Companies
Amazon is coming to town
The Amazon drone continues to be developed
HNN Sources
Amazon's Kiva robots aid logistics by moving "pods" of products
The definitive book on Amazon
Subscribe to HNN weekly e-newsletter
A joke, popular in the 1960s, tells of an alien spacecraft that arrives above Earth. After several months of the giant craft hovering over New York City, Earth scientists work out a way to communicate with the aliens. But what question should the aliens first be asked? After a month of polling, referendums, newspaper editorials and debate, a single question suitable for this "First Contact" is established. In a small room beneath the huge dish antenna aimed at the alien craft, a white-coated scientist finally pecked at a keyboard, typing in the query "Coke, or Pepsi?"

The point is, of course, that whenever a culture encounters anything essentially a little alien to it, the first instinct is to interpret whatever it is in terms of how it will affect that culture. This is only natural, but it does leave to one side an equally important question: how will this new thing itself regard the culture with which it is set to interact?

That has certainly been the case as regards the US online (mostly) retailer Amazon, which is set to establish a physical, warehouse-based presence in the Australian market, possibly near the end of November 2017 (though this may be limited at first). While there have been numerous commentaries published on how Amazon might affect Australian retailers and consumers, there has been much less written about how Amazon sees itself and views its coming interaction with the Australian consumer market.

Also, much of what has been written has often varied between raw speculation and conclusions based on apparently either non-existent or very poor research. In particular, we've seen this lack of rigour in what has been reported of discussion at some forums specifically related to retail.

Amazon was, apparently, much discussed The Australian Financial Review Retail Summit held in Sydney in early November 2017. Relying on reports on this event from the Australian Financial Review (AFR), we can roll through some of the objections raised as to why Amazon will somehow falter when it enters Australia.
Australia is like Canada, Amazon did not do well in Canada (initially), so Amazon will not do well in Australia

An interesting thesis that seems a bit thin when you look at the actual facts.

Looking back to calendar 2015 (when the comparison was still a little relevant, as Amazon has increased Canadian sales over the past two years), Canada had an estimated USD24 billion in online sales, while Australia (using Roy Morgan figures) had USD29.5 billion in online sales.

That said, population density is similar, with Canada's overall average four people per square kilometre, and Australia's three people per square kilometre. The population of the three largest cities is also similar: Toronto has 5.9 million, Sydney 5.0 million; Montreal has 4.1 million, Melbourne 4.7 million; and Vancouver has 2.5 million, matching closely to Brisbane at 2.4 million.

However, when you consider that Canada's population is 50% higher than Australia's, it's evident Australia has a far higher degree of urban concentration. You can add to this that the distance between Vancouver and Montreal is around 4500km, and the distance from Brisbane to Melbourne is around 1600km. The spread of that arc is obviously going to affect logistics.

Additionally, Australia has a higher GDP per capita than Canada, and a lower unemployment rate as well.

So, Australia has much higher per-capita online sales, higher earnings per capita, more relative employment, and higher relative urban concentration, with its three major cities in an arc about 40% the size of the comparable arc in Canada. Roy Morgan figures indicate online sales for Australia in 2017 are 10% higher than they were in 2015. It is difficult to see how one could compare the environment Amazon encountered in Canada three or four years ago, to the environment in Australia today.

This is a conclusion that is not limited to HNN's analysis. Respected investment analyst Craig Woolford of Citibank has reached a similar conclusion:
Despite differences in economic development, we see five common elements across Amazon's international markets: high internet penetration and share of retail sales in e-commerce channels; modern IT and telecommunications infrastructure; strong logistics infrastructure; high income per capita; and experience selling products in the targeted market.

Whatever retailers may be saying to each other publicly, it's apparent that those supporting the "Australia is Canada" argument do not seem to have provided much in the way of supporting facts.

Finally, while Amazon did start slowly in Canada, its impact is now being felt. To quote from one Canadian news source commenting on the influence of the US online retailer:
Old-guard retailers are furiously transforming their business models in an attempt to compete against the Seattle-based online giant, while analysts and investors are scouring quarterly sales figures, wondering if any retailers will be immune to Amazon's corrosive impact on sales and profits.
Canadian transformations
Amazon doesn't know what it faces when it comes to dealing with unions in Australia

The AFR reported that it was suggested Amazon might not be aware that it would be dealing with Australia's Transport Workers Union, and that, as one participant put it, "this could be fairly exciting for them."

It is worth noting that Amazon throughout much of its 20-year history has had dealings with the US International Brotherhood of Teamsters union. This is one of the largest unions in the world, and the 11th largest US political campaign contributor.

Recently, Amazon has had a dispute with the Teamsters over the working conditions of the contracted pilots flying Amazon-owned Boeing 767s. A typical engagement would be the 2016 dispute in Los Angeles California:
Amazon's dispute with the Teamsters union

Further, the person whom Amazon has appointed country manager for Amazon Australia, Rocco Braeuniger, was formerly with the company's German operations, and has dealt extensively with unions there. German unions are certainly regarded as some of the more communicative and collaborative in the world, but they are also, politically and in the workplace, some of the most powerful.

It's also worth noting that the person backing him up, Fabio Bertola, who is head of Amazon Marketplace for Amazon Australia, worked at Amazon in Italy for a year, and has three years of in-country Australia experience working for the Winning Group, which runs Appliances Online, as well as other websites.

In line with the above comment, HNN has also seen some comparisons of warehouse labour costs in the US being substantially lower than in Australia. Some of these report wages of USD9.00 an hour. Glassdoor, a service which helps rank US employers for jobseekers, estimates Amazon pays an average USD12.00 an hour. According to the US Bureau of Labor Statistics, the mean hourly wage is for this type of work (classification code 43-5071) is USD15.94, while the median is USD14.99 (goo.gl/G3EJ9X). It is likely, however, that Amazon pays in the lower 25% percentile, where the wage averages out to USD12.11.

According to salary comparison site indeed.com, the Australian average for work of this type is $25.02 an hour, which equates to USD19.20 or so. However, it is notable that employers such as Harvey Norman are listed by indeed.com as paying around $20.44 an hour (goo.gl/noieG8). It would not be surprising to see Amazon secure a similar rate in its employment contracts, which would bring its hourly wage cost down to USD15.64 per hour, an increase of 30% on its US wages.

Offsetting that is the fact that the warehouse facilities that Amazon builds in Australia will be, in its second round of expansion, as fully automated as any that Amazon owns, which will radically reduce the number of workers being utilised, and likely result in a wage for productivity result around 8% to 12% higher than that of the US. If you add in a further decline in the AUD to USD exchange rate, likely by a further 5% during 2018, it is difficult to see how fullfilment costs will be such an overwhelming issue.
Amazon will abuse its global market power to run at a loss for several years, and the Australian Government will step in to prevent "dumping".

According to a report in the AFR, the head of the Australian Competition and Consumer Commission (ACCC), Rod Sims, said:
In terms of misuse of market power, if you open a store in a new town and you set a common price point, you are going to lose money initially if you don't have scale. Eventually if you get your business plan right you will make money at that price point, that is in no way illegal.... It is not illegal if Wesfarmers do it with a Coles supermarket in a new town and it is not illegal if Amazon comes in and sets a price point that only makes money at a certain scale.

That would seem to scotch rumours of intervention by the ACCC, for the first three years or so, at least. But what about elsewhere in the Government? While everyone from small business ombudsman Kate Carnell to small business minister Michael McCormack have made the expected statements about looking over Amazon's shoulder, it seems unlikely that anything other than minor discussions would be held.

It is worth thinking about the reasons why Amazon will likely be running at something of a loss initially. It's not just price and margin, it's also considerable investment in infrastructure, estimated at $700 million. That will no doubt include the construction of custom warehouse facilities, most likely in regional or exurban areas, where there is substantial low employment.

It's a little bit difficult to imagine the Federal Government making moves to inhibit the development of a company that is spending big on construction, technology, and adding jobs in regions where they are needed the most.

More than that, though, pricing at Amazon is not driven so much by super-discounting products, but more by placing immense pressure on suppliers, and picking up unexpected deals on a global basis.
The Amazon effect: how much, and where?

In the US, online shopping is being credited with a considerable decline in key areas of physical retail. In terms of overall marketshare, Amazon seems big, but not huge. It is estimated that online retail accounts for around 10% of overall US retail, and that Amazon is expected to show it holds 43% of that online revenue for calendar 2017. Some estimates suggest that over half of all product searches begin on Amazon in the US. Contrast that with, for example, Wal-Mart stores' share of the USD800 billion US grocery market, which is estimated to be 21.5% in 2017.

The scary part for US online retailers is that the 2017 numbers for Amazon represent an overall increase of over 5% in net market share, or growth for Amazon of 14%. Meanwhile, its closest competitor in revenue terms, eBay, is expected to slip from 7.8% marketshare in 2016 to 6.8% in 2017, while Apple will pick up 0.4% to hit 3.6% marketshare, and Walmart will add 0.8% to also reach 3.6%.

In the US Amazon holds a 41% marketshare of online men's apparel sales, according to One Click Retail (goo.gl/4Ub1nJ), and a 36% share of women's apparel sales. The growth aspect comes through in other areas, however, such as baby apparel, where Amazon's 2017 Q3 sales hit USD50 million, up from USD30 million in the previous corresponding period (pcp), an increase of 67%.

Amazon is not so much a marketshare story, as a growth story, with a potential for continued growth that cannot be matched by competitors, even in a market where those competitors have spent big on developing online services. Estimates currently predict Amazon will hold 50% of all online sales in the US market by 2021. And that seems, to some, a pessimistic forecast.
European market

What about outside of the US? It is estimated that online sales in the UK reached GBP60.43 billion during calendar 2016, and that Amazon accounted for GBP7.3bn of those sales, which equates to a 12% market share.

In Germany, overall online retail sales are estimated at EUR52.7 billion for calendar 2016, and Amazon's share of that is estimated at EUR12.8 billion, which delivers a 24% marketshare.
Amazon in Australia

There has been a great deal of dispute over exactly how much impact Amazon will have on the Australian market, especially over its first two to three years of operation. One number that has gained some credence was suggested by Mr Woolford. He estimates the company could attract around $4 billion in online sales by 2022, which would equate, according to projections, to around 12% of the online retail market, and 1.1% of the overall retail market.

Mr Woolford has highlighted, in particular, the effect of Amazon on retailers in the electronics industry, such as JB HiFi. Results from a May 2017 survey conducted by Nielsen seeking to explore Australian consumer attitudes to Amazon back up his assessments. The three top categories where consumers expressed interest were: Electrical/electronic items (60%); books (54%); and clothes (46%).
Nielsen results from May 2017 survey

As some commentators have pointed out, the real risk to established Australian businesses is unlikely to peak in those first five years, but to rapidly increase in the subsequent five. That is what is indicated by Amazon's experience in the UK and other worldwide markets, including Germany.
Hardware category effects

Of course, what is of prime interest is what effect Amazon may have on the home improvement category. Some commentators have suggested that this may be minimal, due to the nature of home improvement, which features relatively high delivery costs, and often a "hands on" aspect that other categories - such as electronics - do not.

A good source to check on this subject is One-Click Retail, which has published some statistics on Amazon's presence in the US, UK and German markets. This can be accessed at:
One-Click Retail statistics on Amazon

Certainly, the largest home improvement retailer in the US, The Home Depot, would disagree with that assessment. Home Depot has shifted its business model quite radically over the past three to four years, moving most of its expansion spending from physical stores to building the infrastructure needed to boost its online business. Ecommerce sales for Home Depot reached USD5.6 billion in 2016, up from USD4.7 billion in 2015, an increase of 19.5%, and representing 6% of overall company revenue.

In terms of the US, the overall home improvement market for 2016 was estimated at USD313 billion, up by 6% over 2015. Amazon's share of that market is estimated at USD5 billion. The real figure of interest here, however, is in terms of growth: that market grew by 35% for Amazon from 2015 to 2016.

The four top growth categories were handtools, up 40%, power tool accessories, up 25%, safety equipment, up 20%, and woodworking tools, up 30%. In terms of individual products, door knobs and lock sets grew by 45%, fasteners and hooks by 45%, lighting controls (such as dimmer switches) by 85%, and kitchen/bath tapware by 30%.

In case this seems like a "US-only" situation, it's not. In the UK, Amazon achieved an estimated GBP300m in sales in the GBP36 billion overall home improvement market, which is over 8%. Again, though, the real story is growth, as Amazon grew its revenue by 20% over 2015.

In Germany 2016 online home improvement sales reached EUR600 million, in a market worth around EUR40 billion, or a roughly 1.5% marketshare. Growth, however, was a highly positive 45% over 2015 figures.
Estimates

It is not possible to generate a single number that would indicate how much marketshare in home improvement Amazon will eventually win in Australia. Some estimates put this at around 2%, which would accord with Mr Woolford's estimate of $4 billion in what could by 2021 be a $80billion market. However, HNN would point to the fact that there are few if any real competitors online to Amazon in home improvement, and that those which exist are unlikely to develop an effective response until after they have suffered significant losses. We therefore think a better estimate would be between 2.5% and 3.0% of the market in the 2021/22 financial year.

Leading up to that, based on past experience, what we can likely expect is considerable noise and excitement over Christmas in 2018, followed by slightly disappointment in 2019, with the real effect of Amazon first taking hold in 2020. This means that Australian retailers who will be affected would be advised to develop plans over the next two years, or face having to catch up to Amazon for several years thereafter.
Effects

While many independent hardware stores will feel some effects some two to three years after Amazon's entry, there is little doubt about the retailer that will experience the most effect of its business: the Wesfarmers' owned Bunnings.

There are a number of reasons for this. The two main ones are that Bunnings is far more reliant on the consumer/DIY trade than most independent retailers, and that it has made its low prices part of its major attraction to consumers. To take one category, power tools, Amazon already has good international relations with major companies such as Bosch, Makita and Stanley Black & Decker. While these are sold directly by Amazon, it appears that tools from Techtronic Industries (TTI), such as Milwaukee and Ryobi, are sold through Amazon by third-party sellers.

Doing a price comparison indicates that with suppliers such as Bosch, Amazon does, on some specific tools, enjoy a considerable price advantage. From example, the Bosch DDB181-02 drill driver kit (charger, case, two 2.0 amp batteries) retails on Amazon for USD99, while it sells at Home Depot (online-only, not in-store) for USD159.

Effectively, what is likely to happen is that, just as today many DIYers will check the price of a tool on the Bunnings website before buying it elsewhere, they will start to check with both Bunnings and Amazon Australia in the future.

It is worth mentioning that there is another area of potential competition as well. Amazon has been building out its offering in terms of helping to sell the services of Amazon approved installers for products sold through Amazon. These approved quotes appear as part of the sales process for products such as large wallscreen TVs. Amazon goes through an extensive approval process in certifying these installers for its website, and monitors customer feedback closely. This could have an impact on budding services services such as Home Improvement Pages (HI Pages) and Oneflare, which attempt to offer services to match homeowners with tradies.
Reactions

HNN has spent considerable time over the past three years trying to work through the puzzle of Bunnings and online ecommerce. Our end conclusion has been that, as an organisation, Bunnings is simply not built for online. What it does well is to build good physical stores, encourage people to visit those stores, and to sell those people a basket of items from which it derives a workable margin.

In particular, it is a retailer that tries to avoid making things complex as much as it possibly can. Even if complexity offers additional margin, it will prefer to stick with systems and strategies where execution can be easily controlled.

Online, from Bunnings' perspective, has two main disincentives: it would likely lower overall margins, and it would introduce the complexity of delivery and other logistical systems. Additionally, there is the possibility that by entering online commerce at this point, Bunnings would be acting as a "pathfinder" for Amazon, establishing a market which the US-based retailer could then leverage to market its own products.

However, there is another possibility. If we look at the experience of Kingfisher in the UK market, that home improvement retailer really did not "get" online retail until it experienced the runaway success of its Screwfix brand. Screwfix continues to be the real growth story in a slightly declining UK market, though much of its recent growth has come from leveraging its well-developed online reputation to build a successful physical presence.

What if Bunnings also went down the sub-brand route when it comes to online commerce? As an example, suppose Bunnings chose to take its Ozito captive brand, and to develop a website that sold that brand of power tools exclusively?

This has a number of advantages. It terms of the stocking/picking/dispatch logistics, having a single supplier reduces complexity considerably. Given its control over margins for this brand, Bunnings could offer online goods at a discount to in-store purchases. That's particularly useful for the Ozito range, as it virtually defines "price sensitive" for power tools. A reduction of $5 off a $95 drill is enough to act as a "buy" trigger for many consumers in this market. With an exclusive brand, price competition with other websites is much less of an issue. When it comes to expensive matters, such as returns, Bunnings could also effectively leverage its physical store presence.

It's a tactic which utilises established strengths, and some of in-place investments, in a way that at least minimises complexity. It would enable Bunnings to develop a better understanding of online commerce, in an environment that reduces capital expenditure and risk as compared to a more general rollout. With at least six major captive brands in different areas, it also offers the potential for future expansion.
Amazon Marketplace

HNN has so far skipped over a large section of what Amazon has to offer, namely the third-party Amazon Marketplace (AM), where retailers have the option of selling goods through the Amazon site, with Amazon optionally looking after the logistics of picking and sending.

One of the real benefits of this service is for small suppliers and product developers who have a great idea they cannot get larger retailers to stock. It offers a near-instant means of achieving market presence. Some retailers in the US and elsewhere also use AM as a means of off-selling overstocks, or testing new products to gauge demand.

One of the more interesting aspects, however, is a burgeoning market for specialised sellers who concentrate on doing nothing else except AM, and don't care particularly which products they are selling. Instead they concentrate on finding a product where they can beat the Amazon price (if it exists) and the prices offered by other AM sellers. If they achieve the best product plus shipping price, they will "cream off" all the orders for that product.

In the US, this has opened up sources of secondary supply. That includes companies that have over-ordered some lines and need to clear warehouse space, and also, of course, grey market goods. It will be surprising, for example, if the Australian AM doesn't see some goods come in from South-East Asian markets that bear a familiar brand name, but are sold for much less.

This could also influence the online home improvement market. What happens, for example, if a trader buys a lot of reconditioned cordless Milwaukee or Ryobi tools, then offers those for sale on the Australian AM?
Analysis

Amazon certainly will face unique conditions on entering the Australian market. It seems somewhat unlikely, however, that these conditions will be any more exotic than those the company faced in entering the French, German, Italian or UK markets. HNN would also guess that they are nowhere near as exotic as those the company faced in entering the Japanese market (a country where Amazon still struggles, despite having first entered it in 2000). Some of these conditions will no doubt cause small setbacks, but it's highly unlikely they will, in the end, have much influence over Amazon.

In general, much of the response of major Australian retail business to Amazon has attempted to portray its entry into the Australian market along the lines of a physical store retailer making the same move. Nowhere is that more apparent than in the repetition of the fact that Mr Braeuniger apparently revealed in a conversation in early 2017 that he was unaware of Australia's holiday penalty rates for retail workers. It seems somewhat germane to this point that Amazon, for at least its first two years of operations, is unlikely to employ any retail workers.

Equally ill-founded was a comment the AFR reported being made by a former senior Wesfarmers retail executive that Amazon's frequent change of prices would somehow not work in Australia as it annoys consumers. This approach has been central to the strategy that helped Amazon power its way to annual revenues of USD136 billion, and a market capitalisation of USD536 billion. The reality is, of course, that online what Amazon is doing is tracking the same prices consumers will see doing a Google search. It's simply making sure it stays in the running.

The Australian retail industry really has to come to terms with the fact that Amazon has arrived, and that it will, over the next decade, wreak considerable changes on the retail market. While it's possible to make some predictions about the next four or five years, predicting what Amazon will do out to ten years is much harder.

While home improvement will likely suffer less than many other categories in terms of competition with Amazon, it's worth noting that the two largest home improvement retail brands in Australia are owned by companies heavily reliant on revenues and profit from grocery retailing. In the end, the greatest effect on home improvement may come from Amazon disrupting that market, which is already under considerable stress.

