw material costs, Mr McGarry indicated that he thought deflation in the cost of Titanium oxide (TiO2) would continue through 2016. He said that global paint production had not increased by that much, and that the costs for raw material producers continued to be contained. He concluded that:
    So I would tell you overall, we are pretty, we are going to have to continue to fight hard for what we have, but raw material deflation is slowing but not over.
    Analysis

    In a presentation to investment analysts in June 2016, PPG stressed the importance the company places on innovation. This includes innovations that it develops through its own research and development, as well as innovations it gets access to through acquisitions. One graph prepared by the company presents what it sees as its spending on R&D as compared to other major paint companies in the US market:
    PPG presentation: innovation investment

    Innovation really is one of the core values for PPG. The current state of the architectural paint market in the US and worldwide is not one that particularly rewards that innovation to the level that it deserves. Instead there is, for most paint companies, a great deal more importance attached to the sales channels for paint. While PPG has not made bad decisions in this area, it has also not made the best possible choices.

    As demand moves more towards its peak over the coming five years, however, the effects of channel distribution will likely become less important. Less certain is how PPG's overseas investments, particular in more risky regions such as Latin America and China, will develop.
    Companies
    Sherwin-Williams results FY 2016 H1
    Results for Sherwin-Williams first half 2016
    Sherwin-Williams
    Sherwin-Williams market outlook
    Coatings demand by geographical region
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    US-based paint and coatings manufacturer and retailer Sherwin-Williams has reported its results for its second quarter ending 30 June 2016. The results were positive, reflecting both the ongoing recovery in the US housing market and the underlying economy, and the exposure to those markets of Sherwin-Williams.

    In half-year terms, the company's sales revenue came in at USD5,794 million, up by 3.78% on the previous corresponding period (pcp) which was the first half of 2015. Gross profit for the half increased by 8.83% over the pcp to reach USD2,898 million. Net income lifted even further, up 12.8% to USD542.9 million.

    The company reports that it experienced a reduction in income tax provision as compared to previous years, as it moved to a new accounting standard (ASU 2016-09).
    Results for Sherwin-Williams first half 2016
    Paint Stores Group

    Sherwin-Williams operates its own paint outlets in North America, and it reported that like-for-like sales through this channel increased by 8% over the pcp, to reach USD3.72 billion for the half. The increase was driven by a higher volume of architectural paint.

    The company reports opening 31 net new locations in this Paint Stores Group (PSG) during this half, bringing the total store count to 4117 in the US, Canada and the Caribbean, up by 92 on the pcp. The 31 increase consisted of opening 45 new stores and closing 14, with most of the closures relating to Sherwin-Williams' earlier acquisition of Comex. The company plans to open between 90 and 100 stores by the end of the current year.

    Robert J. Wells, Sherwin-Williams' senior vice-president of communications and public affairs, indicated that it was the Paint Stores Group that helped improve the company's gross margin for second quarter 2016 by 2% to 50.8%. He said:
    More than half of the gross margin improvement in the quarter resulted from the positive mix effect of Paint Stores Group, our highest gross margin segment, outpacing the growth of the other segments, coupled with increased operating leverage from higher production and distribution volume.

    The company sees the PSG as continuing to grow through to the end of the current year.
    DIY/Contractor (tradie) markets

    In a presentation Sherwin-Williams gave to financial analysts in May 2016, the company emphasised a major shift it sees in the US market. This is, for the company, a proportional increase in its contractor (tradie) market over the DIY market. For FY 2015, the company saw 59% of its business (by revenue) go to contractors.

    In the analysis of the US paint market provided at that presentation, the company indicated that the DIY residential repaint market was about 31% of the total market at 313 million gallons (1185 million litres), while the Pro (tradie) residential repaint market was about 21% of the total market at 213 million gallons (806 million litres). Non-residential repaint was estimated at 15% of the market with 125 million gallons (473 million litres).
    Sherwin-Williams market outlook

    The numbers for the first half of FY 2016 backed up this growth in contractor painting. According to remarks at the investors' conference call by the CEO of Sherwin-Williams, John Morikis:
    I'd say it's been great deal of my time with our customers and with our people in this segment, and there's a strong sense of bullishness in this area. There's continued growth in the residential repaint area. This is yet another quarter for us with double-digit gains in residential repaint. Our commercial customers are really speaking of a very solid book that currently exists, as well as a number of bids in the pipeline. So, on the architectural side, we're really excited about this market.

    Mr Morikis expanded on these comments later, saying that he believed this growth stretched into the future:
    The discussions I've had with many customers around the country would say that they've got a good book of business that they're dealing with right now. They've got a good book of business that they have in the pipeline either secured or believe that they're going to secure. But what gives us, perhaps, most excitement is the pipeline of bids that they're looking at down the road. They also feel - that's why I mentioned earlier that they are bullish about those as well.

    This was further backed up by a remark from the company's chief financial officer, Sean Hennessy:
    I think, when you look at the results, I think, it's showing up, Jeff, that the painting contractor is the faster growing - that the painting contractor is growing faster than DIY. I think that's our perception, and I think the facts bear that out.