It is also worth seriously considering what second-order effects of Amazon's entry will have on the home improvement market. If Bunnings or other major retailers respond to Amazon - such as by opening HNN's hypothetical Ozito online store - that may have greater consequences than Amazon itself. In stretching to ensure that it does not lose marketshare to Amazon, Bunnings could, in other words, take yet more marketshare from other retailers.
Retailers
Murphy's Mitre 10 Monbulk, Victoria
Murphy's Mitre 10 is perched on a round-about in Monbulk (VIC)
HI News Vol. 3 No. 11
Julie Murphy at her desk
Inside Murphy's Mitre 10 in Monbulk (VIC)
Click to visit the HBT website for more information
There is something a little mystical about the journey through the steep-sided hills that lead up to the low mountains that make up Victoria's Dandenong Ranges. One moment you are driving through what seems like dense bushland, and the next it is as though you have entered a different realm, one of tall trees and low, spreading tree ferns. Early tales tell of trees that were far taller and wider than the giant redwoods of California. All gone now, of course, but there remains something a little primordial about this place.

Monbulk sits on the edge of this area, surrounded by a patchwork of small properties, cleared 100 or more years ago by those early settlers. It's the kind of place that has a main street named "Main Road" lined with all the usual suspects: a great bakery, a Chinese restaurant, a couple of banks, the fancy cafe where the "in" crowd of teenagers and twenty-somethings go, a cafe for the older or less hip, a big Woolworths supermarket, a primary school, and, clustered around that, a bowls club, playing field and recreational centre.

And at the very top of Main Road, where it intersects via a giant roundabout, at the point where the Monbulk-Olinda Road becomes just plain Monbulk Road as it turns away north into the nearby area of Silvan, sits Murphy's Mitre 10.

Potential, real potential, is something you don't see too often in retail - not even in home improvement retail. But if you want to see what it looks like, then Murphy's Mitre 10 could prove to be a good example.

Potential is seldom made up of one element. It is more likely, as in the case of Murphy's, to come from a range of sources. One element is certainly the premises themselves, which have a great location, with both room for expansion and a built-in diversity of retail space. A second element is the community of Monbulk itself. Unlike modern suburbs, Monbulk is not just a line on a statistical map somewhere. It's a real and genuine community, with a unique history, and many personal and family links.

The third element is that Monbulk is poised on the brink of a likely change in its demography, as the increasing house price pressure of the Melbourne suburbs converts it into a more viable "dormitory" suburb.

All that counts, but the main source of this potential is, without doubt, the current owner and manager of Murphy's, Julie Murphy herself. It is a potential that is already reaching beyond her Monbulk store, which she has been managing full-time since 2016, into the home improvement retail industry itself, as she has become one of the driving forces behind the launch of the "Women in Hardware" movement.

This potential is a consequence not only of the evident abilities of Julie herself, but also because she brings with her one of the things the Australian home improvement industry is in urgent need of: cross-fertilisation from other industries and areas.

To get an understanding of how all this could come together, we need first to look at the history of the Monbulk area (including its economics), the legacy effect this has had on town-planning, the shift in the region's demographics over the past five years, as well as how all this plays into some of the effects-at-a-distance generated by Victoria's capital city, Melbourne, some 45km away to the west.
The Store

On entering Murphy's Mitre 10 your first impression is that Julie and her floor manager Nick have managed to create a space that feels bigger than its nominal 2800 square metres of floorspace. That is quite a feat in hardware retail, where both very small and very large products are featured, and part of the name of the game is to have as broad a range as possible. Many hardware stores, even those larger than Murphy's, manage something you might call the "reverse Tardis effect": they make a big space seem much smaller than it really is.

What Julie has done with the space is to clearly follow through on three basics of good retail design: "staging" of the customer journey through the store, the application of appropriate scale to the displays, and a good understanding of how to manage standard sales displays of typical merchandise, and the display of more "impulse" buys.

[Text omitted]
Staging

Of the three, the one that Julie and her team excel at, and which is, for a smaller store, of key importance, is staging. Staging really refers to tracking the progress of customers through the store, and providing them with a set "view" at each stage of that journey.

In Murphy's Mitre 10 this begins with the first thing the customer sees when coming in the front entrance: a long, wide discount table, with two levels of discounted goods. Immediately to the right of this are two aisles of power tools.

These aisles and the adjacent aisles are kept low, providing a clear view of the back walls, and promoting the open, spacious aspect of the store. Turning right and facing towards them, behind to the right are power tool accessories, such as cutting wheels. Along to the left, are the more specialised power tools, such as nailguns.

The endcaps on the power tool aisles are used for a mixture of seasonal sales, in spring barbecue charcoal and storage containers (spring cleaning), along with more discount stock, such as the last of the winter's electric heaters. Turning back to the main direction of entry, the endcaps of the aisles just beyond the big discount table are a mixture of more seasonal goods, in this case axes, along with "specials" that hint at the products on the aisle shelving, such as fasteners, in this case for nailguns. This meshes nicely with what customers looking at the nailguns along the back wall will see these when they turn back towards the centre of the store.

One of the important elements to creating successful staging is the colour palette used in the store. All too often stores tend to use a dominant darker colour (in Mitre 10 usually the brand's darker blue). That can work in larger spaces, such as the dominant red that runs through Bunnings stores (dark green is actually the brand's foreground colour). In smaller stores, the dark colours tend to add to the reverse Tardis effect, shrinking the space.

Universally, you really need to go with a light colour, accented with darker colours. Murphy's has a very tightly controlled palette, with the main background in a softer white, outlined with racking and shelving in a "clay" colour, which splits the difference between a soft grey and an off-white. This is accented with the three shades of Mitre 10 blue, which contrasts with the whites to produce a sense of crispness and liveliness.

There is a lot going on in this entryway space, but it's not annoying because underlying the displays is a form of "narrative" that helps to make sense of what is seen. The discounts are enticing, and, like the "pods" of specials in a Bunnings warehouse, they provide the drama of "surprise", resetting customer expectations of what they can afford. The seasonal goods trigger the "oh, that's right, I'm going to need that now" buying behaviour, which can turn a $10 pick-up-a-lightbulb shopping trip into a $100 buying-the-essentials shopping trip.

While she has been very inventive, Julie has some concerns about the displays, and the ways in which she has changed the store. As she explains:
I like the merchandising side of it. When I first started here full-time last year, I spent a lot of time cleaning up what was done, changing areas. We re-jigged the paint area and changed where plumbing and housewares were placed, as previously this was stuck in the corner. But I wonder if that's because we have got a few females on staff, and females look at it a bit differently.
Sometimes I find I put my views across more than probably what I should, I should probably be thinking more of the customer. I often think I like it like that so that's the way it should be. But then I wonder if the customer likes it like that. Is a male customer going to look at it and think, "That's not the way to do it"?

If there is something that could be identified as "feminine" about the layout of the store, it's that it is borrowing heavily from the way that women's fashion and homewares retailers design the shopping experience. That design, however, has as much to do with male designers as women, so what Julie is doing here is very far from the idea of a "woman/s touch" and more to do with a cross-fertilisation from forms of retail that are considerably ahead of home improvement retail in this regards.

"Traditional" home improvement retail design relies primarily on defined categories that are laid out in an understandable way, like an indexed collection for the customer to browse, with the odd impulse-buy, cross-category display thrown in. This is, essentially, the way goods for the building trades get displayed, because tradies (mostly) know what they want, and need to get in and get out and back to the job as quickly as possible. Particularly when it comes to Mitre 10, this has been (unfortunately) a little cross-fertilised with supermarket-style displays.

The kind of display that Julie and her team are promoting at Murphy's Mitre 10 is actually needs-based. Good fashion retailers are not just putting goods out for sale, they are also informing and assisting their clients, reminding them what is in style, and showing how they can follow those styles in a way that suits their body shape and the rest of their wardrobe.

The entryway at Murphy's is showing off what is new, what is discounted, and what the customer will be needing this season. It is prompting, reminding and enticing. This enticement takes place at both ends of customer expectations: this is going cheap, and this over here is brand new and different.

One area that Murphy's Mitre 10 really shows up as lacking industry-wide for many independent hardware stores is power tool ranging. Julie mentions this as one of the areas that she and Nick are concentrating on developing.
We fixed that [the power tool display] about six months ago. Mitre 10 do an HSA , they come through the store and critique you, in a way. They say this area needs doing or improving, and they do it once or twice a year. And they did it not long after I started in the chair full-time. The first results were not really good. One of the things they mentioned were the power tools. It was pretty messy, so we decided to focus on the power tools. Nick and I did the power tools.
We did the first bay of power tools that features Rockwell/Worx and that is nice and bright. But the next bay we are still working out what to put there. It's hard for me at the moment know which power tool sells. It's really hard to know what will sell up here.
It's getting to know your demographics. At the moment, we have Makita and DeWalt and Bosch. So with got a bit of everything at the moment to trial it but we're trying to streamline it now. And now I'm looking at the Makita MT series which is slightly cheaper, but still has the name. But you get to know what sits there on the shelves for a while.

While Julie, in typical good retailer fashion, looks to herself and her store's own practices in relation to fixing the power tool range problem, the reality is that most of the power tool manufacturers distributing in Australia are really letting down independent retailers in terms of the ranges they offer. Instead of providing clear "hero" tools that consumers and the handyman trades can buy with confidence, they've presented a bewildering range of possibilities, that only an online-based retailer, a specialty shop, or Bunnings could possible begin to stock. For example, Makita alone now offers 18-volt, compact 18-volt, 12-volt (aka 10.8-volt), and the MT Series.

Julie thus faces the same problem that most smaller independents face: find a way to work with the mainstream brands, or head off into some of the better-suited, but less known alternatives. For example, Hitachi offers just the right kind of range for smaller independents, but it's a lesser-known brand with which consumers are not comfortable. The Bosch Blue 12-volt range is a great choice for consumers as well, but none of the manufacturers have done a decent job in marketing 12-volt.

There is a lot more that could be said about how Julie and her team have developed staging in Murphy's, including making the back end of the lower level which leads directly on from the entrance into a packed ranging of a wide variety of essentials, including automotive, fasteners and clothing, where it's easy to select goods and the main choices are displayed clearly. It is not universally great everywhere, but the places where attention has been paid, Julie has found some slightly unconventional solutions that really work.
Download

The above is an extract from a longer article. To download the full edition of HI News, complete with this article, please click link below:
HI News Vol. 3 No. 11: Murphy's Mitre 10
News
HI News V4 No. 1: Doncaster Blue Bloods
Download the latest issue of HI News Vol. 4, issue no. 1
HI News
Wesfarmers managing director Rob Scott
A close up of the multi zone use where Doncaster Mitre 10 is located
Click to visit the HBT website for more information
Ian Corwell's Mitre 10 store in the Melbourne suburb of Doncaster represents some of the best ways one generation can pass on the business to the next generation. Mr Cornwell seems to have done a very effective job of re-inventing the business for his son, Matt. At Doncaster Mitre 10 hardware retailing is an appealing career choice for savvy, technology-focused millennial.

Simply click on the following link to download this edition:
HI News V4 No. 1: Doncaster Blue Bloods

We also take a closer look at Bunnings United Kingdom and Ireland's (BUKI) writedown of a projected $165 million in the first half of FY2017-18. At a presentation before investment analysts and mainstream media, Wesfarmers managing director, Rob Scott, announced a review. Anything, including closure, is on the table, according to Mr Scott.

Grocery, liquor and hardware wholesaler/retailer Metcash Limited released its

results for its first half FY 2017/18 (May to October) on 4 December 2017. These results include revenue and EBIT from Metcash's acquisition of the Home Timber &

Hardware Group (HTH). As Metcash has chosen to combine revenues from HTH with those of Mitre 10, it's not possible to provide a true comparative

measure.

The December 2017 retail figures available from the Australian Bureau of Statistics (ABS) show that retail sales have declined overall as compared to calendar 2016.

In other news, UK building materials supplier and retailer Travis Perkins benefits from its tools hire business. Acquisitions are also made by Stanley Black & Decker, Energizer and Briggs & Stratton.

The Honda Power Equipment and Victa brands are featured in this edition. There are also brand new products such as the Guardian water leak prevention system and the patent pending ZZem Screw.
Retailers
Doncaster Blue Bloods
A close up of the multi zone use where Doncaster Mitre 10 is located
HNN Sources
Matt Cornwell is a fourth-generation hardware retailer and oversees the trade business
The timber yard at Doncaster Mitre 10
Click to visit the HBT website for more information
It takes about five seconds looking at the planning map for the area surrounding Ian Cornwell's Doncaster Mitre 10 to realise that Ian is a brilliant man.

The online mapping software supplied by the Victorian government shows a sea of red shading, surrounding a small triangle of dark green, with the designation "MZU". MZU stands for "multi-zone use". And the red shading that surrounds it for dozens of kilometres on all sides? That's standard residential zoning.

It is also one of Melbourne's more prestigious suburban areas, with an average dwelling price that has now crept up over $1,300,000. It's just barely in the "golden zone": under half an hour's commute by car to the Melbourne CBD, an hour by public transport, or 75 minutes on a bike. The main wave of building, replacing orchards with big, spreading residences, took place in the 1970s and 1980s, though a second wave of building, at greater density, has been sweeping through since 2010.

And that MZU triangle? That's where Doncaster Mitre 10 is located. If having its own special zoning designation is not enough, the store is also positioned along a major transit route, Anderson's Creek Road, and next door, sharing the same lot, is a heavy building materials business, with big trucks moving in and out carrying loads of sand and other heavy goods throughout the day.

It is a store location and position to truly be envied. There is not only the new building of apartments, but also a steady upgrading of existing homes, some renovation, some tear-down and replace. Added to that, as the population trends upwards, are infrastructure projects for schools, care facilities and council buildings. It would have looked pretty good 20 years ago, when Ian first took over the property in 1997. Today it looks simply terrific.
Origins

As you might expect, this good a situation did not happen all by itself. It really traces its origins all the way back to 1928, and over the three past generations of the Cornwell's history in hardware retail.

It's also a bit more than that family history, of course. The Cornwell family was an early convert to the Mitre 10 cause. Even though there has been some change of circumstances in the group - moving from the original independent group, to the acquisition by Metcash, and now the addition of the Home Timber & Hardware Group (HTH) - retailers of Ian's generation see loyalty to Mitre 10 as an important ingredient to their success. In fact, Ian used an expression that is not heard that often nowadays, calling himself a "blue blood", one of those dedicated to Mitre 10 through and through.

The other strong influence on the business has been the Cornwell family's efforts to assist in broader movements in the hardware industry. Ian's father was involved with the forming of the original Hardware Federation back in the 1950s (and Ian still has copies of the minutes from that group's meetings). Ian himself started to get involved, concentrating on the associations for independent retailers, in the 1990s. Since then he has served in senior positions with Hardware Australia, including as chairman.

This understanding that independents need to present a united front might be the result of a long history in an industry that has gone through some tough times. Cornwell's Paint Shop opened at 460 Sydney Road, Brunswick, in inner Melbourne, Victoria in 1928. Which was, on reflection, not the best year to choose to start a new enterprise. When the Great Depression came to Australia, most businesses were reduced to doing whatever they could just to keep going.
The Brunswick store, it started off as a paint shop. That was back in the late 1920s. The depression hit, and I remember that my Dad would just go around and simply look for stock that he could sell. That's what happens.
That business then evolved from paint and wallpaper into selling pots and pans, potties, anything that they could sell. They continued really to evolve the store, you know, Mum and Dad. Because they were in what is largely an Italian area, they moved into Italian glassware, all that sort of thing.

Ian himself joined the hardware business full-time shortly after he graduated from LaTrobe University with a degree in chemistry in 1979. After a talk with his father, he decided he would give working in the family store a trial for six months or so, then they would assess the situation. They never got around to assessing the situation, and 37 years later Ian is still working at the family business.
The Doncaster store

The first attempt at finding a second location did not work well, with a potential deal for a store along Doncaster Road falling through (it later became a Mercedes Benz dealership). At least, though, Ian's attention had been shifted to the Doncaster area, and the location along Anderson's Creek Road came to his attention. The only problem was that, at that time, the location was being used as a nursery.
There was a full-blown nursery here. They used to operate a nursery on the side, and on the bottom [down the slope of land on the site], the original owners operated a sand and soil company that is still running next-door. As you may know, a nursery can actually operate on residential land.

What happened next is what one assumes often happens when Ian gets involved: what might seem an insurmountable obstacle turns out to be more flexible than imagined.
When we first moved in, we sort of took over the site as though we were a nursery. Then we went to the area council with a zone change request, and the owner did not object, which was really nice, so we were able to get the zoning change to a mixed use zone. I would have to say, that probably the landlord was not exactly entirely aware of what was going on. It was a change from a premium classification down to a lesser one, and not many people would've gone along with that.
But we got away with it. And that change meant that we could then trade as a hardware, because a hardware store technically cannot trade in a residentially zoned area.
So that's why this Mitre 10 store could be established on what was once a residential location.

The site was selected not just because it was situated in the midst of a residential area. Ian was also applying knowledge he had picked up on overseas study trips.
The reason I thought the site would work, was very much due to a conclusion I'd reached when we had gone on trips overseas, and had seen The Home Depot chain in the US. A bit over 20 years ago when I first went there, they were saying that Ace Hardware could survive where there were satellite stores. What they meant was that you had Home Depot stores sort of sitting in the middle, then you had an independent store here, and an independent store there, "orbiting" the Home Depot store. So in our location here we are sort of on a feeder route that runs through to Warrandyte and onto the Bunnings in Nunawading. 
The thing is, basically people stop at different points to save different amounts of money - if that makes any sense. Some people will drive all the way to Bunnings just to save 20 cents, other people will only drive to Bunnings if they can save $100. You pick off different people at different distances depending on their circumstances, and what they're looking for. The position of the store was right to maximise some of that traffic.

Of course, like most savvy, independent retailers in Australia today, he keeps a careful, watchful eye on what Bunnings is up to, and how it is going to affect his future. With good reason: what finally put an end to the long-running Brunswick store was the opening of a smaller format Bunnings, virtually right across the street.

The current location is more protected from competition, again because of the unique zoning situation.
We are lucky enough, because of what's around, that it is difficult for Bunnings to get in, or John Bowen to get in, or any of the rest. So that means not having to compete with too many retail hardware sites, as we are protected from others moving in to the immediate area.

Though, of course, no independent is every entirely in the clear.
Having said that, Bunnings is going to put a store in nearby at Westfield shopping centre. Which will be interesting, you know, they are a competitor wherever they go, but, perhaps naïvely, I don't think it's going to have all that much of an effect.
It did have an effect on the Sydney Rd, Brunswick store, because the businesses were so similar. But our model here at Doncaster of being more trade-oriented, that's something where they would struggle to compete with us. Even with that new site it would be a place where it would be awkward for tradies to get in. With the store integrating apartments, the need for parking for those apartments, and the traffic that gets created, it's likely that Saturday mornings are going to be very interesting, for example.
Succession

One thing that becomes clear in speaking with Ian is that, being a third-generation hardware retailer himself, he really understands some important things about family success in retail. He himself knew that, as much as he respected their legacy, he didn't want to do exactly what his parents had done.
The reason I wanted to expand the old store at Brunswick was that I didn't want to spend all my time just serving behind the counter. Not that there's anything wrong with that, there are lots of people who do that and are happy. But I didn't want to just do that myself.
My role totally changed, once we grew bigger, and the job became managing two stores, and whatever. So you become more about being a people manager, and get more involved in more strategic stuff, and that sort of thing. That's more of what I enjoy, so it is a welcome development.
That is especially so with running two stores, and it's only been since November 2017 that we shut Brunswick down. At the same time the store at Doncaster has just been growing, and growing. We used to say that every $1 we spent at Doncaster would return $10, while every $1 we spent in Brunswick would return something like $1.50. So, Doncaster, this was the store for the grandchildren.

An important key not just to succession, to to keeping going in retail, is being able to get your head around the need to change, Ian says.
Retail really is about shifting. You have to enjoy what you're doing. But you also have to be prepared to change in retail. And I guess every business has to do it. You know milkbars have come and gone and instead we have convenience stores, the taxi industry with Uber is another prime example. Business has to alter because of competitors coming into the market.
The thing is that years ago if I told my father that the eighth-inch drillbit was not going to be the biggest selling item that you had in your hardware store, he would have thought I was crazy. You know there are these things that are called self drilling screws now, you don't really need drill bits? Everything changes in the end. So you can't let yourself get into a deadlock, all those products that you're selling now and that you think you will be selling in five years time, the reality turns out to be totally different.
The move to trade

As it turned out, one of the keys to Ian securing family succession at Doncaster Mitre 10 was making a big change, from being consumer-focussed to being trade-focussed. It was through trade that Ian's son, Matt Cornwell, become involved in the business as a manager.

The Brunswick Street store remained dedicated to consumer retail throughout its history, up until it finally closed in November 2017. While the Doncaster Mitre 10 store started out with a focus on consumer, it moved to trade around 2007.
The business was certainly very retail to start with. We took over the nursery, and we kept running it as a nursery, until we put hardware in. But as time has gone on, we've moved further away from the nursery as you can see. Instead, trade in timber has taken over more of the business, and the mix of the business has totally changed. All that happened just through necessity, I guess.
When we started trade it was really sort of out of the back shed, though we had a good trade manager at the time. He had applied for a job at the Brunswick store. He had been out of industry for a while, and at the time I said, "Not really a place for you at Brunswick, but we're thinking about doing timber at Doncaster, is it too far to drive?" He used to live out near Tullamarine [Airport] on the other side of Melbourne.
He was great. He didn't mind the travel, he just started at 7:00am and drove all the way across.
So he got us up and running, because, you know, trade is not actually my background. There are different types of hardware retailers, you have some who have a hardware background that's mostly pots and pans, others who have a timber background. I was more the pots and pans background, I guess. That was because of growing up with the store at Sydney Road in Brunswick, which which is more of a traditional store. So I needed somebody from the trade side, and this guy was good at that.

Not that things started running smoothly just because the Doncaster store had a good trade business manager.
So in the early days, people would ring up and say "I need a pack of flooring", or this and that, and we would tell them "yeah not a problem," then we'd get off the phone and say, "Okay now how the heck are we going to get that?" That was just how it started, you know, you never say no!

Meanwhile, Matt had started working at the store in 2008, and he began working in the trade area. It was a situation that suited both Matt and Ian.
Timber is also complex, and it is not a forte of mine. So, Matt was lucky enough to learn under this guy, he was a good manager, and a good role model for him. That manager decided to move on, I guess maybe five years ago, at which time Matt would of been around 25 years old, so I asked him "So, do you want to have a crack at managing trade yourself?" And he right away said, "Yep."

This is an abridged and shortened version of this article. To read the full article, please download HI News Volume 4, Number 1 at:
HI News Vol.4 No.1: Doncaster Blue Bloods

(It's free, of course.)
Bigbox
The BUKI Billion Blitz
Wesfarmers managing director Rob Scott
HNN Sources
Homebase prior to Bunnings' move to improve it
Early plans for Homebase
Click to visit the HBT website for more information
Australian retail, mining and chemical conglomerate Wesfarmers announced on 5 February 2018 that it was taking what amounts to a $1.026 billion write-down on its home improvement retail operations in the UK & Ireland.

The trigger for the write-down was that Bunnings UK and Ireland (BUKI) suffered an accelerated loss during the first half of FY2018. BUKI produced estimated pre-tax losses of $165 million for the period from 1 July 2017 to 31 December 2017. This contrasts with a market forecast of losses of $110 million - for the entire 2018 financial year.

The core reason for this write-down, according to Bunnings, was a decline in its retail sales from mid-November to the end of December - or, to put this in more accurate and less euphemistic terms, BUKI saw sales collapse during the core of the Christmas retail season. While that decline included both the 240 stores that are still branded as Homebase as well as the 19 Bunnings pilot stores, the company says it intends to concentrate on improving the returns from the Homebase network over the coming year.

Wesfarmers' response to this failure has been to launch a review. According to a statement issued by Wesfarmers:
A review of BUKI has commenced to identify the actions required to improve shareholder returns. The review is focused on options to improve the trading performance of Homebase as well as further evaluating the performance of the pilot stores to inform the future plans for BUKI.

The recently appointed managing director for Wesfarmers, Rob Scott, is quoted in the statement as saying:
We will take a disciplined approach to further capital deployment in BUKI and provide an update on the outcomes of the business review and our plans for a broader conversion to Bunnings at our Strategy Briefing Day in June.

The current managing director of Bunnings, Michael Schneider, is reported as making the following comments in the statement:
It is clear that a significant amount of change has been driven through Homebase since the acquisition and the disruption caused by the rapid repositioning of the business has contributed to greater than expected losses across the Homebase network.
Sales have been affected as non-core categories and concessions were exited ahead of the implementation of the Bunnings format, and investments in price and new ranges have not offset these lost sales. Trading was particularly weak during the latter part of the first half of the 2018 financial year.
Our focus is on improving the profitability of Homebase through improved ranging and execution in stores, while continuing to develop plans for a broader conversion to Bunnings. The team has been strengthened, including through the addition of strong local expertise, to support improved outcomes.

The same statement also announces the retirement of the managing director of BUKI, Peter (PJ) Davis. Mr Davis is being replaced by BUKI's chief operating officer (COO) Damian McGloughlin. Mr McGloughlin was recruited in mid-2017 from Kingfisher's UK home improvement retail operation B&Q, where he had worked for 34 years. Former Officeworks executive David Haydon, who had previously been appointed as general manager at BUKI, will step into Mr McGloughlin's former position as COO.

Mr Scott offered a valedictory comment on Mr Davis's retirement, stating:
PJ has been instrumental in driving the growth and success of Bunnings for the past three decades and in the establishment of the Bunnings Warehouse format in Australia in the 1990s.

The statement reported a comment from the current managing director of Bunnings, Michael Schneider:
Mr Schneider said he was grateful for the contributions Mr Davis has made to the Bunnings organisation and the culture of the business.
Presentation

The media and ASX release gave notice of the write-down itself and the departure of Mr Davis, but Wesfarmers made use of a combined investment analyst/media presentation to more fully articulate a general change in the direction of its strategy for BUKI.

This event was hosted by Mr Scott and recently-appointed Wesfarmers chief financial officer (CFO), Anthony Gianotti. Held on 5 February 2018 at 11am AEDT, this 80-minute event began with an eight-minute introduction by Mr Scott, followed by 45 minutes of questions from analysts, and finished with 25 minutes of questions by members of the mainstream media, including News Limited, Reuters, and several reporters from Fairfax Media.

While Mr Scott gave some strong indications of a change of direction in BUKI's strategy, the discussion contained only hints of what might actually happen over the coming four months. Mr Scott's repeated answer was to say that the review mentioned earlier would have to be concluded first, with decisive action to be announced at the June 2018 Strategy Day.

That said, what Mr Scott did deliver was an early preview of some of the analysis the company has made of exactly what is going wrong with BUKI, indicating the areas where the retail operation needed to change. Those areas were:
  • The operations of the refitted Homebase stores.
  • The importance (or unimportance) of kitchens.
  • The strategy for the conversion of Homebase stores into pilot Bunnings UK stores.
  • Refitted Homebase stores

    Much of the discussion during the presentation about the poor performance of BUKI as a whole concerned what Wesfarmers now regards as poor choices made in the rapid refit of the Homebase stores in the year following their final acquisition in April 2016.

    In general terms, the new Wesfarmers viewpoint is that as Homebase was profitable when it was acquired by Wesfarmers, it should either have been left alone, or undergone only mild, and slow changes to its retail offer. This was spelled out fairly clearly by Mr Scott in response to a question by a Morgan Stanley analyst, who asked whether Wesfarmers should simply "pull the plug", and abandon the entire enterprise. Mr Scott responded:
    It certainly would not be the preferred outcome. What we are mindful of is that a lot of the issues we are dealing with today have been, to be frank, self-induced. Two years ago Homebase was a business that was profitable. We now have a team that understands the UK market, we have a number of opportunities to improve performance, and that is very much what we are focused on. But all options are open, and we will go through this review in a very detailed way, with a very strong focus on improving performance and reducing the cash losses. We will be able to update on the outcomes of that review in June.

    This followed on from some of the introductory remarks of Mr Scott, where he stated:
    In summary, the trading losses [at BUKI] are a function of lost sales of exiting ranges such as kitchens, bathrooms, and decorative lines, together with various retail concessions. The expansion of ranging in core home improvement categories, together with a significant investment in price, did not offset the loss of sales and margins as a result of these changes ... The initial strategy was to rapidly reset the Homebase business, to facilitate conversion to Bunnings. The pace and nature of this change was not well received by traditional Homebase customers.

    Later, in a response to a question by J.P. Morgan retail and consumer analyst Shaun Cousins on the difficulty in returning Homebase to profitability, Mr Scott expanded on what he sees as the faults in the handling of the Homebase refit:
    It is premature to be giving guidance, and the focus of this review that we are undertaking is really to better inform us on the opportunities and the actions that will improve profitability. So we will have more to update in June.

    While I think that conceptually the decision to exit various retail concessions was probably the right decision over time, the pace at which we exited those concessions, and the failure to present other range, other products that resonated with Homebase customers really contributed to some of these losses.

    Mr Scott is placing blame for the failure of the Homebase transformation on both execution and strategy, in particular the rapid shift in customer base. This is a sharp change in Wesfarmers' approach. From the time of the original acquisition up until the last annual results presentation for Wesfarmers in August 2017, the strategy of rapid and radical transformation of Homebase received support. At the annual results presentation for Wesfarmers in August 2016, this is how then-Bunnings Group CEO John Gillam described what was happening at Homebase in his prepared remarks:
    We've rolled our sleeves up, and dived into a comprehensive and rapid repositioning of the Homebase business. From our due diligence work we knew that the business we acquired had a poor and confusing offer, with very low stock availability and low stock levels. New trading strategies have been formulated and implemented across merchandising, pricing, marketing and operations. We are exiting all non-core product, as well as removing all the concession operations in the store network. The offer is now very firmly focussed on the home improvement and garden market.
    To support the repositioning we have invested approximately GBP60 million to both widen product choices and increase stock depth. We have also completed a restructure of the support team, and incurred costs associated with the repositioning agenda. This has resulted in GBP30 million in costs in total, and the modest EBIT result we reported for the period is offset by that amount. The Homebase team is energised by the opportunity, and we have commenced a strong supporting investment program aimed at developing our new team.
    All this work is essential to creating the platform we need to implement our acquisition plans. We are pleased that the inevitable disruption has been well-managed.
    Encouragingly we have seen store transactions increase by 7.5% on a like-for-like basis across the period of ownership, and that trend has continued at a similar level into July.

    One specific area that did come in for some criticism was the failure of Homebase to provide the right seasonal products for winter. In response to an analyst's question, Mr Scott said:
    As I said earlier there are clear seasonal differences there. To be frank it's not surprising that if we don't have the right product in-store at the right time that it is going to impact our sales. Clearly we haven't got that right.
    As I mentioned earlier, categories such as storage, cleaning products, are particularly important to these months. Also heating, lighting, some of the adjacent categories to kitchens and bathrooms, such as tiling, flooring, and plumbing.
    All of these categories are increasingly important in the winter months, and really comes back to having the planning in place, to ensure you have the stock in-store at the right time and that this aligns with your promotional activity. Clearly we did not have that in place through the winter months.
    The importance (or unimportance) of kitchens

    Those who have been following the progress of BUKI will know that one of the main faults revealed by Mr Davis was a difficulty in selling the Bunnings idea of a kitchen, both at the Bunnings UK pilot stores, and in the Homebase stores. At the analysts' presentation for Wesfarmers FY2016/17 results, Mr Davis, responding to a question from respected Merrill Lynch analyst David Errington, stated:
    To be fair we didn't expect to lose the volumes in kitchen and bathrooms that we did. All right. So some of the strategic moves and the repositioning of the business have had impacts that we didn't project into the future. But we are re-establishing that right now.

    He went on to add:
    So we are going through a major transition in relation to kitchen and bath. Key principles are that we do not want to support one of our major competitors, in manufacturing, key principles are that we want a simple execution. We have closed installation down because we don't believe that it is key. We believe that, people will tell you [that] you can't sell kitchen and bathrooms unless you install them. We'll go talk to some other big players in the world that don't install kitchen and bath, including ourselves in Australia.

    What was at issue here was that the UK and Irish kitchen market consists in large part of installed kitchens. According to the UK Houzz Kitchen Trends Survey for 2017 (the most recent), 49% of those surveyed employed a kitchen fitter, 47% employed a kitchen designer, and 33% employed an architect when building/renovating their kitchens. That contrasts with the numbers from the Australian Houzz Kitchen Trends Survey for 2017, which shows that only 32% employed a kitchen designer, and 14% employed an architect.

    Somewhat surprisingly, however, according to Mr Scott's comments at the recent presentation, not only has the kitchen problem been completely solved, but it also really was not much of a problem to begin with. In response to a question from a Citigroup analyst, his comment was:
    Kitchens have been problematic, but I wouldn't call them out as necessarily the most material contributor [to the loss]. What we found is that it took longer than we would've liked to come up with our new format around the kitchen offer. So this is more of the flatpack version, that you've seen in Australia. So it took a bit longer than we would've liked to actually get that in-store.
    We now have it in-store, it is selling, it is selling pretty well. We've seen some positive signs there. But we are dealing with a much lower average sell price, and we are obviously starting from scratch on this. So while there have been some encouraging signs with our new offer, we are starting off a very low base and it took quite a while to get it online.
    The other thing to remember is that there are a whole lot of other related categories, off the back of kitchens. Examples of that would be flooring, tiling, and plumbing, which really go hand-in-hand with the kitchen offer. And those three lines which I mentioned - flooring, tiling and plumbing - my view is that we don't have our offer right yet in those adjacent, related categories. So clearly more work to do still on kitchens, bathrooms, and related categories.

    In fact, the kitchens are doing so well, that their sales success has managed to cross the border from the Bunnings UK stores to the Homebase stores, as Mr Scott pointed out in response to a question from a Credit Suisse analyst:
    Just a very simple example of that is the new Bunnings format kitchens are actually selling quite well in Homebase. So the team has a sense of optimism around the opportunities.

    Of course, what might be going on here is something of a confusion about what "kitchens" means. For Mr Davis, kitchens would likely include at least the plumbing component, and certainly countertops, and so forth. Perhaps for Mr Scott, with more of a "numbers" focus on shareholder returns, "kitchens" refers simply to a specific set of stock-keeping units (SKUs).

    In any event, it remains puzzling that while the problems clearly associated with a major part of the UK home improvement business are being described as "not material", that same business has produced unexpectedly very poor retail sales results.

    It is perhaps worth noting that the UK kitchen comparison website kitchen-compare.com awarded Kingfisher's B&Q with the title of "Lowest Priced National DIY Retailer of Kitchens for 2017". According to the description on that company's website:
    For 2017, the "Lowest Priced National DIY Retailer of Kitchens" accolade has been awarded to B&Q for consistently having the most lowest priced kitchens when compared to Homebase and Wickes. Every day during 2017 we monitored and logged the prices of comparable kitchens sold by the UK's National DIY Retailers Wickes, Homebase and B&Q. We did this using a typical 8-unit kitchen model layout.
    Conversion of Homebase to Bunnings UK

    A major challenge facing BUKI is how, when and if it should continue to convert Homebase stores to Bunnings UK stores. On a scale basis, part of that challenge relates simply to cost. The current cost of conversions is running at over GBP2 million per store. Mr Scott suggested, in response to an analyst's question, that this cost could be cut in half:
    As you would expect in the early pilots you do tend to over-capitalise. For example the cost of removing mezzanines on a bespoke basis rather than at scale ... So you could use the number of around GBP2 million. But going forward, a number of the lighter conversions - which we feel will still drive a good improvement in sales density - are in the order of GBP1 million of cost per store.

    Additionally, in responding to another question, Mr Scott noted that the number of stores that would be converted is likely to be reduced as well.
    It has been clear through our review that there are a number of stores that we do not think will justify further investment by way of conversion to the Bunnings format, and indeed the losses generated from some of the stores are essentially holding the business back into the future. We have also found that through the Bunnings conversions, there have been some instances where we have delivered much better returns by closing an existing store and taking out a new lease on a better located better quality store. A good example is Folkestone.
    So the provision in relation to the store closures, we are talking about in the order of 20 to 40 stores. These generally relate to the stores that generate the greatest amount of operating losses, and where we have identified the potential for improved national outcomes for the group based on lease tenure and terms and so forth. So we will be able to update more on the outcomes of this review in June.

    Even with cost reductions and being more selective about store conversions, you would potentially be looking at, to be generous, 190 stores at GBP1.3 million each on average, which gives a total of close to GBP250 million, or $443 million (at current exchange rates). Added to that would be the cost of lease buyouts for the non-converted stores, so the overall cost would likely be over $450 million. While that expenditure would be spread out over two to three years, it is difficult to contemplate in the face of the over $1 billion that has already been spent to produce an underperforming network of home improvement stores in the UK and Ireland.

    This is an abridged and shortened version of this article. To read the full version, please download HI News Volume 4, Number 1 at:
    HI News Vol. 4 No. 1: The BUKI Billion Blitz

    (It's free, of course.)
    Bigbox
    Big box update
    Approval has been given for a Bunnings Warehouse to be located at 89 West Street, Mount Isa QLD 4825
    HNN Sources
    Bunnings to pull pesticides allegedly linked to bee deaths
    First official day of trade at East Albury store
    Click to visit the HBT website for more information
    Bunnings have gained approval for a store in Mount Isa (QLD) while building work has begun for its Warwick (QLD) store; Bunnings stores will no longer stock products that have pesticides found to be harmful to bees; East Albury store welcomes customers; and Albany outlet in WA will become twice its size.
    Mount Isa approval, Warwick start

    Mount Isa City Council has given the go ahead for the Bunnings store to be located at 89 West Street. It will have a total retail area of 5607.5sqm.

    The matter was discussed in closed session at the council's meeting in mid-January and the decision was approved with 61 conditions listed in the report. They include a 1.8m acoustic fence which must be installed on the southern boundary to reduce noise and a 3m wide densely planted landscaped buffer.

    The developer will also need to install artificial turf or green coloured concrete on the Alma Street verge. Allowable opening hours are from 6am-9pm Monday to Friday and 6am-6pm Saturday, Sunday and public holidays.
    Construction on Warwick store

    There are signs that building is about to start on a larger Bunnings Warehouse store on Canning Street, Warwick (QLD).

    Several site offices and fencing have been erected on the site, according to the Warwick Daily News. Bunnings general manager - property Andrew Marks told the newspaper that Hutchinson Builders have been appointed as the builder of the new Warwick store. He said:
    They are currently on site with works to commence shortly. Hutchinson Builders will engage local contractors from Warwick to work on elements of the new warehouse where appropriate.
    As part of the development approval process, we are required to undertake road upgrades which will see the unsealed sections of Condamine and Canning Streets bitumen sealed.

    Mr Marks said the new store is expected to open in late 2018.
    Bee pesticide banned by Bunnings

    Bunnings will pull a pesticide from its shelves that has allegedly been linked to the deaths of bees. The move affects all stores across the United Kingdom, Ireland, Australia and New Zealand.

    In a statement, Bunnings Warehouse said it will remove its Neonicotinoids -- often referred to as neonics -- products, like Yates Confidor, from shelves by the end of the year. It said the timeframe will give them time to educate customers about natural alternatives. 