    The reason for the company's ongoing optimism regarding growth of the overall paint market is simply that the housing stock has continued to grow, and this is lagging into demand for paint used for repaint purposes. As Mr Wells expressed it:
    if you look at the overall U.S. architectural paint market, more than 80% of average annual volume goes toward repaint and it's applied to structures that already exist.
    If you look at that 740 million to 760 million [gallons of paint] normalised range that dates all the way back to the late 1990s. And we've had three building cycles since the late 1990s that have put a lot more square footage in place. Our population has grown significantly since then. So, we think it's reasonable to adjust the normalised expectation up based on primarily repaint volume.
    Raw materials

    Sherwin-Williams has a relatively complex outlook on the pricing of raw materials, in particular Titanium oxide (TiO2). On raw materials overall, Mr Wells said that the company expects deflation of around 3% to 5% for FY 2016. He pointed to stable prices for latex and acrylic monomer, as well as chemical grade propylene.

    He said that the major suppliers of TiO2 would gain "some traction" in terms of a price increase, but that even with that, it would just bring the price up to the level it was at the end of 2015. The expected increase would be only USD0.02 to USD0.03 per kilogram, which is not significant on a percentage basis. However, a further third quarter increase in TiO2 prices was likely, and Mr Wells believes that will actually drive the price higher by a more noticeable amount.
    Analysis

    Modelling the paint industry and the place of a major paint company within that industry is always difficult. In general, it's possible to identify medium-term total demand moderately reliably, but how exactly that demand gets expressed in the market, and how that expression then plays out for individual companies is very hard to predict well.

    In particular, when there is an interruption to supply and demand, such as occurred during the low periods of the global financial crisis, a "rubber-band" effect comes into play. At some point the housing market receives enough positive economic signals that it begins building again. This is at first tentative, but if the economic signals continue to strengthen, there is a sudden rush into the construction market, as various builders attempt to seize more market share.

    At some point a minor market glut comes about, and the builders sharply drop supply, until market forces signal once again that there is adequate demand. With luck, the response to that second wave of demand signals is more moderate, though a short-lived glut is still likely. This will then be followed by a smoothing out of supply and demand.

    The US market is, with some luck, a couple of years away from that smoothing out. For the paint market, the question is how the volatility in past years for residential construction is going to work its way out as demand for repaint product. Sherwin-Williams suffered a slight jolt during this second quarter of FY 2016, reflected in the fact that it missed earlier earnings estimates. It seems likely it will perform well over the next three or even four quarters, and then suffer another slight jolt, as the early housing demand fluctuations hit it.

    This is further complicated by the changes to the company itself, which include its wide-scale entry into new consumer channels as its paint is distributed through US-based big box home improvement chain Lowe's, and it begins to absorb and transform (and be transformed by) its acquisition of Valspar.

    One statement that can be made with some confidence is that Sherwin-Williams is seeking to optimise its operations so that they are most profitable when operating at scale. This indicates a great faith in not just the US economy, but also the worldwide economy.

    It seems likely to HNN that this kind of business modelling will become more common over the next three years in industries associated with building and construction. The fact is that most modern, first-world economies are underbuilt in terms of both housing and infrastructure. How that demand gets resolved is still a question unanswered, but the fact of the demand is enough to sustain the kind of optimism that Sherwin-Williams represents.
    Retailers
    USA update
    Home Depot CEO Craig Menear sees more good times for the company
    HNN Sources
    Lowe's has been testing out Facebook's 360-degree clips
    Do it Best Corp. recently surpassed USD3 billion in total sales
    Click to visit the HBT website for more information
    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
    Products
    Painter's tape easier to tear
    ScotchBlue PLATINUM Painter's Tape enables users to mask surfaces with just one pull
    3M Company
    It is the only interior tape to use an advanced polyethylene backing
    The tape is recommended for use on baseboards, trim, metal and glass
    Click to visit the HBT website for more information
    3M Company has introduced the first poly-backed indoor masking tape that tears by hand at a 90-degree angle. ScotchBlue PLATINUM[tm] Painter's Tape enables painters to mask surfaces quicker and easier with just one pull - compared to other 3M paper-backed masking tapes. Mark Hodgins, global business manager -construction and home improvement markets division, said:
    We developed the new ScotchBlue PLATINUM Painter's Tape as the premium solution to challenges with paper tapes related to masking corners and curves, tape slivering upon removal, and paint seepage...

    This interior tape is the only one of its kind to use an advanced polyethylene backing with micro-replication technology. This poly material provides enhanced durability, making it possible for the tape to be removed in one piece without tearing or slivering and helping to prevent paint bleed - compared to other 3M paper-backed masking tapes. 3M's micro-replication technology allows for a straight 90-degree hand tear.