    Neonicotinoids is a class of pesticide -- which some studies suggest affects bees' navigation and immune systems, resulting in colony death. They are a popular insecticide worldwide, found in soil and seed treatments, and domestic and commercial lawn care products.

    The big box retailer made the decision in November last year to remove the product from its UK and Australian stores amid declining British bee populations, but admitted it was based on precautions rather than scientific evidence. The move appears to be part of a growing movement towards chemical-free gardening.

    A Bunnings spokeswoman told Fairfax Media:
    There's a lot of conflicting science out there...we decided to err on the side of caution.

    Gardening company Yates said while they respected Bunnings' decision it was comfortable that neonicotinoid products did not harm bees.

    A spokesman for the Australian Pesticides and Veterinary Medicines Authority (APVMA) said neonicotinoids registered for use in Australia are safe and effective. He said:
    This class of pesticides has been used in Australia since the early 1990s and APVMA continue to monitor potential adverse experiences of the chemicals.
    Petition

    More than 30,000 Australians signed a petition, launched by global consumer group SumOfUs, calling on Australian retailers to stop selling insecticides containing neonicotinoids.

    A Bunnings spokesperson said the company was aware of the petition, but reached its decision independently. Bunnings chief operating officer Clive Duncan said the company has been working with suppliers and partners around the use of neonicotinoids. He said:
    [Bunnings ensures] we keep abreast of the evolving science and issues impacting bee populations.

    Woolworths recently told The New Daily it had succumbed to consumer pressure to remove Confidor from its shelves. Coles will also cease sale of insecticides containing neonicotinoids this year, following Independent Hardware Group's - owner of Mitre 10 and Home Timber and Hardware - announcement it would pull all items containing neonicotinoids from its shelves by the end of the year.
    "Minimal effect"

    Despite the ban, apiarists believe it is unlikely to have much effect. Phil Lester is a professor of ecology and entomology at Victoria University in Wellington, New Zealand. He said given the small scale in which over-the-counter products that contain neonicotinoids were used, the Bunnings ban was unlikely to have much of an impact. He told Radio NZ:
    My guess is it will have minimal effect really in the wider scale of things. There are lots of crops ... that utilise neonicotinoids and it's those big cropping systems that utilise much more and the use of the home handy-man, or home gardener will pale into insignificance in comparison.

    Mr Lester said while the effects of the ban would be minimal, the move would likely be popular with consumers.
    I think there will be a lot of people that shop at Bunnings that have heard some media around the use of neonicotinoids, that it's bad for bees and Bunnings will be doing themselves some favours by taking them off the shelves.

    Mr Lester said more data needed to be collected.
    Ban in place at B&Q

    Back in May 2017, UK home improvement retailer B&Q announced that all the flowering plants it sold are to be grown without using pesticides that are harmful to bees.

    B&Q said that from February 2018 it would no longer sell flowering plants grown using the pesticides. It claimed it was the first retailer to commit to such an undertaking.
    Bunnings Albany store in WA to expand

    Bunnings will double the size of one of its WA outlets. The Albany Highway store will increase by 6000sqm across three lots, reports The Advertiser. It is the first large-scale expansion of the store since it opened its doors in 1999. Bunnings general manager - property, Andrew Marks said:
    Bunnings has been part of the Albany community for more than 17 years and is pleased to have received an amended development approval for a major expansion of our Albany store.

    Mr Marks said Bunnings was finalising its development program but could not yet confirm a timeframe.
    The DA [development application] will allow for over 6000sqm of new retail space and we are currently working on a proposed development program to make the most of this additional space.
    East Albury Bunnings doubles in size

    Bunnings' $28 million warehouse in East Albury (NSW) is one of the largest operations of its type in regional Australia. It measures over 18,000sqm with 400 car parks, located on the corner of Borella Road and Drome Street.

    The store recently opened to DIY hobbyists, renovators and "Bunnings-tragics". There are plans for a grand opening celebration now that it has officially commenced trading.

    Bunnings is also transferring its trade centre from a leased property in Romet Road, Wodonga across to East Albury.

    The timber and trade centre is located at the northern end of the warehouse and the garden supplies section at the Borella Road end of the site which is roughly double the size of Bunnings' Wodonga operation on Thomas Mitchell Drive which opened in 2007.

    Bunnings opened its existing Albury store in Young Street in 2003 before an expansion six years later.

    Another Bunnings store in NSW, in Heatherbrae, has also officially opened.
    Retailers
    Indie store update
    A number of buyers are looking to buy the Murray Goulburn stores
    HNN Sources
    Ruralco could be one of the buyers looking at purchasing Murray Goulburn's trading stores
    Willows Mitre 10 in Townsville (QLD) has shut down after a fall in trade
    Click to visit the HBT website for more information
    Diversified agribusiness, Ruralco has expressed interest in a number of MG Trading stores, according to sources; and rising costs and falling trade have been blamed for the shutdown of Willows Mitre 10.
    Buyers for Murray Goulburn stores

    Ruralco is looking to buy Murray Goulburn's (MG) trading stores, sources told Weekly Times Now. The sources said Ruralco subsidiaries expressed interest in a number of MG Trading stores in late 2017.

    This comes as MG has confirmed it has the right to sell the network of 25 stores and six fertiliser depots in Victoria, despite announcing in October it was selling the co-operative's assets to Canadian dairy giant Saputo.

    There are many businesses under the Ruralco banner throughout Australia, including Tasmanian agribusiness and real estate company Roberts, Combined Rural Traders (CRT) and Rodwells.

    Ruralco reported revenue of $1.8 billion and after-tax profits of $30 million last financial year and is understood to be in the mix to buy at least some of MG Trading's assets.

    Saputo, which is set to buy MG's assets for $1.31 billion subject to government agency approval and shareholder support, said dairy processing was its first priority in Australia but it would keep the MG Trading stores operating if required. A Saputo spokeswoman said:
    We are not retailers. That being said, we understand that these trading stores are very important to some of the local communities. If these assets are not sold by MG prior to completion, we will inherit them and put the right management in place and operate the stores.

    An MG spokesman said all the co-operative's operating assets would be included in the Saputo transaction, unless the trading stores were sold beforehand.
    MG does not currently have any formal sale process under way in relation to MG Trading.

    Elders, which also operates rural stores, has plans to extend its branch network and identified Victoria's Western District as one area of particular interest. Elders managing director Mark Allison said he approached Deutsche Bank during the MG sale process to buy the stores but was told the dairy co-operative would be sold as a whole. Mr Allison said:
    We were told that whoever bought Murray Goulburn would sell off parts of the business. But we've had no contact since it has been sold. I would assume they would come to us if they are selling the branch network.

    Mr Allison said Elders was opening a store in Mortlake as part of its branch network expansion.
    Falling trade leads to closure

    Willows Mitre 10 in Townsville (QLD) has shut its doors. It closed in December with a sign thanking its customers and being closed indefinitely.

    Moira Carter of BRI Ferrier, was appointed liquidator, and said costs such as rent and electricity were increasing when trade and income was falling. She told the Townsville Bulletin:
    You just can't support businesses under those circumstances.

    The main debtors for store are Mitre 10 and a bank. Ms Carter said employees had been paid most of their entitlements.

    Townsville Chamber of Commerce president Debbie Rains said it was sad to see small businesses close and urged people to support local businesses.
    From a chamber perspective, it's always very disappointing to see the closure of local small businesses. We encourage people to shop locally as much as possible and hopefully prevent more closures like this.

    Ms Rains said small business was the backbone of the economy, employing a lot of people.
    If people do shop locally and continue to support local business, the dollar goes around 13 times. You are actually helping to spread the dollar further in our local community.
    Companies
    Supplier update
    Stanley Black & Decker acquires an industrial fastener maker from Doncasters
    HNN Sources
    Spectrum signs deal to sell its Energizer and Rayovac batteries and lighting businesses
    One of the products in the Ground Logic commercial spreader and sprayer product line
    Subscribe to HNN weekly e-newsletter
    Industrial fastener maker, Nelson Fastener Systems has been acquired by Stanley Black & Decker; Spectrum Brands will sell its batteries businesses to Energizer; Briggs & Stratton has expanded its line of standby generators; and Sika beats sales forecasts and expects faster growth in 2018.
    UK industrial fastener maker sold to SBD

    Stanley Black & Decker has reached an agreement to purchase Nelson Fastener Systems, a manufacturer of fasteners and studs, from UK-based Doncasters Group for approximately USD440 million in cash. The acquisition does not include Nelson's automotive stud welding business.

    Founded in 2016, Nelson is a global distributor of fasteners and fastening systems. It manufactures industrial products made from a variety of materials, including carbon steels, stainless steel, alloys and more. The Californian company operates as a subsidiary of Doncasters serving the aerospace, automotive, construction, energy, industrial, marine and military markets.

    The acquisition is expected to enhance Stanley Black & Decker's engineered fastening presence in the industrial market. The transaction is expected to close in the first quarter of 2018.

    Doncasters' divestiture of Nelson comes as the company plans to focus on its core specialised markets: aerospace, industrial gas turbine and specialty automotive. The sale will assist Doncasters in paying down "some existing debt as well as provide necessary capital to further invest in these markets and accelerate growth".

    Stanley Black & Decker recently sold its door and mechanical security business to Dormakaba, and purchased the tool business from Newell Brands for approximately USD1.95 billion in cash to expand in industrial cutting equipment.
    Spectrum Brands sells batteries, lighting

    Diversified consumer products company, Spectrum Brands said it has reached an agreement to sell its batteries and lighting businesses to competitor Energizer for USD2 billion in cash.

    Executive chairman David Maura said in a statement that selling the businesses will allow Spectrum Brands to lower debt, buy back shares and make some acquisitions.
    [It] is a culmination of our efforts to sell the battery business in order to refocus Spectrum Brands and enhance shareholder value. While we have a long and proud heritage in the battery business, this is a key part of our re-allocation of capital strategy towards a faster-growing and higher-margin Spectrum Brands.

    Spectrum makes Rayovac batteries and George Foreman grills, among many products, and said it wants to concentrate on its four remaining businesses: hardware and home improvement, auto care, pet supplies, and home and garden equipment.

    The batteries and appliances businesses, which include Rayovac batteries and Black & Decker home appliances, accounted for about 40% of Spectrum's sales in fiscal year 2017.

    For Energizer, the deal grows its batteries division, while also expanding its international business.

    In 2017, Spectrum added to its headquarters in Middleton, Wisconsin (USA) to accommodate expected growth.
    Sika implements growth strategy

    Construction chemicals maker, Sika said it has beaten both its annual sales target and market expectations in 2017, and is forecasting stronger growth in 2018.

    The company, which has been involved in a takeover battle with France-based Saint-Gobain for three years, reported annual sales of 6.25 billion Swiss francs (USD6.39 billion) for 2017 - exceeding its target of 6 billion francs.

    The 8.9% increase in local currencies narrowly beat the average estimate of 6.2 billion francs in a Reuters poll, and was marked by a growth rate of 12% during its fourth quarter as a number of acquisitions kicked in.

    Read more about the specific acquisitions across its regions here:
    Sika sales exceed 6 billion francs for the first time - Globe Newswire

    Under new CEO Paul Schuler, the company is even more bullish about 2018, saying it expects sales growth of more than 10% and a higher growth rate for operating profit. The improvements reflected Sika's investments during 2017, Mr Schuler said. He has already indicated the company will ramp up its buying spree.
    With nine new factories, three further national subsidiaries, and seven company takeovers, we have made significant investment in growth markets as well as in growth platforms in the form of product technologies and distribution channels.
    These 19 strategic investments, our pipeline with innovative quality products and our global presence - we now have 100 national subsidiaries and more than 200 factories - allow us to look toward the future with optimism.

    Sika said it expected a bigger increase in its 2017 profits, anticipating beating its previous highest net profit of 567 million francs it made in 2016. It said it expected an operating profit of 880 to 900 million francs for 2017. The company is due to report its earnings in late February.

    The Swiss company's takeover fight with Saint-Gobain was sparked by its founding family wanting to sell its controlling stake to the French group. The next court decision -- centring on the family's voting rights -- is expected in the next few months.

    Related:
    Saint-Gobain bids for control of Sika - HNN
    Briggs & Stratton buys Ground Logic assets

    Outdoor power equipment supplier, Briggs & Stratton has expanded its line of standby generators by acquiring a designer and manufacturer of fertiliser and pesticide spreaders.

    Ground Logic makes commercial spreaders and sprayers for applying fertilisers, pesticides and herbicides. The products are designed for use on mid- to large-size residential and commercial properties.

    The company's spreaders are known as stand-on spreaders, in which workers stand or ride the machines as they operate them. The acquisition will allow Briggs & Stratton to complete its turf product line. With six spreader types, Ground Logic has a larger product line than many of its competitors.

    Briggs & Stratton said in a statement that it financed the acquisition using cash on hand. The company does not expect the deal to have a significant impact on its 2018 profit or cash flows.

    In October 2017, it reported USD329 million in sales in its first quarter of fiscal 2018, up 14.7% from the same period last year. It also reported $1.8 billion in fiscal 2017 revenue.
    Retailers
    Europe update
    Managing director of Bunnings' UK business, PJ Davis, is retiring after going on extended leave in January
    HNN Sources
    Supplier relations help deliver successful hire business for Travis Perkins
    Grafton Group includes the Selco chain and had a better-than-expected performance in the final quarter of 2017
    Click to visit the HBT website for more information
    Damian McGloughlin is to become managing director of Bunnings' UK business, taking over from Peter "PJ" Davis who is retiring; Bunnings opens more new stores; hire business drives growth trajectory at Travis Perkins Group; and shares in Irish builders merchanting group Grafton jumped nearly 7% on the back of a strong end of year trading update.
    Senior executive shuffle at BUKI

    Wesfarmers recently announced that Bunnings UK & Ireland (BUKI) managing director Peter "PJ" Davis, who has been on extended leave since January, is retiring after 25 years with Bunnings. He will be replaced by Damian McGloughlin who previously worked at UK home improvement chain B&Q.

    There were reports at the time that Mr Davis, who was initially taking a three-month break, that the time-out was pre-planned and allowed him to return to Australia to spend time with family. A statement from the big box retailer confirmed that Mr Davis "will be taking three-months' leave starting mid-January".

    While some in the media speculated that the decision was due to poor performance and losses in the UK business, Wesfarmers quashed those rumours and said back then that Mr Davis was simply keen to return home for a short period, adding that "he will be back".

    Mr Davies re-located to the UK to head up Homebase when Wesfarmers acquired the business from Home Retail Group in February 2016. He had been tasked with transforming the chain and launching a Bunnings proposition in the UK market.

    As the new managing director, Mr McGloughlin is expected to be assisted by acting chief operating officer David Haydon, who was previously Homebase trading and commercial manager. Mr Haydon was drafted from sister chain Officeworks to run Homebase, and has worked for Wickes and B&Q.
    Merchandise manager moves on

    BUKI general manager - merchandise, Craig Castelino, is leaving the business, according to a report in Insight DIY.

    It is understood Mr Castelino will be working on special projects and that he and his family will be returning to Australia in April. Once back in Australia, he will be taking on a senior leadership role in the Bunnings Australian and New Zealand business.
    Homebase store conversion continues

    BUKI have now officially opened 19 stores in the UK, with at least another four currently being converted, according to Insight DIY. Two of the stores will be in Waltham-on-Thames, a large affluent market town on the River Thames in Surrey, and Frome, in eastern Somerset.

    A small-format Bunnings will be located in Herne Bay, a seaside town in Kent. A more traditional Bunnings Warehouse will open in London Penge, considered an archetypal commuter suburb in Bromley.

    The following stores have already opened for business.
    Hanworth

    This outlet in west London, was one of a number of Homebase branches to be fitted out with a mezzanine floor during a store refit program under former owner Home Retail Group, according to a report in DIY Week. It is over 57,00 square feet and carries the same branded ranges seen in other Bunnings conversions, as well as the stand alone "tool shop".

    This store doesn't have a cafe but has installed a children's play area and seating space on the mezzanine floor.
    High Wycombe

    The High Wycombe store is almost 50,000 square feet, in a large town in Buckinghamshire, which is one of the most affluent parts of England yet still contains some considerably deprived areas.
    Newmarket

    This store is over 37,000 square feet in a market town in Suffolk, approximately 105 kilometres north of London. To celebrate the opening, former professional footballer Mick Quinn, joined a welcome breakfast for team members.
    Walthamstow

    The Bunnings Walthamstow store is in the largest district of Waltham Forest in east London, and measures over 74,000 square feet. Another former professional footballer, Fabrice Muamba, joined a welcome breakfast for team members.
    Chichester

    A new Bunnings store opened in Chichester, a city known for its cathedrals in West Sussex, south-east England. It measures over 80,000 square feet. Sarah Ayton OBE, double Olympic gold-winning sailor, helped to celebrate the opening.
    Rochdale

    Another Bunnings store opened its doors in Rochdale, a town in Greater Manchester. This store is the largest Bunnings Warehouse yet, at over 110,000 square feet and occupies a former B&Q site in Sandbrook Park, a retail park. The big box retailer submitted a successful application to occupy the site in August 2017.
    Sprowston

    The Homebase store in Sprowston has closed to reopen as a Bunnings Warehouse. Sprowston is a small suburban town bordering Norwich in Norfolk.
    Tool hire delivers for Travis Perkins

    The Travis Perkins Group seems to be on a growth trajectory with the company growing its revenue from GBP4.8 billion in 2012 to GBP6.2 billion in 2016. This is an increase of nearly 30%. As a result, Travis Perkins is now the UK's biggest supplier of construction materials, both to the construction and home improvement markets.

    It has approximately 100,000 different products available from more than 600 stores across the UK.

    Not all parts of the business have grown at the same rate. The tool hire division is a stand-out, now operating from 250 stores - and an additional 250 satellite locations - with 1,200 product lines and more than 80,000 assets available.

    In 10 years, the hire business has gone from having a revenue of just GBP22 million to in excess of GBP100 million, an upsurge of 355%. Travis Perkins group hire commercial director, Yas Swindell told Construction News:
    [The growth] ... probably outstrips most of the competition in terms of percentage growth. We have had a massive impact and TP Hire is now well-established as a national tool hire provider.
    Partnerships

    A key part of this growth has been down to some suppliers working more closely with Travis Perkins in delivering a better service. Mr Swindell said:
    It's a new way of challenging suppliers and some welcome that challenge. But change has to happen ... We cannot stand still in tool hire and keep accepting that's all our suppliers can offer. It's not. They really have to partner with us much more than they have done previously. We're challenging every single supplier that trades with us.

    While Travis Perkins now enjoys a better relationship with a majority of its suppliers as a result of the initiative, it says one company stands out from the crowd: Hilti. Mr Swindell explains:
    The relationship with Hilti has been established for more than 10 years now, although I've known them for a lot longer. That really has ramped up over the last 12-18 months when we've been talking to them about issues that the business faces on a day-to-day basis and how they could look to assist us in developing different ways of doing business.

    The evolving relationship between the two companies has resulted in a greater volume of products being available at short notice from a larger number of Travis Perkins outlets. Mr Swindell said:
    We have been developing new ways to bring the product into the business in volume. In the last 12 months, in excess of 10,000 assets have been brought into our current network, which just allows for stock availability. Hilti now represents 20% of our stock.
    Forward planning

    Immediate availability is extremely important to Travis Perkins, given that tool hire still isn't something its customers always plan for in advance. Mr Swindell said:
    It's still very much led by them believing that those tools will be there if they walk into any of our branches across the UK. Hilti has worked with us extremely well to try to alleviate that problem and to introduce product lines that we wouldn't necessarily have done in volume previously.

    Hilti assets now available at short notice don't just include the sort of standard items that customers might expect to be available at short notice, but also more specialised and cutting-edge equipment. Mr Swindell said:
    It's about areas such as diamond drilling, rotating lasers and certainly dust extraction.