    ScotchBlue PLATINUM Painter's Tape is easy to apply and readjust. The 90-degree tear allows painters to mask corners with more accuracy than when using paper tapes. It is recommended for use on baseboards, trim, metal and glass. It is UV-resistant and compatible with zero-VOC paints in normal conditions. (A humidity level of below 50% is recommended for the ideal tape performance).
    Products
    Trade MX has your measure
    The Trade MX tape measure range from Lufkin is ergonomically designed
    Apex Tool Group
    A co-moulded grip and top lock button make for easy operation
    The Trade MX case is built from rugged ABS plastic
    Click to visit the HBT website for more information
    Ergonomically designed to fit the contour of a hand, the Trade MX tape measure from Lufkin feels like an extension of the body. Specialised construction of the internal components means that the compact body of the Trade MX can fit snuggly in the palm of a hand.

    Gone are the days of wrestling a rusted old tape measure that jams more than it doesn't. A co-moulded grip and top lock button make for easy operation.

    A four-rivet end hook for superior strength will lock onto the slipperiest edges, while a clear coated blade will make sure the tape lives a long and productive life. The Trade MX's case is even built from rugged ABS plastic for improved impact resistance.

    Designed and made in Australia, every Lufkin tape measure is individually tested to ensure the highest levels of accuracy. The Trade MX is the reliable, tough sidekick tradies want when they are on the job.
    Products
    A revolution in pest control
    The Stay Away Pest Repellent line from Earthkind
    Examiner
    The Stay Away product won best new product of the year from the Environmental Protective Agency in 2015
    Lowe's was the first retailer to accept Stay Away
    Click to visit the HBT website for more information
    Kari Warberg Block is the founder and CEO of Earthkind, a USD40 million dollar natural pest control company.

    Earthkind was created in 2007 out of a necessity for natural and eco-friendly products to prevent pests. Nighty-eight per cent of the products in the pest control industry contained poisons to get rid of rodents and the other 2% were sticky tape paper and traps.

    She could not find a single company that sold chemical free pest and rodent deterrent products. Worried about using poisons around her pets and children she looked into to finding out how she could get rid of pests and rodents naturally.

    Her idea for a pest deterrent product came from an incident that happened many years prior when she was on a date with her then-fiance. She had sat down and a mouse scurried up her leg. At the time Warberg Block was selling cosmetics and perfumes; she instinctively grabbed a bottle from her purse and sprayed around her thinking the smell would drive the mice away. It worked.

    Warberg Block also lived on a farm and everyone kept telling her that rodents were just part of farm life. Knowing that pests were a problem that all farmers dealt with she began researching the farming and pest control industries.

    One of the products Earthkind offers is Fresh Cab Rodent Repellent that repels mice. It can used be used in caravans, houses, barns, boats, garages and anywhere else that mice like to frequent. The Stay Away Pest Repellent line offers several different products to repel mice, beetles, moths, spiders, ants and rats.

    Earthkind had the first pest control product to meet the gold standard set by the EPA (Environmental Protective Agency). Its Stay Away product won best new product of the year in 2015.

    There has been an annual 2% growth for eco-friendly products in the pest control industry, but Earthkind's products have been so effective that the company has seen a growth of 85%.

    And the company's success has not been without some challenges. Earthkind is up against big competitors and many stores did not want to give them shelf space without having proof that they would make the store money.

    Lowe's was the first retailer to accept them because selling a safe rodent deterrent product was the right thing to do. Currently, Earthkind products can be found in ACE Hardware stores, Tractor Supply, Menard's, Target (US), and John Deere.

    The company is based in the United States and sources the materials for its products from small farms that are also located around the United States.
    Bigbox
    Latest bidder for Masters assets
    A new bidder has entered the race for Woolworths' Masters assets
    The Australian
    Two main bidders are vying for the Home Timber & Hardware Group
    HNN has explored the challenging environment for independents
    Click to visit the HBT website for more information
    The DataRoom column in The Australian reports that a syndicate of high net worth investors is challenging the dominant status of rival bidder, New York-based asset manager Blackstone Group for Woolworths' Masters portfolio.

    The identity of the investors within the group remains unclear but entrepreneur Brett Blundy has been linked.

    It also reports that Metcash, a contender for Woolworths' Home Timber & Hardware (HTH) business, appears to have lost ground to Anchorage Capital Partners, the private equity firm behind the float of collapsed retailer Dick Smith.

    Industry publication Channel News believes that Nick Abboud, the former CEO of Dick Smith, has been working on the proposal with Anchorage.
    Aboud believed to be working on new retail bid with Anchorage - Channel News

    The HTH battle has narrowed to two players: Metcash, which recently won ACCC approval to buy the wholesaler, and Anchorage. The latter is understood to have offered close to $150 million for HTH, representing a near seven times multiple on a projected EBITDA (earnings before interest, taxes, depreciation and amortisation) of $22 million.

    While Woolworths has yet to select a buyer for either business, it is understood the supermarket chain may have advanced to the preferred bidder phase.

    The final offers from these contenders has been extended until August 25, when the supermarket chain is due to publish its annual results. However, it is expected Woolworths will unveil a decision before then in an effort to maintain the focus on its turnaround strategy.

    The loss-making Masters chain is accounting for close to half of the $4.2 billion in writedowns Woolworths has notched up in this financial year. There are fears the sales process aggravated the poor performance at the home improvement chain as well as harming HTH.
    Blackstone offer

    Just last month, Blackstone had widened its lead as the favoured contender for Woolworths' Masters portfolio.

    As the DataRoom column previously revealed, Blackstone did not submit an offer for HTH which has suffered a steep slide in profits in the second half of the financial year, according to sources.

    While the US private equity firm has long been considered among the strongest candidates for the Masters chain, it was also linked to HTH, that had thrived despite the problems afflicting the rest of Woolworths hardware portfolio.

    The decision to pull the plug on the home improvement venture, known as Hydrox Holdings and jointly owned with the US retailer Lowe's, has imposed heavy strain on HTH.

    DataRoom also revealed that the profit dive at HTH has unnerved suitors and led to the submission of lowball bids. While some in the industry claim its EBITDA crashed to $7.5 million over the past six months, sources close to Woolworths claim the figures are inaccurate and declined to confirm whether HTH's profits were falling.

    The profit downgrade may have prompted both Metcash and Anchorage to drastically revise their bids. Mark Burrowes, a former CEO of Mitre 10 and an ex-executive at HTH, is also co-leading a syndicate.
    Blackstone closes on Woolies' Masters portfolio - The Australian
    Editorial
    The retail future: power-tools as a service?
    Will leasing take over buying in the tool market?
    HNN Sources
    Milwaukee's One-Key offers advances
    Hilti's Ontrack provides inventory management
    Give to Amnesty International
    If there is an area of hardware for tradies and other professionals that is dominated by Bunnings, it is the cordless power tool category. HNN believes a new industry trend could develop to change that.

    Bunnings' achievement, built up over 20 years, is considerable. Leveraging volume, its key exclusive relationship with Hong Kong-based Techtronic Industries (TTI), and a clever utilisation of the direct-from-China supply chain through intermediaries such as Ozito, Bunnings has managed to deliver outstanding value to both consumers and professionals.

    While the company's presence in the DIY market is almost overwhelming, its dominance is somewhat moderated in the professional tools area. Some key brands, such as TTI's Milwaukee, can only be purchased through specialist tool suppliers. Other "tradie" power tool brands such as Makita, have not only actively pursued distribution through independents, but have developed some product lines - such as Makita's MT series - that are ideally suited to their operations.

    Nonetheless, Bunnings has a big impact in the professional market. It's not only that independents are missing out on some sales, or seeing the sales they do manage to make bring in relatively low margins. There is also a whole range of adjacent sales that get missed as well.

    Directly, that includes power tool accessories, such as blades, bits, replacement abrasives and cases. Indirectly, however, there is also the "one-trip" factor: when a tradie is in a hardware store for any purpose, they are likely to pick up some additional items they know they will need in the near future.

    What if there was something that would, comprehensively, level the playing field when it came to competing in the power tool market with Bunnings? What if that "something" not only helped deliver decent profits in that area, but also enhanced the strongest selling point for independents when it comes to the professional market - the establishment of ongoing, reliable relationships?
    The coming of leasing

    While it is unlikely we will see anything developing immediately over the next two years, looking three years out HNN can see several strong trends, in both the power-tool industry and the building/construction industry, that could indicate a major shift is coming.

    That shift is, quite simply, from the current dominance of tool ownership by professionals, to a 50/50 split between ownership, and a form of tool leasing.

    We could describe the latter, using modern phrasing, as delivering power-tools as a service.
    Hilti

    There is nothing particularly new about tool leasing, of course. Heavy and medium construction equipment (such as backhoes) have been supplied on the basis of leases since the 1980s (at least). That industry naturally migrated to leasing tools that cost less on an individual basis as well, a trend that accelerated during the 1990s, and continues strongly through to today.

    The company that has made the most of this market is the Lichtenstein-based Hilti Tools. Formed in the immediate post-World War II years, Hilti developed its leasing market by engaging with a particular "virtuous circle" of development. As a leaser, there was a direct relationship between the quality of its tools and its leasing expenses.

    Typically, what causes the most expense for a tool leasing company is the need to repair and replace tools it has leased. This not only creates a difficult situation with its customers, it also consumes much time and expense. There is the need to have a "reserve" fleet of tools for replacement, to send the replacement tool to the customer, to fetch the faulty tool back, to make an assessment of the tool, to repair the tool so that it can be re-leased, and so forth.

    What Hilti found was that the comprehensive solution to this problem was to make tools that were of simply outstanding quality. The better the tools were, the more inclined customers were to lease them, the lower the number of tools that needed to be replaced, and when they did need to be replaced, the tools were built to be easy to repair to a highly-reliable condition. As a result, Hilti today has an almost obsessional pursuit of the highest quality possible in its tools.

    The company's success has enabled it to continue expanding. Where its leasing services were at one time confined to larger construction companies, it has been growing its business with smaller customers, especially over the past six years. Today it is relatively easy for a customer of any size running a reliable business to sign up for leasing Hilti tools.

    As an example of how it makes these systems work, in Australia Hilti has a relationship with Kennards, the well-known tool and equipment rental business. If a leased Hilti tool stops working for any reason, the user can take it into a Kennards outlet, where it will be replaced with a similar tool. When the original tool is repaired, the user goes back to the same Kennards and swaps the loaner tool for the repaired tool.