    He said the addition of so many product lines brings with it the issue of service and repair.
    Under the terms of the agreement all service and repairs will be undertaken by Hilti at their Glasgow Service Centre, with tool collection to redelivery taking a maximum of 72 hours. This means we can optimise our fleet accordingly.

    It isn't just Travis Perkins that benefits from the new relationship, according to Mr Swindell.
    Hilti benefits too, not just in terms of sales, but also education in relation to feedback from our customers, our workshops and our colleagues in branch. I have to take my hat off to them - 500 stores is a huge challenge to any supplier. They have listened very carefully and formulated a plan with us. The customers have seen the benefits too.
    We want to be offering hire from every location that we have over the next 12 months. Hilti is listening and responding - we can't ask more of them than that.
    Strong rise in revenue for Grafton

    Builders merchant and DIY retailer Grafton Group said it is benefiting from a surge in spending on construction and home improvements in Ireland. The London-listed group owns the Woodie's DIY retail brand but generates more than 90% of its sales from its UK merchanting division.

    In a trading update, the company said its group revenue increased by 8.8% to GBP2.7 billion. Its total Irish revenues jumped by 16.2%, while its UK revenues increased by 4.7%.

    The company noted that daily like-for-like revenues in its UK merchanting operations softened - as expected - with trading conditions in the residential renovation maintenance improvement (RMI) market mixed. Like-for-like growth in UK merchanting in the last three months of 2017 slowed to 3% from 4.7% in the third quarter. Grafton said that the RMI market was impacted by general economic and household uncertainty and a competitive pricing market.

    Revenues in its Dutch operations increased over 49% higher as the broadly based economic recovery there continued to support increased activity in the housing and non-residential construction markets. Its Belgian revenues were also higher, rising by 7.5%, during the year. Grafton's chief executive Gavin Slark, said:
    We are pleased with the progress made across the group during 2017 which reflects the benefits of self-help and strategic initiatives to grow the business.
    We enter the new year in a favourable position well placed to implement our growth strategy supported by good cash flow from operations, a strong balance sheet and low net debt.
    Retailers
    USA update
    Home Depot showcases DIY projects in Pinterest pins
    HNN Sources
    Kroger and Ace Hardware eye partnership
    The Home Depot bids for XPO Logistics to keep Amazon out
    Click to visit the HBT website for more information
    The Home Depot creates built-in pins on Pinterest; Kroger want to add Ace Hardware store-within-a-stores in its supermarkets; XPO Logistics could be at the centre of a bidding war between The Home Depot and Amazon; Home Depot gets into the decor market with recent acquisition; and Lowe's to connect with shoppers through Apple's text app.
    Pinterest platform showcases DIY projects

    The Home Depot has launched a campaign on Pinterest that includes immersive experiences to show people how to execute DIY home improvement projects. The brand's "Built-In Pins" campaign showcase video, images and a 360-degree interactive shopping experience created with virtual reality ad firm OmniVirt, according to Adweek.

    Each 30-second spot illustrates how a couple transformed four rooms - bedroom, kitchen, living room and bathroom - from demolition to furnishing. Interactive views of the rooms let smartphone users look around at the furnishings and tap on orange dots to see details about the products used.

    After tapping on a dot, a pop-up window guides viewers through a mobile checkout at select stores. In addition, the campaign's Pinterest posts include guides on the methods pictured in the videos and which specific products were used. Ad agency 22squared helped develop the campaign.

    The retailer's 30-second videos are tailored to mobile phones, and the 360-degree experience similarly gives smartphone users an engaging look at finished rooms. This approach lets the company better manage the sales process, help shoppers visualise a product in their home and provide information employees may not know off-hand.

    Home Depot's effort underscores how mobile-first video marketing continues to gain traction as more brands use the full-screen vertical format popularised by smartphones. Home Depot's ads also function better inside Pinterest's mobile app than on a desktop browser.

    The promotion is the latest signal that Home Depot is experimenting more with a mobile-first strategy. It was recently among the first batch of retailers to test AR (augmented reality) ads on Oath websites, for example. Its AR ads showed how smartphone users can virtually place products like artificial Christmas trees in their own living rooms and view them from any angle to help decide whether to make a purchase.
    The Home Depot Packs Whole DIY Projects, Start to Finish, Inside Pinterest Pins - Ad Week
    Ace reviewing its in-store grocery presence: report

    US supermarket giant, Kroger is reportedly in preliminary talks to form a partnership that would allow Ace Hardware to open up mini-shops inside its stores, sources told analyst website, TheStreet.com.

    Under the partnership, Ace would have a presence within Kroger stores as a "store-inside-a-store".

    The store-within-a-store concept is nothing new to Ace. Since 2012, it has offered local store owners USD150,000 to adopt the model, in which stores of 5,000 square feet or less and can be located inside grocery or paint stores.

    Ace has a partnership, for instance, with paint chain Benjamin Moore. It has at least 400 Express stores, based on the latest data available. If the Ace set-up with Kroger goes through, the grocer would be Ace's biggest partnership according to the source with knowledge of the deal.

    Ace Hardware CEO John Venhuizen spoke to TheStreet.com in November 2017 about the need for diversification among retailers in the age of Amazon. He said:
    I don't know necessarily that every acquisition [by a bricks-and-mortar retailer] will have to be an e-commerce platform, but if retailers don't offer a differentiated experience and an assortment of goods, they will die" in the face of digital retail.

    More than 100 Ace Hardware locations are currently operated by grocery retailers, according to local reports. Many of the Ace Hardware Express locations are inside - or adjacent to - independent grocery stores and small chains.

    Houchens Food Group, a multi-banner operator based in Kentucky, began operating Ace locations in 2015 inside several of its formats. Jimmy Nichols, chief operating officer of Houchens, said at the time:
    From a product standpoint, Ace Hardware is a natural brand to combine with a grocery store, as it adds to the convenience factor and gives customers more reason to visit. We believe that Ace has a superior offering and has created a program specifically compatible with our mission to offer store-within-a-store convenience for our customers.

    Analysts and consultants have urged grocers, especially since the Amazon Whole Foods deal was announced, to consolidate either with other big players or third-party companies that could offer supply chain innovation or greater product assortment.

    Kroger has about 2,800 stores nationwide, but has been struggling to reverse a sudden drop in sales. Last year's first quarter was the first time in 13 years that it had recorded a decline in comparable-store sales, although it was able to bounce back in late November, posting a 1% increase.
    Home Depot, Amazon battling over logistics company

    Diversified logistics operator XPO Logistics is attracting attention after it was reported that The Home Depot is considering buying the trucking company if only to keep it out of the hands of Amazon.com, which was also rumoured to be interested in acquiring it.

    According to Recode, Home Depot executives held discussions among themselves about making a bid for XPO. It's understandable why Amazon would want the logistics business as it is getting into big-ticket items such as appliances and furniture. It has already assembled an air fleet for delivery and is planning to build a new distribution centre in Kentucky (USA), so a last-mile delivery service to supplement or even replace UPS and FedEx makes sense. But why would the home improvement retailer be interested?

    Investor website, Fool.com believes preventing Amazon from getting its hands on the logistics specialist is one reason, but the amount of money to buy XPO's USD9 billion business needs something a little more concrete than simply playing spoiler.

    Home Depot is already a major retailer of appliances, which represent almost 8% of its USD94.6 billion in 2016 net revenues. It is the second largest appliance retailer in the US, behind Lowe's, which became the industry leader in 2013.

    But Home Depot is looking forward to new opportunities beyond just its stores. At an analyst day conference in late 2017, the big box retailer said it was looking for revenues in 2020 to be around USD120 billion, a significant increase for a retailer that is expected to generate over USD100 billion in sales for 2017.

    It is also already a force to be reckoned with online as industry site eMarketer pegs it as the fourth largest e-commerce site with about USD6.5 billion in online sales that are still growing in excess of 20% annually. Home Depot's third-quarter earnings report indicated e-commerce sales had already hit almost USD5 billion through the first nine months of the year, a 21.6% increase. Perhaps more importantly, 60% of all of its sales whether in-store or online are influenced by a digital visit.

    Home Depot also told analysts it plans to spend USD11.1 billion over the next three years on investments in its omnichannel efforts, which includes expanding delivery options, such as same-day and time-definite options, as well as expanding its shipping options in Canada and Mexico.

    Moreover, it built a network of direct fulfillment centres capable of reaching 95% of the US population in two days or less with parcel freight, and 30% of the population in one day. Yet it specifically noted its appliance delivery business is a stand-alone that it's currently unable to leverage with other big, bulky deliveries. Acquiring XPO Logistics with all of its expertise in these areas would be a significant boost to solving that problem.

    But as much as Home Depot might want to thwart Amazon's continued expansion, it's equally true the e-commerce leader could outbid Home Depot. And strategically speaking, it may have much greater financial wherewithal to complete the deal as well as outlast any other suitor that might emerge. Walmart, for example, would be another reasonable potential buyer, as would UPS and FedEx themselves.

    It's clear XPO Logistics is well positioned to capitalise on retail's intense interest in the next stage of growth and it could become an even more richly valued prize if a bidding war suddenly breaks out.
    Home Depot gets in touch with its softer side

    US home improvement big box retailer, Home Depot has acquired The Company Store, an online retailer of home decor and textile products. It announced it would be acquiring the Wisconsin-based company for an undisclosed amount from Hanover Direct. Not included in the deal were The Company Store's five retail locations.

    The Company Store's website shows the company is focused on bedding, sheets, rugs, and pillows, traditionally seen as the "softer" side of home improvement. In the press release announcing the deal, Home Depot CEO Craig Menear said:
    The acquisition of The Company Store provides product development and sourcing capabilities to help us expand our online decor business into broader categories across the entire home.

    The Motley Fool website points out Home Depot signalled its decor strategy at its Investor and Analyst Conference, just prior to the announcement of the acquisition. It notes that executive vice president Edward Decker said the company sees an opportunity home decor categories. Taken from the transcript provided by S&P Global Market Intelligence, he stated:
    ...[W]e completed extensive research on customer shopping intent and found we have the authority to play and the right to win in several home decor categories. We believe we are well positioned to help our customers ... complete their decor-oriented projects with items like housewares, tabletop, interior furniture, wall decor and textiles. And consumers are increasingly purchasing decor categories online, so our efforts will largely be digital, where we will leverage our traffic and customer base for a natural scale advantage ... We're also investing in our interconnected decor shopping experience, with enhanced photography, shop-by-room or collection capabilities and style guides. And we are leveraging our existing capabilities to reintroduce home decor ... We're pleased with our results and are accelerating our decor investments.

    Mr Decker said that over the past 12 months, the company has introduced over 180,000 decor products from 500 different suppliers. This year Home Depot will sell more than USD25 billion in decor-related products which includes everything from flooring and lighting to window treatments.

    Mr Decker went on to say that this decor-related opportunity was all about "the customer taking us to project completion." In other words, when customers remodel a room they are already going to Home Depot for building materials, paint, and flooring; now Home Depot wants to ensure that customers stay when selecting the right drapes, rugs, and throw pillows to finish the project. This is what the acquisition of The Company Store is intended to accomplish.
    Marketing exposure

    While it's unlikely the acquisition will grow The Company Store's physical footprint, it may boost its visibility in terms of marketing. Home Depot has nearly 2,300 locations through which The Company Store name could be shared, locations in which customers could get that last-mile help putting the finishing touches on whatever home improvement projects they've undertaken.

    Home sales have been a driver for sales of tools and building supplies, creating a one-stop shopping experience, and have thus helped home improvement stores weather some of the industry changes. Home Depot's acquisition of The Company Store could be a strong pre-emptive move against any potential softening in home sales by keeping that momentum going.
    Lowe's shoppers can use Apple's text app

    Home improvement retailer, Lowe's is partnering with Apple for Business Chat that will allow consumers to talk to retail staff through Apple's Message app. Customers can use the solution to ask questions, resolve issues, and complete transactions via their iPhone, iPad and Apple Watch, according to Apple.

    Rather than call a customer service number, users will be able to "text" Lowe's with a dedicated number and have a text-based conversation with a customer service representative. Responding staff can share links to merchandise information, help schedule appointments or deliveries, and enable users to make purchases using Apple Pay.

    All interactions happen directly in the Messages app without having to visit another app or web site.

    Lowe's was attracted to the chat-based service as a means of engaging an increasingly digitally savvy customer base. Gihad Jawhar, VP of digital, said:
    Serving customers now requires us to be more connected than ever before. Our people, systems, processes and efforts must be connected - and they must be in line to create an omnichannel environment that is simple and seamless for everyone.

    Business Chat is also another way for Lowe's to remove friction across its omnichannel experience. Mr Jawhar said:
    We will drive customer engagement by delivering convenience, inspiration, expertise and efficiency across the most relevant moments of the customer's project journey.

    Lowe's will begin offering Business Chat when Apple launches a beta test of the service this year.
    Products
    Easy, breezy gardening
    Victa's handheld products featuring Swift-Start technology have auto choke and soft pull start
    HNN Sources
    Victa's Swift-Start trimmers are available with a straight or bent shaft
    The Swift-Start blower is easier and faster to start, enabling a consistent operation
    Click to visit the HBT website for more information
    Victa has released a range of handheld products featuring Swift-Start technology. With its auto choke and soft pull start, these new trimmers, chainsaw and blower are easier and faster to start while enabling a consistent operation.

    They provide stable operation, handling and reliability. Each feature an advanced anti-vibration system with noise conservation that reduces fatigue, according to the company.

    Victa's Swift-Start trimmers are available with a straight or bent shaft. These models are fitted with a Walbro carburetor and 25.4cc engine, a shoulder strap and interchangeable heads.

    The 18-inch domestic chainsaw is lightweight, and finished in steel and durable plastic. Requiring minimal maintenance, it has an on-board tool for easy chain tensioning.

    The Blower/Vac offers a cruise control function to set a consistent air speed. Users simply convert to vacuum operation to complete the job and mulch debris.
    News
    HI News V3 No. 13: Kitchen markets 2018
    Download the latest issue of HI News Vol. 3, issue no. 13
    HI News
    Kitchen markets in 2018
    Bunnings FY2017-18 Q1 results
    Click to visit the HBT website for more information
    Kitchens dominate the last issue for 2017. White kitchens had a major influence on the market this year but the trend will likely fade by the end of 2018. The new kitchen is more modest, less "kitchen-y", and closely integrates with the surrounding rooms. As part of our extensive analysis of this sector, we take a look at the types of surfaces that make kitchen benchtops.

    Simply click on the following link to download this edition:
    HI News V3 No. 13: Kitchen markets 2018

    We also report on the largest corporate players in the Australian home improvement industry: DuluxGroup (Dulux) and Bunnings.

    Bunnings in Australia continues to grow strongly and Bunnings in the UK

    and Ireland is working hard to improve in 2018. Dulux experienced good

    growth in its core paints business but the company faces challenges in the medium term.

    Metcash's hardware entities, along with individual respondents, have filed defence statements in the pending court case brought by National Building Suppliers, alleging a data breach. We explore some of the general issues involved, and provide examples of the defence document contents.

    In the statistics section, we present two views of the housing downturn: the building industry sees this as a medium-term downturn, and the real estate/home

    owner market sees it as more short term. Factoring in RBA intervention, HNN

    agrees with the building industry

    In other news, Kingfisher posts its third quarter results along with US-based home improvement retailers, Ace Hardware, Home Depot, Lowe's and True Value.

    Suppliers featured in this edition include Brighton Best, Hillman, James Hardie, Stanley Black & Decker, and Big River Group.
    Editorial
    Kitchen markets 2018
    White kitchens have become dominant
    HI News 3.13
    US architect Robert Eichler designed a different style of kitchen in the 1960s
    A thoughtful use of an IKEA kitchen in London
    Give to Amnesty International
    If you wanted a single metric on which you could judge what happened to kitchens in 2017, you could do worse than to look at that perennial source of overstated kitchen style, the television reality renovation show, "The Block".

    In the most recent season 13, the "kitchen reveal" clocked in with 1.545 million viewers, in third place behind the "backyard reveal", and, the winner, "master suites reveal". The "interim" shows about the kitchen building process were also very low on the rankings. This is in sharp contrast to the previous two or three seasons, where kitchens were ranked first or second, and the interim shows attracted decent audiences as well.

    Looking at the kitchens themselves, it's easy to see why. They are (mostly) functional and pleasant. However, in contrast with past seasons where some kitchens on "The Block" have been extravaganzas of vast counters, expensive appliances and high-end finishes, these kitchens were mild, bland, a little outer suburban. Appearing in the aftermath of the near operatic drama of the very large master bedroom suites from the previous week, they seemed almost negligible.
    Design changes

    The most recent "The Block" kitchens were also, universally, "off-trend". While they all clung to the standard accoutrements of what has come to be a "modern" kitchen -- bench seating for meals, textured benchtops, contrasting dark cabinet doors, displayed appliances -- much more pared-down kitchens began moving into prominence for the fashionable in late-2016.

    As shown in such display showcases as the recent Australian Interior Design Awards, the leading-edge kitchen today is simplified, with the clean lines of a modern table replacing stools at a kitchen counter, near seamless and handle-less cabinetry the ornamental efforts of the past, with appliances either concealed or modestly displayed.

    They are also, near universally, dominated by the colour white. "White", of course, is a way of referring to an entire design trend, which we might think of as being all about "simplicity", delivered in a spare, smooth style, that is not Scandinavian in origin, but heavily influenced by Scandinavian design. The overall colour pattern remains white, but this is accented by "blush" colours, including pink and grey. Another strong trend is white-and-timber, with light- and mid-brown timber used to accent a white kitchen, or white used to accent a predominately pale timber kitchen.
    Why white?

    The move to white in kitchens tends to be significant whenever it occurs. It is motivated by a number of different factors, some cultural, some commercial, and some oriented around a shift in the way consumers view and use their kitchens.

    In terms of the commercial aspects, it pays to be aware that the kitchen area, which is one of the most profitable ones in home renovation, is highly competitive. There are four levels of competition: the "flatpack" kitchens; the mass-kitchen suppliers; builder/specialist custom kitchens; and high-end designer custom kitchens.

    Group 1, the low-end, is dominated by Kaboodle and IKEA, though Freedom has launched its "Essentials" range in order to compete in this area, and Hafele is expanding its marketing to include more independent retailers.

    Group 2, the mass-market area, does sell to DIYers, but it is more strongly focussed on tradies who install kitchens. One of its key players is Principal, which seems to have taken over the Mitre 10 business after being the main supplier for the Home Timber & Hardware Group (HTH), when these merged into the Independent Hardware Group (IHG).

    Group 3, the builder/specialist segment, features some major chains, such as Freedom and The Good Guys, but also smaller, regional players.

    Finally there is Group 4, the top-end designers, who are often associated with architectural firms, and whose renovations are usually part of a more comprehensive refit or refurbishment.

    In terms of the costs of kitchens, there seems to have been some movement on this since mid-2016, with the amount most consumers are willing to spend steadily coming down. There is a general consensus among those HNN contacted that $18,000 would pretty much mark the middle of the market in terms of numbers.

    Kitchens under $18,000 are clearly dominated by Group 1. Kitchens from $18,000 up to $27,000 are in the most competitive area of the current market, with Groups 1 to 3 competing. In the $27,000 to $48,000 region, Group 3 dominates, and over $48,000 is the territory of both Group 3 and Group 4.

    The HIA pegs the average price of renovation kitchens at around $20,411. Chart 4 shows the spread of spending as determined by the Houzz Kitchen Trends Study - Australia for 2017. This is tilted a bit more towards the high end than the HIA figure would indicate, as it is based on the Houzz market, which would tend to be a little more "upmarket" than the general population.

    While these are average figures, HNN's own research indicates there are some differences between the states. In particular, kitchens in NSW tend to be priced about 10% over the average. Surprisingly, over the past two years, that trend has been reversing in VIC, where kitchen costs are averaging down about 10% on the HIA number.