    (It's clever because, of course, it's not only good for Hilti, but also for Kennards. Being a virtual outlet for Hilti can help Kennards further increase its business, especially as customers already leasing Hilti tools will know how to make the best use of rental tools in general.)
    Hilti services

    Hilti has also continued to develop its services, at least in large markets such as the US. The company now provide a triple-layer of tool availability to customers. There is the core leasing program, where customers enter into long-term leases on tools. A secondary layer enables customers to also lease/rent tools from one to 12 months, giving them access to tools needed for a temporary expansion of their activities. On the third level, Hilti offers daily rental of tools, making it easier for customers to fulfil special requirements.
    Changing market

    While the Hilti story is one of hard-won and deserved success, it's also true that the company today is facing some unique challenges. It's a classic case of a company that succeeds so well with a particular business model that it fails to catch the signs that it needs to change some of the fundamentals of what it is doing.

    The company was already a little late to get on board with Lithium-ion (Li-ion) batteries for cordless technology, and has been even slower in developing tools based on brushless motors. While its general excellence meant it could "get away" with that, it's less likely to escape unscathed from the more recent changes in technology.
    Challengers

    What could well end the dominance of Hilti in the cordless power tool leasing market are the recent advances in technology. At the forefront of the new technology is TTI's Milwaukee brand. Its One-Key product could be seen as essentially "virtualising" much of what Hilti today does manually.

    Tool tracking, both between customers and within a customer's operation? One-Key enables its tools to "call in", and identify their geo-location.

    Assessing the usage of tools, to see if this has conformed to warranty conditions? One-Key can track the specifics of how many tools are used.

    Loss and theft issues? The One-Key tools would need to have their location-tracking systems disabled if they were to be on-sold. Aside from this being way beyond the capabilities of your average tool-thief, that disabling would directly identify tools that had been stolen.

    In other words, everything that TTI has introduced with One-Key to help operators manage large fleets of tools, could apply just as well to a leasing operation. It seems highly likely, therefore, that Milwaukee will introduce some form of company tool leasing over the next three years.
    Other brands

    It's not just TTI, either, as other brands are accelerating their development. In particular Bosch (which, it pays to remember, is a very big company, with vast technological resources) has implemented some stopgap measures, and has major developments planned.

    These first efforts, which consist of Bluetooth beacons that are - literally - "stuck on" to existing tools, are not exactly great, but the next phase will (the company claims) be tools that can be upgraded to having a direct Bluetooth linkage by plugging a subsystem into the tool.
    The lease market

    The big question, of course, is whether tradies and other professionals in Australia would consider moving from tool ownership to tool leasing.

    There are two main reasons why such a move might be more acceptable today than it was six or seven years ago. The first reason is simply down to one of the biggest problems that businesses in the building/construction industry face: the extreme volatility of the market.

    As uncertainty settles over the economy, residential, commercial and even civil construction continues to fluctuate quite strongly. Viewed in overall terms, these variations in demand don't seem to be that large, but on a regional level builders can easily find themselves working very hard one year, and then with much less work the following year.

    This can lead builders to "tool up" one year, only to find that investment is not paying off two or three years down the line. With the resale value of tools typically not that great, they are basically stuck with ongoing overcapacity, and a poor use of their business capital.

    The second reason relates to the pace of change in the power tool industry - which relates to the dynamics of that market itself. From about 2005 to 2015 the cordless power tool market took off as Lithium-ion (Li-ion) batteries became available, then surged in capability, driven in part by the high-volume and high-performance demands of the burgeoning smartphone market. Added to this was the change from brushed to brushless motors, which promised more power/less battery drain.

    These changes began to contribute to builders in particular rethinking tool replacement cycles. Where four to six years might once have seemed reasonable for a professional tool, replacement in three years became more attractive, as the latest tools offered capabilities that could directly support profitability.

    Milwaukee's One-Key technology points the way to future developments. Imagine, for example, circular saws that can "follow" a laser line laid down over a timber board, or a drill/impulse driver that can "learn" a drilling speed pattern, and duplicate this automatically for repeated work through the same grade of timber. This will influence not only construction work, but industrial assembly as well, reducing errors, cutting down on time required, and helping to improve safety.

    These two trends -- the need for more flexibility due to uncertain construction markets, and ongoing advances in tool capabilities, speed and safety -- will feed off each other, and possibly create a strong shift to a more lease-driven market.
    Financial aspects

    For larger construction companies, which have access to very competent trained financial experts, and the benefit of working at large scale which makes forecasting easier, making the buy/lease decision can be worked out with some confidence. For smaller construction crews and groups of tradies, the calculations can be more difficult.

    A first step would be determining their total cost of tool ownership, including purchase, financing, repair and maintenance. To this should be added a cost that reflects the amount of debt that could have been retired if they hadn't had to purchase the tools. There are also taxation considerations, with recent tax changes meaning the total cost of tools under $20,000 could be written off immediately by small businesses, instead of being depreciated on a schedule.

    The total cost of ownership over three years can be compared with the lease costs to give a rough guide as to whether leasing makes sense.

    There are, of course, other factors to be considered. Tradies in some particular areas of expertise really do want to own their tools, and are not that concerned about replacing them with the "latest and greatest". There's little doubt that in terms of direct ownership, tradies who take great care of their tools, making them last in good shape for five years or more, are likely achieving a high level of cost efficiency.

    Equally, though, there is the argument that leasing tools is really a way of obtaining a kind of insurance, and reducing overall risk. It's rare that even the very best tools carefully handled don't develop some kind of problem over three years of hard use. As the optimistic Mr Murphy is alive and well, this can often happen just when the tool is really needed, or at the thin end of an expensive job, when cashflow is at its lowest. At these times the established repair and servicing arrangements of a lease can be very welcome.
    Why use independents as outlets?

    In Australia, the key to making power-tool leasing a good option for manufacturers would be setting this up through independent retailers. Leasing is, by its nature, a very relational activity. Independents would know which of their customers leasing would best suit, and how to sell the idea to them.

    Importantly, there is also the element of trust. With the independent retailer relying on keeping individual customers happy, those customers know they are not going to be misled.

    Added to that is the sheer convenience of the independents. With good distribution, they would be readily accessible to most professionals. They already have facilities for both the display and stocking of tools, and a thorough knowledge of which tools suit which requirements. With tools in stock, they can also give tradies a chance to pick up tools, to check out their heft and feel.

    Just as importantly, there is a degree of socialising that takes place at most independents. One tradie will see that another tradie has joined the leasing program, and go over to have a bit of a chat to see how all that is working out for them. If the leasing program is living up to its promises, this is a great way to spread the word, and increase the business.
    Benefits to independents

    In terms of competing against not just Bunnings but also many specialist tool vendors (online and retail store), leasing could offer independent retailers a considerable benefit.

    The major benefit is very simple and very powerful: price. Leasing programs typically do not discount. There would be rewards -- as is only fair -- for outlets that did a higher volume of business. So it is possible that should Bunnings become involved in power-tool leasing, the margins the big-box retailer obtained would be better than that of independent retailers -- but the price would be the same. Which means competition would be largely based on service, where many hardware retail independents outperform the general retail market.
    Conclusions

    We've seen over the last 10 years a series of developments that have largely favoured the big-box retailers in the home improvement industry. It's no accident that what we are seeing today in the power tools industry are some developments that, while they don't disadvantage the big box retailers, are aimed at restoring more of the initiative to the manufacturers.

    Just three years ago, the power tool market seemed headed towards increasing commodification. There were incremental battles being fought over battery size and capability, brushed and brushless motors, and the price these were delivered at.

    In contrast, during 2016 every single one of the top five power tool companies has moved to differentiate its product through new developments. TTI/Milwaukee has brought not only One-Key but a number of other developments to market. Bosch is developing both technologies similar to One-Key and interesting new tools in its "Green" DIY tools.

    Stanley Black & Decker has launched FlexVolt, essentially a partial bridging between the world of 20-volt and 60-volt tools. Makita has revised and refreshed its former Maktec range of tools by launching its MT Series, along with a revised line of 12-volt tools. And Hitachi has linked up with Metabo, which promises some interesting tools based on Hitachi's expertise in electric motors and Metabo's expertise in battery technologies.

    Overtly, the reason behind these developments could be seen as a way of securing better margins in exchange for the risk of innovation. However, it's likely there is something more at work here.

    There is also an increasing sophistication in the tradie/professional market in Australia -- and worldwide as well. Construction is getting smarter, tradies are getting smarter. New materials, and new buyer demands, and making the tradie/professional rethink how to do things.

    For independent retailers in Australia that is universally a good thing. It will increase the market demand for what they have most to offer, which is knowledge, experience, and a willingness to establish business relationships based on mutual respect.

    Until next time,

    Betty

    You can contact me directly via email betty@hnn.bz or Twitter @HNN_Australia

    To receive a daily dose of HNN, download the free HNNBrowser app from the Apple store:
    HNN iPad App
    Companies
    Branding approach for China's Positec
    Much of Positec's success has been based on brand building
    China Daily
    Don Gao is president of Positec
    Stanley Black & Decker has sought an injunction against Positec in the past
    Subscribe to HNN weekly e-newsletter
    The China Daily newspaper recently profiled Don Gao, president of Positec, a Chinese maker of power tools, lawn and garden equipment, and accessories. He explains how he developed the Worx brand that has been taking market share from well-known tool names in Western markets:
    It's not very easy to make inroads into some well-established markets such as the US, Germany and the UK because customers are very loyal to local brands. But we did it, step by step.

    Positec gained initial access to the US market through its Worx brand. One of its initial products was a lightweight electric line-trimmer. (It won a product award from the US Electronic Retailing Association in 2010.)

    Unable to get access to shelf space for the product in major hardware retailers, Positec decided to market directly, spending 15% of its annual revenue on TV commercials. These proved so successful that it was later able to obtain shelf space in Lowe's stores.