    So, how does white play into these numbers? Well, for one thing the Houzz survey certainly supports the "rise of white": the top three colours for kitchen cabinetry are white at 61%, grey at 7% and black at 5%.

    In terms of its commercial effects, however, white is very much a competitive strategy adopted by the more high-end kitchen installers and designers. One of the factors that have driven them to this strategy is the high level of success of both Kaboodle and IKEA in the lower-end market. IKEA's new Metod kitchen has proven to be very popular, especially as it reflects basic Scandinavian values, and Scandinavian design is growing in popularity. Kaboodle's colourful kitchens have brought a sense of play and engagement to what was once a very plain utility room.

    The success of these kitchens has driven custom kitchen makers to find new ways to differentiate their offerings. Initially they did this through the use of more exotic benchtops, but both IKEA and Kaboodle devised strategies to match this. Eventually, though, they found the perfect weapon to hold back these competitors: white.

    Nothing is quite so difficult to bring off as a really good, all-white kitchen. With the removal of colour, the kitchen is all about form and -- to some extent -- texture. Every seam, every knob, blemish in a benchtop, every slight jot of colour, is shown up and broadcast.

    These kitchens virtually demand custom design. Without careful customisation and fitting to a space, they can end up being cold, clinical and formless -- in fact, simply "cheap looking".

    Pared down to extreme simplicity, without the "breakfast counter" (actually designed in the US to mimic the counters found in most diners), relying instead on a matched and carefully chosen table, it is a look that really is beyond the reach of most DIY/flatpack kitchens.

    While IKEA has not done too badly out of this shift -- with a semi-custom installation these kitchens can come close to matching this style -- Kaboodle seems to have fared less well. Even its in-store displays at Bunnings, which were really designed to showcase colourful kitchens, fare less well when white and very pale colours dominate. Added to this is that IKEA kitchens have given rise to a wide range of "hacks" that enhance and extend their utility, as people all over the world experiment with additions and variations, such as custom wood doors mounted on IKEA cupboard carcasses. Kaboodle has yet to really benefit from this kind of (partly social media driven) innovation.
    The other side of white

    While these commercial aspects are an important part of the story of white, there is much more to it. What is also going on is a restructuring of the kitchen, in the sense of the role it plays in the house. While the past four or five years have seen the rise of the "kitchen as living-room", the kitchen is instead now becoming more of an integrated part of the house, functioning as a conjunction to living, dining, and family rooms.

    To get a glimpse of how this works, it is really worth reading a blog post by London-based designer and blogger Cate St Hill, on what she calls the "transformation" of her apartment through an IKEA kitchen makeover.

    To continue reading the complete story, please download HI News (it's free, of course):
    HI News 3.13: Kitchen markets 2018
    Bigbox
    Bunnings FY2017-18 Q1 results
    Interior of a Bunnings UK store
    Wesfarmers
    The Christmas display inside a Bunnings UK store
    Bunnings UK opens yet more stores
    Click to visit the HBT website for more information
    Wesfarmers has released its sales results for the first quarter of FY2017/18. Coles food and liquor saw sales of $7968 million, an increase of 1.5% over the previous corresponding period (pcp), which was first quarter FY2016/17. Sales at Coles branded convenience stores fell by 9.5% to $1402 million, giving the overall Coles group a revenue decline of -0.3%.

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

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

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

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

    In response to an analyst's question, Mr Schneider mentioned that the number of like-for-like transactions for BUKI had fallen by 5% over the pcp. Commenting on this, he said in part:
    It is not surprising when you think we are cycling the exit of the non-core ranges, and the clearance that Richard [Goyder] mentioned at the start, as well as cycling in the price deflation in the area of kitchens. 

    UK hardware retailer Travis-Perkins reported the following results for its consumer division during the reported quarter:
    Like-for-like growth in the Consumer division slowed in the third quarter to 2.4%, primarily due to more subdued growth in Wickes reflecting very strong comparatives form Q3 2016 and an increasingly difficult market environment.

    Similarly, European and UK based home improvement retailer Kingfisher stated on its results for its Q3 2017 in the UK and Ireland:
    Total sales +2.5%. LFL +1.5% reflecting continued strong Screwfix performance and modest price inflation.
    B&Q UK & Ireland sales -2.9% (LFL -1.9%) reflecting annualisation of completed store closure programme. LFL of seasonal -7.1% reflecting a strong comparative (Q3 16/17: +5.3%). LFL of non-seasonal, including showroom -0.6%.
    Screwfix sales +16.6%. LFL +10.2% driven by its leading digital capability, new and extended specialist ranges and new outlets.

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

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

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

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

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

    Mr Errington went on to ask if the company is contemplating a "Plan B" exit from the UK market as costs continue to blow out.
    When do you have to start considering Plan B here? The capital that is employed is in the billions [of dollars] when you are looking at the leases etc., and the only strategy is to try to get out of that rump of poor-performing Homebase stores, and to try to convert them into Bunnings stores.
    ...
    It really is a high risk move now that is just offsetting... I mean the drop in sales in Homebase is a third of the growth in sales in Bunnings Australia

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

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

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

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

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

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

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

    In terms of kitchens, it's very difficult to judge what Bunnings is doing with these in Homebase and Bunnings UK. We would note that Kaboodle in Australia has begun to offer custom-sized kitchen cabinets cut down to order, and it seems possible such a service may be destined for the UK.
    Companies
    Dulux results FY2016-17
    Results for DuluxGroup 2016/17
    DuluxGroup
    Bunnings stocks Dulux products
    Global shares of market by paint company
    Subscribe to HNN weekly e-newsletter
    Australia's DuluxGroup (Dulux) has released results for its FY2016/17, which ended on 30 September 2017. Overall sales revenue came in at $1784.5 million, up by 3.97% on the previous corresponding period (pcp), which was the 12 months to 30 September 2016. Earnings before interest and taxation (EBIT) was $214.2 million, up by 6.51% on the pcp. Net profit after tax (NPAT) was $142.9 million, up by 9.59% on the pcp.

    Excluding non-recurring items, which in this case was a tax write-back of $3.1 million, NPAT was $139.8 million, a still very good boost of 7.21% on the pcp.

    In the press release that accompanied the results announcement, the company's managing director, Patrick Houlihan, noted that he expects the coming financial year to be very positive for the company. He is quoted as stating:
    Lead indicators for our key markets in Australia and New Zealand remain largely positive. Our core market, which accounts for approximately two thirds of DuluxGroup revenue, is the renovation of existing homes. We expect this market to continue to provide resilient, profitable growth.
    Subject to economic conditions, and excluding non-recurring items, we expect that 2018 net profit after tax will be higher than the 2017 equivalent of $142.9 million.

    In his opening comments at the presentation of the results to investment analysts, Mr Houlihan further commented:
    We believe that DuluxGroup is very well-placed for the future with multiple streams of opportunity. Our well established Dulux, Selleys and Yates businesses have plenty of growth in terms of their runway. Five years on from the acquisition, the Alesco businesses, being B&D Group, Lincoln Sentry and Parchem, are collectively generating a 16% return on net assets or RONA [return on net assets], and we believe they still have further upside.

    In further remarks commenting on the company's efforts to expand its business in the UK market, Mr Houlihan said:
    We are also pleased with the progress we are making in the UK with both Selleys sealants and adhesives and Craig & Rose Paint. Our Selleys Cracks Gone and Gaps Gone ranges are now in both the Bunnings stores and existing Homebase stores and we are focused on growing sales largely thorough a targeted instore ambassador program.
    During the second half we rolled out the new Craig & Rose 1829 premium range and Artisan specialty paints range into the Bunnings stores and selected Homebase stores. We built a strong team in the UK drawing on knowledge and expertise from Australia. The UK business is expected to be lossmaking in 2018 given the ahead of the curve investment in sales and marketing.
    Dulux ANZ

    In the results presentation an unusual amount of time was spent on this segment of the business, in terms of more precisely defining its market and the features of that market. While many of these numbers have been available previously, it is perhaps worth going over some of them.

    This segment accounts for 52% of sales revenue, and 68% of EBIT.

    Revenue grew at 5.2%, with Australia (90% of the segment) growing by 5%, and New Zealand by 6%.

    For revenue, the market consists of:
  • 65% maintenance/home improvement
  • 15% new housing
  • 15% commercial and engineering
  • 5% industrial

  • For the year, the decorative paint market as a whole grew by 1.5%.

    In terms of volume:
  • renovation and repaint market is 75%, and had flat growth.
  • new housing is 20% and grew at 6%.
  • commercial is 5%, and grew at 3.5%

  • Retailers:

    Bunnings: Dulux believes it has around 60% share.

    Independent Hardware Group (IHG): For the Mitre 10 stores, Dulux estimates about 66% share.

    Inspirations paint stores: around 90% share.

    Trade painters: estimated 25,000 in Australia.

    In his prepared remarks, Mr Houlihan described the causes for growth:
    The positive share result reflected our ongoing focus on consumer marketing and innovation, good outcomes with our key aligned retail customers, and the ongoing investment in our own trade network. The positive price outcomes reflected price increases to mitigate raw material increases and a skew towards more premium Dulux branded products. Raw material costs increased in the second half driven by titanium dioxide.

    Responding to an analyst's request for more detail, Mr Houlihan explained that the decorative paint market had "normalised" during the year, as the effect of the exit of Masters Home Improved was washed:
    The decorative market grew 1.5% for the year. So that returned to a long-term trend. In the first half, that was actually closer to 0.5%. In the second half it was much stronger and the reason for that was the core renovation and repair portion of that flipped from being minus 1.5% in H1 to being itself positive 1.5% in H2. And really the key driver behind that was, as we entered H2, we didn't have all that retail channel noise going on that we've had for couple of years recently in terms of sales in/sales out. H2 basically normalized to the long-term trend of 1.5%.

    Mr Houlihan also used his opening remarks to reiterate a point he has made in the past, which is that new housing plays a minor role in Dulux revenues.
    In the past we have mentioned that when we model the overall paint market, the strongest correlations are GDP. For the 75% of the market that relates to existing homes and new housing completions is typically related to 20% of the market, though it's a little more than that at present, related to the new housing activity. We have also mentioned that our market share of the new housing sector is deliberately low at about half our overall market share. We have also shared our view that housing turnover is not strongly correlated to our overall paint market volumes.

    Another familiar theme was Mr Houlihan's response to a question about whether the US paint company Sherwin-Williams, which recently merged with Valspar, might pose a threat in the future.
    I suppose I sort of touched on this a few times before in terms of it's sort of the next inning for us so to speak in that we've been competing against global competitors really since 2007 when PPG acquired Tolman's and then the coming and departure of Nippon and Valspar acquiring Wattyl in 2010 before now Sherwin-Williams have acquired them. I suppose if I think about the retail part of the market, in recent years, go back to sort of 2010 when Valspar did acquire Wattyl, during all that time we've continued to disproportionately carry on investing in the Dulux brand, our marketing initiatives, supporting our retail channels.
    ...
    On the trade side of that business, again, we've got that disproportionate scale and sort of continuous investment we've built up incrementally bit by bit over 20 years. We haven't seen any sort of changes of note from the Wattyl organization to date.
    Other segments

    Selleys and Parchem ANZ had revenue of $260.7 million, up by 2.7% on the pcp. Selleys' sales grew by 5.5%, while sales at Parchem declined slightly. EBIT was up by 14.2% on the pcp, coming in at $33.7 million. The company says that Selleys is well-positioned for future growth, and the Parchem's position will improve.

    B&D Group saw revenue up by 2.6%, reaching $182.5 million. EBIT also increased, up 13.0% on the pcp to come in at $18.2 million. The company says it grew share by 3%, with the overall market going up 2%. EBIT improved as the company exited some low margin contracts, improving selling price and product mix. The company sees the segment growing in coming years through better marketing, innovation and improved distribution.

    Lincoln Sentry had sales revenue lift by 4.0% on the pcp, coming in at $195.2 million, while EBIT also increased by 16.0%, to $14.5 million. Sales growth came from cabinet hardware, which was driven by sales to home renovators.

    In Dulux's other operations, sales lifted by 2.4% to $222.2 million, but EBIT fell steeply by 22.1% to $11.3 million, driven down by poor performance at the company's DGL Camel operations in China.

    The company has also entered into a joint venture in Indonesia. According to its financial report:
    In August 2017, DuluxGroup and PT Avia Avian Indonesia agreed to form an Indonesian joint venture company, PT Avian Selleys Indonesia. The joint venture is 50.01% owned by DuluxGroup and will manufacture and market Selleys products in Indonesia. With minimal capital investment, DuluxGroup will leverage Selleys technology, brand and market capabilities in a large and growing market, by partnering with Avian, a leading Indonesian paint manufacturer with an extensive local distribution network selling into approximately 40,000 retail hardware outlets. The joint venture is expected to commence trading in the second half of the 2018 financial year.
    Analysis

    As HNN has remarked in the past, Dulux is doing very well, and will no doubt continue to prosper for the next two or three years. However, what remains unclear is what the company is doing to counter difficulties which could become pressing after 2020.

    In this full-year report, as in reports from the past, the attitude of Dulux tends to be that as things have worked out very well in the past, they will continue to do well in the future. This is an understandable attitude. The paint business is essentially all about chemicals manufacturing, which requires very large investments in plant, equipment, research and personnel. Added to that is the need for significant marketing investment, and, as Mr Houlihan has noted in the past, a very large advantage granted to any long-term market incumbent with over 30% of market share.

    However, this tends to ignore the fact that the global paint industry is undergoing a massive disruption, brought about by the need for already large paint companies to merge. Sherwin-Williams has perhaps another year of work to fully consolidate its Valspar acquisition. While Akzo Nobel will continue to resist acquisition by PPG, this seems clearly a case of "sooner or later". Dulux may be simply living in the lull before the storm, which will come when, eventually, these mammoth companies turn their attention to Australia.

    As HNN has commented in the past, what seems to be driving these convergences is at least partly the need for a high level of investment in research, particularly the development of paints based on nano-particles and possibly other nanotechnologies.

    Dulux is rightly proud of its own research prowess, the R&D centre at Clayton in Victoria, and what Mr Houlihan describes as "80-odd technologists and chemists across the broader Dulux business". Sherwin-Williams combined with Valspar has over 1000 researchers. To put this in perspective, that is 25% of the entire Dulux workforce.
    Bigbox
    Big box update
    Bunnings is seeking approval for a Woolloongabba (QLD) store
    HNN Sources
    Australia's first Bunnings Warehouse in Sunshine (VIC) re-opened its doors recently
    The Bunnings Hamilton South store in New Zealand is for sale
    Click to visit the HBT website for more information
    Bunnings lodge new plan for Balmain; Bunnings abandons Panorama site in favour of Edwardstown in South Australia; more development applications and approvals for Bunnings; store openings in Sunshine (VIC) and Devonport (TAS); Victorian stores sold; and Bunnings' New Zealand store network expands.
    Change of plan for Balmain outlet

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

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

    Bunnings general manager - property Andrew Marks previously told the Inner West Courier the small format store would offer a "convenient alternative to visiting the larger Bunnings". He said:
    The site (has) a history of commercial uses and is surrounded by retail and wholesale and light industrial businesses. We remain committed to bringing jobs and investment to the local community.

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

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

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

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

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

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

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

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

    Related:
    Bunnings' micro-warehouse in Balmain - HNN
    Bunnings switches up site in SA

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

    Mitcham Mayor Glenn Spear told Adelaide Now that Bunnings pulling out of the area was a "great opportunity missed". He said:
    First of all, it's $50 million in capital that hasn't happened in Mitcham. The site is a pigsty ... We missed out on the economic impact of jobs while the centre was being created, we miss out on 170 ongoing jobs for our people and we miss out on significant rate income.

    Panorama Clapham Community Group spokesman Neil Baron said there was strong community support for a Bunnings store in the area on the former TAFE site. He said:
    People thought it was going to go through and they didn't have to vocally support the issue...The community was supportive. There were a few individuals who didn't want it, like any situation, but I think overall if we look at Bunnings ... it's not an evil, illegal entity we should be shunning, it's something we should embrace.

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

    In a brief statement, Bunnings general manager of property Andrew Marks thanked members of the community who supported the proposal.
    We will now be exploring other development opportunities for the site.

    Related:
    Big box update: Bunnings submits plans for Edwardstown - HNN
    More Bunnings stores get green-lit

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

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

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

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

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

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

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

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

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

    Gabba Business Association president Suzanne Bosanquet said while it might have an impact on medium-sized traders, the new store would be a great thing. She said:
    This will bring people to the area. That part of the Gabba really needs activation. At the moment people are having to drive out to Cannon Hill or Tarragindi to go to a Bunnings, but now they will come here.
    Particularly after Mitre 10 closed at West End, something like this is really needed.

    Finlayson's Timber and Hardware director Michael Finlayson said while they took nothing for granted, their business was much more trade based and they were confident of fending off any competition. He said:
    We will just focus on improving our trade offer. We have knowledge of the industry nobody else has,.
    Element Park business park

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

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

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

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

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

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

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

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

    Canberra Airport managing director Stephen Byron said the Airport looked forward to welcoming Bunnings Warehouse to Majura Park. He said:
    The arrival of Bunnings, coupled with the recent opening of AutoBarn and Dan Murphy at the shopping centre, are fantastic additions to our customer experience and breadth of offer.

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

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

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

    Store manager Matt Caruana said he was delighted with the results of the 16-week project. While pleased with the end result, Mr Caruana said the project was difficult from a logistical standpoint. He told Star Weekly:
    We have 110 team members here who had to be placed in other stores while the works were being undertaken. On top of that, there's also the risk that shoppers will become comfortable at alternative stores. We're surrounded by Bunnings stores around here.

    But with the project now complete, Mr Caruana said the store is now a source of great pride.
    We had a staff opening for the store before we had the public one and 700 people attended, which just shows how much this place means to the organisation. It was definitely all worth it. As Australia's first Bunnings store, it's important that it's kept in line with modern standards so it stays around for many more years to come.
    "Motivational" Devonport opening

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

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

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

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

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

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

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

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

    The site has capacity for big box retail outlets, fast food and medium to high-density housing, according to RCL chief executive David Wightman.
    Trade centre opens in Hawke's Bay, NZ

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

    After investing more than NZD4 million into the trade centre on Heretaunga Street, Bunnings commercial manager (NZ) Des Bickerton said Hastings' thriving building industry and the "booming" wider Hawke's Bay economy were major reasons behind the move. He told the New Zealand Herald:
    We used to be Benchmark Building Supplies and we had a really strong presence here, then obviously when Bunnings came along and took over our Benchmark stores and rebranded them, we really realised we've always wanted to have a strong presence here, so this is exciting for us ... It's a great opportunity, especially on our trade side we deal with everything from orchardists, farmer to builders.

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

    The trade centre was officially opened by former All Blacks Taine Randell and Jeff Wilson. Mr Randell said:
    For Hawke's Bay, certainly the last few years have been fantastic and to have an international company like Bunnings to have the confidence to invest in Hastings is fantastic.

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

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

    Bunnings New Zealand general manager Jacqui Coombes said the new smaller format store was expected to open in early 2018. She said:
    We can confirm we have received draft resource consent for a new Bunnings store in Rangiora and are currently reviewing the conditions.

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

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

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

    Jason Seymour of Colliers International said Hamilton is experiencing strong growth as a result of New Zealand's economic success.
    Construction of the Waikato Expressway, due to be completed in late 2020, is expected to cut travel times to Auckland significantly, making Hamilton much more accessible.
    Retailers
    Indie store update
    Cooper's Hardware in Bundaberg (QLD) shuts its doors after 25 years
    HNN Sources
    Porters Mitre 10 in Mackay (QLD) store will join the Sapphire network of stores
    Dipper's Home Timber and Hardware recently celebrated its fifth birthday
    Click to visit the HBT website for more information
    Cooper's Hardware shuts its doors after 25 years; Porters Mitre 10 in Mackay (QLD) will become a Sapphire store; and Dipper's HTH moves forward after the loss of Anthony "Dipper" Diprose.
    Bundaberg HTH closes due to insurance

    The Bundaberg News Mail reports that a Home Timber & Hardware Group store has been forced to close, mainly because it cannot obtain insurance against flooding.