    Building on that success, Positec also used the strategy of brand acquisition to expand in the US. It acquired the heritage tool brand Rockwell, which was started in 1945, and began using this as a marketing channel for inexpensive tools manufactured in China.

    While marketing is important, Mr Gao said the key to winning a marketing battle lies in product innovation.
    Consumers don't care about the technologies you are putting into products. They only care about whether it works well when they are cleaning up their gardens or assembling their own bookshelves.

    An article in Forbes magazine from 2012 indicated that Positec spent 6% of its revenue on innovation or product development, higher than Black & Decker's less than 2% and Bosch's 1.8%.

    More recently, the company has invested 1 billion yuan (USD150.45 million) on innovation and launched more than 100 products every year. Most of them are complete with smartphone applications that allow remote control as well as access to product information and after-sales service.

    To keep up with the latest trends in power-tool products, Mr Gao spends one-third of his time every year travelling around in the US and Europe attending various fairs. He said:
    If there's a new launch of a product in the marketplace, I want to know.
    History

    When it was founded in 1994, Positec was simply an exporter of power tools such as hand drills, trimmers, chainsaws and mowers. It did brisk business, spurred on by China's foreign trade. But Mr Gao knew the business had to grow beyond trading as an export supplier. To have a long-term future, Positec had to have its own products.

    So in 1995, Mr Gao set up a factory in Suzhou in the Jiangsu province, East China. The plant made products for major US and European home improvement retailers including Sears, B&Q and OBI.

    Positec was not aiming to be a glorified original equipment manufacturer. OEMs in th tools category typically make products for multi-nationals such as Bosch and Black & Decker. But Mr Gao aimed higher than that. He did not want the company to be an OEM at the bottom of an industrial value chain. He said:
    We had no say in pricing because you always find someone sets prices lower than yours. The cut throat competition in China squeezed profits of many traditional producers.

    By 1999, he decided to create his own brand of power tools. Mr Gao said:
    The shift meant that your old partners became your competitors, so you faced a huge risk of losing orders.

    The risk was real and large: turnover that year plunged by USD50 million. Some partners threatened to withdraw their existing orders. He responded by saying: "Go ahead".

    Mr Gao launched Worx in 2004, the same year as the Rockwell acquisition.

    Yin Jie, an expert in brand management and a consultant to many consumer goods makers in China, said that Positec, in order to avoid direct competition with local brands, took a shortcut to gain local resources in the US market. He said:
    The Rockwell acquisition was a quick way to squeeze into a foreign market and help the company build up reputation and a distribution network.

    Today, the company has a distribution network and operations in 13 countries. Its three research and development centres are based in China, Italy and Australia.

    Related:
    Chinese Power Tool Company To Expand US Market - Forbes
    News
    HI News V2 No. 12: Powerhouse independents
    Download the latest issue of HI News Vol. 2, issue no. 12
    HI News
    Millennials love DIY shows
    Bosch is selling reconditioned tools
    Click to visit the HBT website for more information
    The latest issue of HI News is all about acknowledging some of the best independent stores in Victoria.

    Just click on the following link to download this edition:
    HI News V2 No. 12: Powerhouse independents

    The ACCC has signed off on a revised undertaking for Metcash to bid for Home Timber & Hardware, clearing the way for the possible acquisition. We take a close look at the revisions that have been made and their consequences.

    We visit the Webster family at their store DeMar H Hardware in the Melbourne suburb of Clifton Hill. It is a story of how a savvy independent retailer continues to adapt to the market and finds a way to compete effectively with a big box store located nearby.

    Other independent stores featured in this edition include Womersley's Mitre 10 and Hume & Iser Home Timber & Hardware.

    As promised, we provide some insights on the analysts briefing for Metcash's FY 2015-2016 results.

    In a new section focusing on statistics, we look at the audience numbers for the latest season of "House Rules" and what can be expected from the upcoming series of "The Block".

    We also explore the backyard housing trend and PPG's 2017 Colour of the Year.

    There are regular updates on big boxes, indie stores, suppliers and a round up of home improvement news from the US and Europe.

    New products include insulated structural panels, Lufkin's Legacy measuring tapes, ratcheting wrench sets and smart lighting.
    News
    HI News V2 No. 11: Bathroom strategy
    Download the latest issue of HI News Vol. 2, issue no. 11
    HI News
    Bathrooms take centre stage
    Roy Morgan's State of the Nation is part of the economic forecasting feature
    Click to visit the HBT website for more information
    Another bumper issue of HI News, full of news, analysis and the impact of economics on the world of home improvement.

    Just click on the following link to download this edition:
    HI News V2 No. 11: Bathroom strategy

    In this issue, we take a deep dive into the bathroom category and take a look at market shares, strategies, trends and product development.

    The Australian Competition and Consumer Commission may allow the Mitre 10 and Hardware Timber & Hardware (HTH) merger to go ahead if Mitre 10 agrees to a number of undertakings. We take a look at what this means for the independent sector and suppliers.

    This edition also includes a story about the challenges ahead for Bunnings Australia as the company rolls out its strategy in the United Kingdom. There is also an extensive feature on the economic outlook in Australia and its potential impact on the home improvement industry.