    Cooper's Hardware has been in business for a reported 25 years. It suffered during the floods that swept through Bundaberg in 2011 and 2013, but managed to recover from those two events. Now, however, the store finds it cannot obtain the necessary insurance, and has little choice but to close down.

    Store owner Stephen Cooper is reported by the community newspaper as saying:
    Trying to sell a property and business, which was highly saleable before because it had insurance cover, is not saleable now because no one is going to buy a business that isn't insured. It has reduced our ability to talk to banks, borrow, all the things you need to do and put a massive amount of pressure on us.

    Mr Cooper is reported as being a strong supporter of flood mitigation efforts in Bundaberg. In particular, he sees the establishment of the East Bundaberg levee as crucial to the town's future.

    Mr Cooper also believes that the entry of Masters Home Improvement into the market (even though he runs an HTH-bannered store) and the ongoing expansion of Bunnings have helped make his business less viable.

    While his own business will cease, Mr Cooper is reported as being enthusiastic about the future of Bundaberg itself, praising in particular the $16 million CBD Revitalisation Project.
    Porter's M10 moves to Sapphire

    In April 2017 the well-known Porter family of Mackay, Queensland, moved to buy most of the equally well-known Woodman family's Mitre 10 stores. This included the stores in Sarina, Marian, Proserpine and Cannonvale, but not the store on Nebo Road, Mackay, which has subsequently been closed. The stores re-opened under the Porter's Mitre 10 banner in early June 2017.

    Since then, Porter's has been busy, and is now most of the way through converting its Mackay store to become part of the Mitre 10 Sapphire program. That work is expected to be completed by mid-January 2018, but the results are already evident in the stores, according to the Mackay Daily Mercury newspaper.

    The Mercury quotes the managing director of Porter's, Gavan Porter Snr, as saying that the new stores will include wider product ranges, and a higher level of amenity. Included in the changes will be showrooms for the Principal DIY/trade kitchens.

    The Sapphire program now has 28 converted stores across Australia. It introduces a standardised way of presenting products, which is customised to each unique store. Independent Hardware Group/Mitre 10 also uses the program to encourage store owners to range specific products, the "core range". Metcash quotes an average retail sales of uplift of more than 15% for converted stores.
    Joy, sadness as Dipper's HTH turns 5

    The day of 1 November 2017 was greeted with joy tinged with some sadness at Dipper's Home Timber & Hardware in Moree, NSW. It was a joyful occasion because it marked the five year anniversary of when Anthony "Dipper" Diprose and wife Rebecca first opened their store. It was also somewhat sad as Mr Diprose passed away recently, in September 2017.

    The store did not take long after opening to become one of the stars in the HTH fleet. Just two years after opening, in 2014, the store won the prestigious Home Timber & Hardware National Store of the Year award for stores larger than 1000 square metres. Recently, Dipper's found out it had won yet another award, the 2017 Northern NSW Home Timber & Hardware Store of the Year, again in the over 1000 square metres category.

    Speaking to the Moree Champion newspaper, Ms Diprose reflected on the hard work that had made the store possible.
    When Dipper and I embarked on this business we knew the early years would be hard work - long hours and steep learning curves - and they were, particularly with a young family.
    But we knew that for all that hard work we were building a brand and a fantastic local business that could withstand any challenges - and one that would eventually afford us more family time, and, of course, give Dipper more time on the golf course!

    Ms Diprose is determined to continue running the store. The Moree Champion reports that she has long been involved in its management, and has the benefit of a strong supporting team of managers in the store itself.
    Companies
    Supplier update
    Big River has launched MaxiWall nationally. It is an autoclaved aerated concrete product.
    HNN Sources
    Brighton Best has taken on NSW-based fastener supplier, Koala Nails
    Fermacell is one of Europe's largest producers of gypsum board
    Subscribe to HNN weekly e-newsletter
    Acquisitions help Big River improve supply to Australia's building industry; Koala Nails becomes a subsidiary of Brighton Best; James Hardie plans for Europe push; Hillman Group buys a Texas fastener manufacturer; four tool brands come together under the Crescent name; and Stanley Black & Decker will open an Advanced Manufacturing Center of Excellence.
    Big River positioned for trade

    Building materials company, Big River Group is experiencing a period of growth in its share price following the acquisition of four timber businesses. The acquisitions reflect Big River's plan to better supply the trade segment of the building and construction industry in Australia.

    In March 2017 Big River acquired Adelaide Timber & Building Supplies (ATBS), a supplier to the SA market. In April, Sabdia Mitre 10 in Brisbane was acquired, followed by Midcoast Timbers on the Gold Coast in September, and Ern Smith Timber and Hardware in Hume (ACT) due to complete in December.

    These latest acquisitions have increased the company's sales and distribution outlets to 13 locations in the major population centres. Big River managing director Jim Bindon told the Daily Examiner:
    These new businesses increase the group's exposure to detached housing and the alteration and additions market, to better balance activities in other sectors. They were key purchases within our continued diversification strategy across states and construction segments.

    The acquisition of ATBS allowed Big River to launch MaxiWall, a new, cost-competitive autoclaved aerated concrete product, nationally. Previously the MaxiWall brand was only available in South Australia. Mr Bindon said:
    Solid outlooks in the detached housing and commercial construction markets and a sizeable increase in the civil and infrastructure pipeline, together with Big River's geographic diversity, means we are poised to continue this success in 2018.

    The acquisitions come on top of the company's listing on the ASX under the company's parent name, Big River Industries (BRI) earlier this year.

    Related:
    Supplier update: Big River listing in a fragmented industry - HNN
    Koala Nails now part of Brighton Best

    Brighton Best International (BBI) has closed its acquisition of NSW-based fastener supplier, Koala Nails.

    In a correspondence to its distributors, BBI president Jun Xu said that "combining the strength of BBI's worldwide distribution network and sourcing abilities, with the ... knowledge of the Koala Nails team, will bring tremendous value and benefit to customers ... and strengthen the distribution channel by providing opportunities for both companies."

    Patricia Palladino, director at Koala Nails concurred in the same correspondence, and said that "adding the Koala range of products to BBI's offering makes sense and will provide long term strength and growth opportunities for Koala's current companies and potential for much larger reach for future customers".

    Koala Nails began operations in 1981 and its product line includes collated screws, loose screws, framing nails, coil nails, collated brads, collated staples, pneumatic air nailers and staplers, nylon nail-it plugs and mickey pins, split drive anchors, tie wire anchors and hammer drive alloy anchors.

    Ironclad Performance Wear, a US-based supplier of hand safety solutions has also been acquired by BBI for an undisclosed amount. It specialises in manufacturing task-specific PPE (personal protective equipment) gloves.

    Founded in Cincinnati, Ohio (USA) and headquartered in Taiwan, Brighton Best is a global supplier of industrial and construction fasteners. It has more than 31 locations and 2.4 million square feet of warehouse space.
    European growth plan for James Hardie

    James Hardie Industries has entered into an agreement to acquire German-based XI (DL) Holdings GmbH and its subsidiaries which includes Fermacell, one of Europe's largest fibre gypsum board manufacturers.

    James Hardie CEO Louis Gries said the Fermacell acquisition is about accelerating in Europe where demand is rising. He also said the group isn't likely to pursue any other big acquisitions for the next five years after spending $720 million to purchase Fermacell. Mr Gries told The Australian Financial Review.
    This is an unusual step for us. We're an organic growth company.

    James Hardie had been exporting into western Europe from the United States but wasn't able to develop enough momentum. Mr Gries said:
    We just haven't gotten the traction that we wanted. We were just not a big enough influencer in the market,

    So it opted to buy Fermacell when it came on to the market in a competitive sales process. The acquisition is expected to close in the fourth quarter of James Hardie's 2018 fiscal year.

    Mr Gries said Fermacell had more than 70% market share in the fibre gypsum board category in Germany and was the best springboard to capitalise on economies in western Europe, which were starting to show more signs of life.

    He said the company would now focus on generating organic growth. The US still represented the biggest opportunities for the company, but the Fermacell acquisition gave it a much better platform to build a bigger European business. Before this deal, the North American operations represented about 80% of the company's business.
    We think what Fermacell does is give us that regional capability and regional influence that will be important to launch a much higher-growth fibre cement strategy in Europe.

    Mr Gries said Fermacell has good growth opportunities in Europe, not as big as those that James Hardie has in the US market, but similar to those in the Australian market. He said:
    Fermacell will diversify our geographic, product and end-market portfolio, complementing our strong positions in North America and Australasia...

    Mr Gries also said the company was "pretty happy" with the continued momentum of its Australian business in building products at a time when property markets in Sydney and Melbourne were slowing.
    Hillman buys specialty fastener maker

    US-based Hillman Group has purchased Texas fastener manufacturer, Hargis Industries which does business as ST Fastening Systems (STFS). It has become part of the company in a deal in which financial details were not disclosed.

    STFS's headquarters will remain in Texas and industry veteran Bruce Crouch will continue to lead it as a part of Hillman. It will also maintain a distribution centre in Cincinnati, Ohio, where Hillman is based. Hillman CEO Greg Gluchowski said in a statement:
    We are excited to have STFS join the Hillman family. Bruce is a great addition to the Hillman leadership team and we look forward to the contributions that he and his team will bring to Hillman. STFS's product lines and operational capabilities will expand our presence in strategically important commercial and industrial markets.

    Hillman expects STFS's portfolio to fit well with its own fastener offerings. STFS products are sold to metal building fabricators, hardware wholesalers and building products distributors in the US.

    Founded in 1964, Hillman sees itself as a provider of complete hardware solutions. It is Greater Cincinnati's 12th-largest private company with 2016 revenue of USD814.83 million.
    Hand tool brands consolidate

    Lufkin, Wiss, Nicholson, and H.K. Porter tools will come together under the Crescent brand, according to the Apex Tool Group.

    The company has a new brand identity program for its Crescent brand which involves a different logo, colour palette, and tagline - "Trusted by the Trades" - along with an expanded product offering of over 2,600 products across the five brand names.

    The Crescent lineup will now include all Lufkin measuring tapes, rules and wheels; Wiss snips, scissors, shears, knives and trade tools; Nicholson files and saws; and H.K. Porter cutters. The main Crescent brand will continue to cover adjustable wrenches and other hand tools.

    Supporting brand logos, product design, colours, packaging, websites, and other forms of identification will migrate to the new brand identity in early 2018. Curt Weber, senior director of brand management at Apex, said:
    The Crescent brand has been trusted by professional tradespeople for well over 100 years. We are building on this trust by expanding the Crescent offering to include products not only from Crescent, but from several other respected hand tool brands in the Apex Tool Group portfolio. This expansion will give our customers a wider selection of quality products from which to choose, all under the Crescent name.
    Stanley to build "Smart Factory"

    Stanley Black & Decker will open an Advanced Manufacturing Center of Excellence as part of its Global Industry 4.0 "Smart Factory" initiative.

    Called "Manufactory 4.0," named after the original Stanley Bolt Manufactory founded in 1843, the 23,000sqft centre will develop its work in automation and data exchange.

    Manufactory 4.0 will serve as the epicentre for the latest technologies and processes with respect to Industry 4.0, according to Don Allan, CFO for Stanley Black & Decker. Industry 4.0 is refers to manufacturing technologies, including cyber technology, the Internet of Things, cloud computing, robotics, artificial intelligence and 3-D printing.

    The company has also made a three-year commitment to partnering with Techstars, and is announcing the launch of the STANLEY+Techstars Additive Manufacturing Accelerator. The mentorship-driven, entrepreneurial accelerator program will identify 10 startups in the additive manufacturing space to participate in the program in the program's first year. Companies will co-locate with Manufactory 4.0 and have access to mentoring and resources to grow their ideas into viable businesses, and bring new technologies to market.

    Additive manufacturing refers to 3-D printing and the collection of technologies that are used throughout the process, including those involved in rapid prototyping, rapid manufacturing and free form fabrication, among others.
    Bigbox
    Europe update
    Bunnings Warehouse opens its first store in Rotherham, South Yorkshire
    HNN Sources
    Strong growth at its Screwfix helped boost profits for DIY group Kingfisher
    CEO of Kingfisher, Veronique Laury
    Click to visit the HBT website for more information
    Kingfisher's Screwfix chain offsets weak B&Q sales and Bunnings United Kingdom & Ireland (BUKI) will start a small store format trial in Bicester.
    Kingfisher Q3 results

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

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

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

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

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

    In the press release accompanying the results announcement, the CEO of Kingfisher, Veronique Laury, was quoted as saying:
    Q3 has followed a similar course to the first half. We have seen strong growth at Screwfix and Poland offset by continued weak sales in France, alongside some business disruption from our ONE Kingfisher plan, principally reflecting product availability and clearance. We continue to act on the causes of this disruption, which we are confident will ease.
    We remain on track to deliver our full year strategic milestones, for the second year in a row. With plans in place to support our overall performance, we remain comfortable with full year profit expectations.
    BUKI expands UK store network by two more

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

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

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

    This new format store will be around a third of the size of BUKI's largest warehouse in the UK so far.
    Retailers
    USA update
    Home Depot delivers growth in Q3 without building stores
    HNN Sources
    Lowe's is expanding its in-store smart home concept known as "SmartSpot"
    Menards newest warehouse will be run by machines
    Click to visit the HBT website for more information
    Ace Hardware reports third quarter results; Home Depot sees growth through efficiency, not more stores; Lowe's gets a hurricane boost; Menards plans a robotic warehouse; and True Value Company announces its third quarter results.
    Ace Hardware sales up 9% in Q3

    In a third quarter highlighted by its acquisition of The Grommet, Ace Hardware benefited from a strong comparable store sales increase.

    Comparable store sales advanced 7.1% in the quarter year over year, as reported by the approximately 3,000 Ace retailers who share daily financial data. The comps gain is the result of a 4.3% increase in average ticket and a 2.7% increase in same-store transactions. John Venhuizen, Ace president and CEO, said:
    A retail same-store sales increase of 7.1% was the predominant fuel behind our strong 9.1% overall sales increase and record setting third quarter revenue.

    Third quarter net revenues were USD1.34 billion versus USD1.23 billion in the year-previous period. Wholesale revenues coming in at USD1.28 billion versus USD1.17 billion and retail revenues coming in at USD65.5 million versus USD59.9 million in the fiscal year earlier.

    For the third quarter ended September 30, Ace Hardware posted net income of USD53.8 million versus USD50.2 million in the period the year before.

    In the third quarter, the company acquired a majority stake in The Grommet, an e-commerce operator that sells new and innovative products created by independent entrepreneurs.

    Ace Hardware also added 43 new domestic stores in the third quarter of 2017 and cancelled 34 stores. This brought the company's total US store count to 4,366 at the end of the third quarter of 2017, an increase of 31 stores from the third quarter of 2016.

    On a worldwide basis, it added 57 stores in the third quarter of 2017 and cancelled 34, bringing the global store count to 5,047 at the end of the third quarter of 2017.
    Home Depot grows without adding stores

    Home Depot has turned to efficiency and strategy for growth. Retail losses and store closures are a logical response to many years of building too many malls and retail outlets, according to chief financial officer Carol B. Tome. She said:
    Retail is over-stored.

    In the mid-1990s, there were 75,000 households in the US for every large home improvement store, compared to about 30,000 households for every store now as the number of stores increased faster than the population, she said.

    The home improvement chain - which expanded dramatically for several decades after its founding in the late 1970s - has nearly 2,300 stores. At one point before the recession of 2007-09, Home Depot was averaging a new store every 36 hours. Ms Tome told The Atlanta Journal-Constitution:
    We will open one more store this quarter. We have enough stores.

    The company's latest earnings report easily exceeded analyst expectations. For its third quarter, the company reported:
  • revenues of USD25.03 billion, 8% higher than a year ago
  • net income of USD2.17 billion, 10% above last year
  • an increase of 7.9% in same-store sales compared to last year

  • Prospects are rosy, company officials said, predicting that sales during the current fiscal year will come in 6.3% higher than a year ago.

    To build a bigger business without building stores means becoming more efficient with both the online and physical world of business, Ms Tome said.
    The web site is becoming the front door of our stores. It is really an interconnected experience.

    More than 40% of online orders, for example, are picked up in a store, she said.

    At the same time, Home Depot has been managing inventory better - trimming the time that items are being unproductively held, getting items to the stores quickly and selling them faster. Generally, the more rapid the "inventory turn," the better for the business, she said.
    Really, it's a measure of health.

    Home Depot emerged from the recent hurricane season with both increased revenues and higher costs. The chain had to temporarily close 236 stores in the path of one storm or another, but has also sold more storm-related materials. The result was USD282 million more in sales and USD104 million more in expenses.

    With storm related higher costs mostly in the rear-view mirror, Home Depot expects to see a surge of sales during the holiday season, Ms Tome said.

    Appliances do well during the season, but also lights, decorations and various hardware-flavoured gifts. The company sells about four million Christmas trees. Ms Tome said:
    We sell more Christmas trees than anyone on the planet.
    Reinvestment

    Home Depot has authorised a USD15 billion share repurchase program and said it plans to invest in its stores, staff, supply chain and delivery capabilities. Craig Menear, chairman, CEO and president, said:
    The retail landscape is changing at unprecedented rates and we plan to invest for the future to address the evolving needs of our customers. We will accelerate our investments, while continuing to focus on delivering the value our shareholders expect from The Home Depot.

    The company also set fiscal 2020 financial targets that include growing its annual sales from USD114.7 billion to USD119.8 billion, and a compounded annual sales growth rate from the end of fiscal 2017 ranging from 4.5% to 6%. It set annual capital spending at approximately 2.5% of sales.
    Hurricanes boost Lowe's results

    Lowe's has reported better-than-expected earnings for the third quarter, a period when hurricanes Irma and Harvey battered parts of the coastal US and drove up demand for emergency supplies. Heavier store traffic and lower costs are also providing a tailwind for Lowe's.

    CEO Robert Niblock told the Charlotte Observer that staffing efforts made to improve shoppers' experience in stores has helped to boost in-store sales. Specifically, Lowe's has increased the hours of some workers on weekends and peak traffic times during weekdays.

    Lowe's said that for the quarter, same-store sales increased 5.7%. It said the rise was "above the company average," but iwas still slower than the 7.9% increase Home Depot reported for the same quarter. Mr Niblock said:
    We've seen great improvement in our comps as we've progressed through the year. Now what we're focused on is how we optimise those hours to best capitalise on traffic trends in the store.

    Lowe's reported a profit of USD872 million, up from USD379 million a year prior, which included USD462 million in non-cash pre-tax charges. Excluding certain items, earnings were USD1.05 a share, above the consensus estimate of USD1.02 a share from analysts surveyed by Zacks Investment Research.

    Bolstered by above-average sales of items such as appliances and timber, revenue for the quarter rose to USD16.77 billion, up from USD15.74 billion a year ago and above the Wall Street estimate of USD16.57 billion.

    Lowe's said sales for hurricane-related purchases were approximately USD200 million. Rebuilding efforts from the storms should push sales in the fourth quarter slightly higher, the company said.

    In a statement, Mr Niblock also said that the quarter's results were bolstered by improved offerings for pro customers, such as contractors, who tend to spend more than the average do-it-yourself customer.
    Smart home store

    Lowe's is also expanding its in-store smart home concept known as "SmartSpot" to 70 locations across the US, which gives customers the chance to try out high-end smart home gadgets before they buy.

    Produced in collaboration with software-powered retailer b8ta, SmartSpot seeks to demystify and simplify the purchasing process for customers by eliminating some of their anxieties about choosing smart home products given the vast number of options currently on the market.

    The stylised experience offers a streamlined approach to retail where customers can explore a curated collection of innovative products. In addition, consumers gain in-depth product knowledge through digital displays and on-site experts trained on smart home products.