    Regular updates on big boxes, indie stores, retailers, suppliers, European and US markets are part of this edition. Specific stories include Bunnings' new stores; its direct competition with supermarket maverick Aldi; speculation about Steinhoff International buying Masters sites and possibly Big W; and Woolworths extending discounts for HTH members.

    HTH has also launched a competition to find Australia's most passionate tradie. Other local stories include The Good Guys potentially being pursued by an Indian retail group.

    On the international front, Bosch is developing digital "experience zones" throughout Europe; Kohler has a content strategy; and Valspar votes on the Sherwin-Williams acquisition.

    The Home Depot is re-thinking its approach to inventory; Sears is exploring brand extensions and Ace Hardware competes with big box retailers in five ways. In the UK, there are highlights of B&Q's new concept store, Homebase stores are being saved from closure and Dobbies Garden Centres have a new owner.

    Back in Australia, Telstra unveils its smart home system and the popularity of "she-sheds" continues to grow.

    New products in this issue include Methven's Aurajet shower; a roller frame from Dynamic Paintware; the Switchmate light switch and Rockler's BBQ kit.
    News
    HI News V2 No. 10: Bunnings Strategy Day
    The must-read issue on home improvement
    HI News Vol. 2 No. 10
    FlexVolt from DeWalt
    Mitre 10 results promising
    Click to visit the HBT website for more information
    This is a bumper issue of HI News, chock full of news and analysis about the world of home improvement.

    If that's all you need to hear, just click on the following link to download this edition:
    HI News V2 No. 10: Bunnings Strategy Day
    Bunnings

    Wesfarmers (the conglomerate that wholly owns Bunnings) held its annual Strategy Day on 22 June 2016. The CEO of Bunnings, John Gillam, spoke at length to financial analysts, explaining the company's intentions with its newly acquired chain of home improvement stores in Britain and Ireland, Homebase.

    He also spoke about Bunnings' ongoing expansion in Australia as it moves in particular to take advantage of the "light commercial" end of the trade business, and to continue its expansion into the outdoor living category.

    HNN provides you with an edited transcript of Mr Gillam's entertaining and informative address. Plus it ends with a series of fairly explosive questions poised by respected financial analyst David Errington of Bank of America Merrill Lynch.

    In addition to the transcript, HNN publishes its own analysis of what is going on. Our conclusion? Homebase isn't about buying and refurbishing an averagely good home improvement chain. It's all about the market itself, and Homebase was just the best way in at the present time.
    DeWalt FlexVolt

    While Bunnings is set on revolutionising home improvement retail in Britain and Ireland, Stanley Black & Decker's high-end professional power tool brand DeWalt is revolutionising construction-grade tools.

    After heartlessly teasing all of us for several months, DeWalt released the big news late on 21 June 2016, Australian time. What they have done is to develop a system of cordless tools that can switch voltages between 60-volt and 20-volt. The 60-volt tools are the kind of big machines they need on some construction jobs, including the world's first true cordless table saw.

    In fact, that voltage can go all the way up to 120-volt, by combining two of the 60-volt batteries. And the tools come with a simple adapter, which enables them to run directly off of the mains current in the US (which is itself just 120-volt, of course).

    HNN gives you the details on the main tools the company plans to release in the very near future, as well as its plans for outdoor power equipment as well.
    Mitre 10 results

    As is the way with Metcash, the owner of Mitre 10, we don't yet have all the details on its results for FY 2015/16, but we do have the core financials and "slides" from a presentation that likely hasn't been delivered yet. It's enough to paint a clear picture of the company. For Metcash as a whole, sales are lacklustre overall, and EBIT isn't doing that well either, held down by the fierce competition in the grocery sector, where Metcash continues to prop up discounts in its IGA affiliates.

    Mitre 10, however, is a very different story. While its sales growth is nothing to be all that excited over, it did manage a close to 9% gain in EBIT, once again delivering up the profits so badly needed by Metcash. The managing director of Metcash must be very pleased with the management team at Mitre 10, led by CEO Mark Laidlaw.

    The question remains, though, whether that team couldn't do some pretty amazing things if it didn't have such constraints on its capital expenditures. Mitre 10 has the right people to develop further, but it really needs an organisation behind it that believes in them, believes in the brand, and is willing to invest long-term in growth.

    Well done, Mitre 10. HNN hopes things gets better for you in 2016.
    CSR results

    CSR has delivered some impressive results, and looks set to continue with that trend through 2016/17. The company has successfully pivoted its products over the past three years so that it can take advantage of the surge in multi-unit highrise building in Australia's capital cities.
    Hitachi Koki results

    With the acquisition of European brand Metabo, and a new distribution deal with Lowe's Home Improvement in the US, Japanese-based power tool company Hitachi Koki is beginning to really rev up its operations. In this year's financial report, it clearly spelt out the path it plans to take to significantly increase its market share.
    Conclusion

    You really need to read this issue. It's all about a kind of fundamental reset that is running through the home improvement industry this year.

    Thanks as always for the great support from our readers.
    HI News V2 No. 10: Bunnings Strategy Day


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