    Central to the SmartSpot experience is that it focuses on presenting whole-home solutions, showing customers how products could potentially work together, from security and energy maintenance to entertainment applications. SmartSpot features several of Lowe's Iris products as well as over 40 of the newest tech products from vendors like Amazon, Lutron, Nest and Ring.

    Related:
    USA update: Lowe's selling tech gadgets - HNN
    Robots for Menards warehouse

    Home improvement centre group, Menards said its newest warehouse will be run by machines. This is part of its plan to keep up with retail innovations that get products into customers' hands faster than ever.

    The retailer has filed plans to build a 121,700-square-foot warehouse with a 60-foot-tall automated system that will organise merchandise and process orders. Jeff Abbott, spokesman for Menards, said in an emailed statement to the Leader Telegram:
    To be more competitive, we are adding a huge machine enclosed in a steel skin that will help us get products to our customers much faster.

    Retail has become an increasingly competitive business, he wrote, calling it a "fight for survival." He added:
    Online companies like Amazon and others would love nothing more than to run Menards out of business.

    The robotic warehouse allows the company not only to speed delivery time but also cut costs and keep prices low. At this stage plans for construction are still seeking approvals.

    One of the first approvals sought for the building project will be to Eau Claire County's Board of Land Use Appeals. It needs to consider a variance for the building's height.

    Zoning laws for the industrial district where Menards is located in the town of Union sets a height limit for buildings close to property lines. In the case of the robotic warehouse, it's about 23 feet taller than the limit.

    However, county code does include a procedure for a variance to exceed those height limits.

    Menards has gotten a letter of support for the project from Eau Claire Cooperative, the owner of land directly north of the proposed warehouse.
    Retail sales up for True Value Q3

    True Value Company reported that retail comparable store sales were up 3.3% for the third quarter. The hardware cooperative's Destination True Value retail formats also posted retail comparable sales growth of 4.2%.

    Gross billings of USD492.2 million and revenue of USD364.4 million in the quarter is up 0.3%, relatively flat to the same period last year.

    True Value achieved increases in eight of its nine product categories, led by hardware, timber and building materials followed by hand and power tools, farm and ranch, auto and pet, and seasonal. President and CEO, John Hartmann, said:
    We are very pleased to see these overall results ... and this reinforces the improved sales seen by retailers that have implemented relevant remodels.

    The international segment continues to experience strong growth with warehouse sales up approximately 12% in the quarter, with paint sales driving a significant portion of the growth. Mr Hartmann said:
    With landfall of three major hurricanes in the quarter, I would like to thank our associates and suppliers for their round-the-clock collaboration ensuring our retailers had what they needed to prepare and then quickly begin recovering from these devastating storms. Our retailers demonstrated that during challenging times, and always, they are there to support the communities they serve.
    Products
    Quality, comfort and precision
    Fiskars' PowerGear Aviation Snips in the right cut version on Amazon
    HNN Sources
    Fiskars' PowerGear Aviation Snips left cut
    Fiskars range of cutting tools on YouTube
    Click to visit the HBT website for more information
    Fiskars' range of PowerGear[tm] Aviation Snips is ideal for cutting assorted heavy-duty materials such as sheet metal, metal studs, siding and gutters. They are engineered to increase the efficiency of each cut with less energy from the user.

    PowerGear technology from Fiskars gardening tools has been introduced into the design of the Aviation Snips to provide tradies and weekend warriors with less fatigue, exhaustion, and muscle pain in the long term. It also means the users' hands will remain steadier while cutting, increasing the accuracy of cuts. Enhanced cutting force is also achieved while initiating the cut, reducing the amount of force required compared to traditional snips.

    With the micro-serrated blade edge, sheet metal is better gripped in the cutting area, providing better control of the cutting edge without damaging materials. The forged and heat treated steel construction from blade to handle improves the strength and power by 40%.

    A limited handle opening design prevents over-extension of the handle, maintaining optimal grip strength for smooth and effortless cutting, without sacrificing the length of each cut. The easy action handle opens automatically at the completion of each cut. The ambidextrous locking system also enables snips to be locked from above or to the side.

    SoftGrip[tm] handles with strategic texturing offer an ergonomic and comfortable grip. Knurled pins are also inserted during the manufacturing process to ensure the hand grips will not twist or slide off over time.

    The PowerGear Aviation Snips are available in the five standard declinations: straight cut, left cut, right cut and offset cut versions.
    News
    HI News V3 No. 12: Amazon is coming to town
    Download the latest issue of HI News Vol. 3, issue no. 12
    HI News
    Amazon is about to launch in Australia
    HBT recently held its Business Solutions conference in Melbourne
    Click to visit the HBT website for more information
    A large part of the current edition is about the retailer that has been taking up a lot of headlines recently: Amazon. We go through some of the background and research needed to understand what effect this new market entrant will have on Australian retail.

    Simply click on the following link to download this edition:
    HI News V3 No. 12: Amazon is coming to town

    In terms of local news, we report on the Hardware & Building Traders (HBT) state conference. It continues to confirm its credentials as a buying group that helps retailers be truly independent.

    We also report on Oldfields product launch in Melbourne and look at its latest results.

    Bunnings continues its rollout of bricks-and-mortar stores both in Australia and the UK, with more in the development planning phase. Other retailers to open stores include Tradelink and Langs Building Supplies.

    Suppliers have been active with Assa Abloy's purchase of smart lock maker, August and Portwest's acquisition of another Australian workwear company.

    In the US, Ace Hardware has acquired a majority stake in e-commerce startup The Grommet, bringing two entrepreneurial companies together. Lowe's has also launched two augmented reality apps and will offer Craftsman tools in-store.

    In addition to Oldfields' new paintbrushes, HIlti has a new set of smart tools, Knipex releases new gripping pliers and Kohler's Exhale showerhead is inspired by the dahlia flower.
    Retailers
    HBT Business Solutions conference
    Steve Fatileh, Anthea & Chris Moorfoot, Mike LoRicco, and Julie Murphy
    HNN Sources
    Don Edmonston, Wayne Littler, Gavin Keane, and Leslie Littler
    Melissa Guthrie, Melanie Spinucci and Rachel Roper from Detail Retail
    Click to visit the HBT website for more information
    Hardware Building Traders (HBT) decided to change up its usual state-based conferences for 2017, and instead host a single conference entitled "HBT Business Solutions" hosted at Melbourne's Etihad Stadium, near the Southern Cross railway station.

    The single event made it easier for suppliers to concentrate their resources, so some 62 suppliers (including 22 of HBT's key suppliers) attended, along with 150 representatives of 92 retail stores. True to its promise, HBT served up a mixture of speakers on subjects ranging from succession planning and internet ecommerce, to insurance planning and better retail space design.
    The state of the group

    To get things going, HBT's group manager, Mike LoRicco gave members an overview of the industry today, followed by HBT's two group buying managers, Gavin Keane and Steve Fatileh, who outlined what the supplier/retailer interface looks set to develop into the future.
    Mike LoRicco: four becomes three

    Mr LoRicco concentrated on providing an overview of how the industry has changed through 2017, especially after the exit of Masters Home Improvement in late 2016, and how that is affecting retailers.

    The main change has been, of course, the move from four different supply chains to just three: Bunnings, the Metcash-owned Independent Hardware Group (IHG), and HBT. While this opens up some new opportunities for HBT, Mr LoRicco is more concerned with its effect on HBT's ongoing development of the key suppliers to the group:
    So, what the reduction in supply chains means is that as the suppliers realign themselves there are going to be some suppliers who will be left out.
    This makes it a good opportunity for us to grow our relationships with our suppliers. What is really important - and I know that we have a lot of suppliers - is that our key suppliers get the support of our members. These guys are the ones that are putting extra effort into supporting our stores. We need to show support for them. Over the next 12 months, my goal is to concentrate on the key suppliers, get our relationship with them to work even better. As part of that, we are working on a list of standards as to what a key supplier should be. And we're going to support them, just like they support us. Obviously, our focus is on both the member and the supplier, and there needs to be a win for both of them in any deal. It is not a one-way street.

    Mr LoRicco also shared more information about HBT's ongoing growth story. From around 240 members in 2014, the buying group has now grown to 670 members. The top 100 stores in the group account for 62% of its purchases by value. A sub-group of HBT, the Industrial & Tool Traders (ITT) has grown rapidly over the past four years, and now accounts for 22% of the group's purchases by value.
    Gavin Keane: value from the second tier

    Mr Keane provided a historical perspective on ITT, the part of the group to which he devotes most of his time. It began, as he describes in his inimitable style, almost by accident back in early 2013, and has now reached 162 stores, or 24% of the store numbers.

    Mr Keane was particularly eager to point out how one of HBT's main strategies, finding high quality suppliers who were held in the second or third tier of the market, and then making them first tier suppliers for HBT, had worked over the years.

    One of his main examples was Haymes Paints.
    Great company, family owned company. Based in Ballarat. They now represent 56% of our paint business, as compared to Dulux [from Australia's DuluxGroup] which has around 16%. It's a good supplier, they work with us, understands us, and are passionate about independents. They are our number one.

    Mr Keane spoke of other suppliers who had also become number one for the group. Macsim was one of the first fastener companies to take HBT seriously. Klingspor, makers of specialty cut-off wheels for grinders, now holds around 50% of the HBT demand for the product. Silicone and adhesive maker Soudal is another HBT success story, beating out other well-known brands such as Bostich and Selleys, to be the number one supplier in its category for the June 2017 quarter.

    Later Mr LoRicco revisited this issue, explaining that, from HBT's view, accepting less valuable deals from top tier suppliers meant that HBT effectively subsidised the exceptionally low prices these suppliers offered the competing supply chains going into Bunnings and IHG.

    One of Mr Keane's ongoing concerns is that the Australian market simply has too many suppliers for its size. As he put it, HBT members have access to around 483 of these, and there are probably almost as many they don't have access to. He expects that the coming years will see a degree of rationalisation, with some companies exiting over-supplied markets. Mr Keane sees this as a further reason why HBT should stand by and support its key suppliers.

    In a rapid overview of the industry, Mr Keane gave some numbers for other buying groups. AIS now has 80 stores, CSS has grown to have 86 stores. Synergy, which was a breakaway group from CSS, now has 52 stores, and Tradesmart has 64 stores.

    In terms of the tool sector, Total Tools now has 66 stores. Mr Keane remarked that this was quite an aggressive group, but they did seem to have higher overheads, with something like 50 head-office staff, in his opinion and estimation. United Tools has 47 stores, Trade Tools has 16 stores. Sydney Tools has just reached 15 stores, with news it is opening a new store in Bayswater, a suburb of Melbourne, Victoria.
    Steve Fatileh: a better deal

    Mr Fatileh began by saying that the acquisition of Home Timber & Hardware (HTH) by Metcash to form IHG had created some anxiety in the hardware retail market. Part of that anxiety was among members of the newly formed IHG, who face changed conditions, but it was also a fact for the suppliers to that group. As IHG uses more of its buying power to narrow its supplier base so as to improve individual supplier volumes and crack down on supply prices, more suppliers are turning to HBT as a means of securing future retail outlets.

    This has opened up new opportunities for HBT, according to Mr Fatileh.
    This gives us a position of power when we are negotiating. Never before have Gavin and I been in this position. We are not accepting every deal that a supplier presents to us. We are their next option. If they have been kicked out, or they have been hit "with a big stick" by IHG, they are coming to us. As a consequence you will find that the new deals that are coming through have higher than usual rebates attached to them.

    This isn't just smaller suppliers either, according to Mr Fatileh. Among newly acquired suppliers is global lighting company Philips.

    Mr Fatileh's special passion has been HBT's move into "H" branded hardware stores. These stores provide fully independent retailers with a brand identity. In 2017, in addition to expanding the number of branded stores, the H has also been active in launching special H branded products, and starting to distribute a catalogue for participating stores as well.
    There are currently eight H branded products that we have put out there. The products that we have introduced have had a very good success rate. The H paint itself from Duralex has turned over $200,000 worth of purchases, just in that product. The Soudal H Brand silicone and adhesive package has taken off really well, and the branded measuring tape is doing great.

    The catalogue has been as much an experiment as a commercial venture during 2017.
    We dipped our toes this year into a new catalogue program, it is the first time we have ever done it, a little bit of teething problems, it is a lot of work, but we thought let's just do it, and if it is going to have some problems, or things that we can learn from, we will do it better next year.

    Meanwhile, the H Hardware push itself has been going well. Mr Fatileh set himself the goal of ending calendar 2017 with 40 bannered stores, up from 26 at the start of the year. He just concluded a deal to secure the 39th store, and is "pretty confident" he will hit 40 before the end of December 2017.
    Detail Retail

    While many of the presentations given at the conference were impressive, one of the most interesting was provided by Melissa Guthrie of Detail Retail, a Melbourne-based firm specialising in store fitout.

    Detail Retail is very much a full-service company, that is ideally sized to help provide small hardware retailers with improved store premises that generate a better return.

    Ms Guthrie has a background in industrial design, and she is backed up by a fellow retail designer, Melanie Spinucci, architect and 3D modeller Manuel Perez, and 3D artist, animator and architectural modeller Simon Bolivar.

    The company relies on advanced, modern techniques of digital rendering to both assist them in their design, and, just as importantly, to communicate their ideas to customers.

    The company doesn't stop at just designing stores, but also helps retailers build them as well. It supplies retailers with shelvings, fittings and cabinetry. The company can arrange for these to be installed, or they can be designed so that retailers can install the elements themselves.

    Ms Guthrie's industrial design skills means she understands "buildability", and she can help retailers combine all the aspects of helpful visuals with the practical needs of product display, stocking, cleaning and light maintenance.

    Ms Guthrie emphasises that the company is very practical in its approach. While it remains focussed on delivering the best (and most profitable) experience to the customer while in the shop, they also work to make sure that dollars are spent wisely on aspects of store design that are going to deliver results. As Ms Guthrie put it in her presentation:
    We have a really good understanding of marketing, of customer movement within the store, of product merchandising, how the customer will go through the store, what they will see when they first walk into the store, what catches their attention, and so forth.
    We understand what messages you should have at what location in your store, how to orientate your fixtures correctly, and how to move your customers through, to the counter and to the sale, which is the most important thing.

    The problem is, of course, that for retailers who spend more time in their stores than anywhere else, it is often difficult to return to the customers' perspective. As Ms Guthrie puts it:
    It is very hard for store owners, because most retailers are so busy trading, to step back and see what the customer sees when they walk in the doors of your store.

    It is this sense of new perspective that Detail Retail can bring to store design.
    Design considerations

    The company begins by looking at exterior signage, asking if it is at the right height, and if it is conveying messages that communicate what the store is about.

    Some of the key questions that Detail Retail help retailers answer about their stores are:
  • What about the location of the checkout counter? While this seems simple, it is in many ways one of the most important centres of the store. Can it be seen easily, so customers can locate it when they have product in hand? Does it function as an additional sales area, with discount and impulse buys readily to hand?
  • What about supply stands? These often present retailers with something of a dilemma. While many stands are very well designed, and present product in an informative and encouraging way, they don't always play nicely with each other. Sometimes stores will have three or four of these stands jammed all together, with different shelf heights, radically different colour schemes, so that they present a kind of visual cacophony. Sometimes going with something simpler might actually improve sales.
  • Is a product a brand choice, or a price/use choice? A common mistake is to separate a particular line of items based on its branding, when really customers are more interested in a broad range and selection. If too much branding takes over a store, customers will wander about slightly bewildered as to where they can locate some of the simplest items.
  • Store navigation is a key item for stores to consider. This relates in part to signage, but also the relationship between the height and width of aisles is important. If really tall modules are used to form an aisle (2200mm to 2400mm), it is necessary to make the aisles wider - as wide as two metres in some cases. This is partly to avoid a "maze-like" feeling on the part of the customer, but it also relates to lines of sight. Standing in the middle of a 2400mm high aisle that is only 1200mm wide, it might be impossible to see the sign over the adjacent aisles indicating what is located there.
  • Use bright colours to emphasise what is important, wall colours to fade out what doesn't matter. Painting the door to the stockroom bright orange will make people want to open it. The same applies to stairs that lead to the administrative area.
  • Lighting. While fixing lighting has something of a bad reputation for being expensive, nothing is so expensive as a customer not buying a product because they can't see it properly. Ms Guthrie points out that there are some creative solutions that don't cost as much as many retailers think, such as embedding LED strip lighting into racks and shelving. Ms Guthrie is clear about what the goal of this should be: "What we are trying to do with lighting is increase the colour rendering index. Get that as high as possible to match the light."
  • Bulk materials. A persistent problem in many Australian hardware stores is a habit of "dumping" some products on the shop floor with little indication of what they are or how much they cost. Wandering through piles of cement, compost, sand and pool chemicals is not a great retail experience. Detail Retail has designed many systems to display bulk goods in a way where they are easily accessed.
  • Detail Retail website
    Companies
    Oldfields FY2016-17 results
    CEO of Oldfields, Richard Abela, with Betty Tanddo, Hardware News Network publisher
    HNN Sources
    Results for Oldfields FY2016/17
    Oldfields' new Pro line of brushes
    Subscribe to HNN weekly e-newsletter
    Over the past five years a familiar pattern has emerged for smaller Australian manufacturing companies in the hardware sector. Typically, these are companies that have tried to maintain a majority Australian-manufactured product, and have found that this has not worked out. Inevitably their competitors sort out the quality and communication problems with overseas (mostly China-based) manufacturing, and are able to offer better value products, which then impacts on marketshare.

    After witnessing a dip in their revenues, these companies make the move to overseas manufacturing, either completely, or on a hybrid basis, with some Australian operations maintained.

    One of the more successful companies to go down this route is GWA Group, the South Australian-based manufacturer of sanitaryware and tapware. Nearly three years ago the company changed direction, divesting itself of divisions such as hot water heaters, moving most of its manufacturing overseas, and reducing its Australian manufacturing operations. It then revitalised innovation at well-known brands such as its Caroma sanitaryware, and began taking these products to market in a more effective manner.
    Oldfields moves up

    Oldfields is one of the latest Australian companies to travel down this same path - though in its case, as we say these days, "it's complicated". That complication comes from two areas, which both have to do with how what it terms its "consumer products" are distributed.

    The company had a major contract with the now defunct Masters Home Improvement. As the company states in its annual report for FY 2016/17, that contract only provided sales for July and August of 2016, as Masters ceased resupply in September as it began a lengthy process of stock liquidation. Needless to say, this left something of a gap in Oldfields' sales forecast.

    The second factor, which doesn't really apply to the reporting period, but is important for the company's future, is that it decided in late 2017 not to pursue a contract with the Independent Hardware Group (IHG) for distribution. According to the Oldfields 2017 Annual Report:
    In the latter half of the year Oldfields completed negotiations with Mitre 10. These negotiations resulted in the termination of the prohibitive trading terms for sales through the Mitre 10 warehouse system. Commencing in the new financial year, Oldfields will distribute direct to Mitre 10 store owners that establish individual accounts. Whilst sales to the Mitre 10 network will initially be lower, all sales will now be profitable and should reduce the loss currently being incurred by the consumer division.
    The Group is further developing its strategy to operate in multiple channels to market in order to reduce or eliminate excess costs within the value chain.

    This is a fairly big step for the company to take, as it now faces the task of developing new channels to market. It is ramping up distribution to retailers in buying groups such as Hardware & Building Traders (HBT), as well as trade-oriented retailers who sell directly to professional painters. Fortunately, however, it has laid a solid groundwork for this new distribution through both better operational efficiencies and new product lines which seem a good match for the current market conditions.
    Results

    The results for Oldfields follow a pattern that is familiar in companies undergoing this kind of restructuring. For the current reporting period, FY2016/17, the company is showing a net profit of $0.312 million. Results for the pcp were marked by some writedowns, in particular $0.341 million for "impairment of property, plant and equipment", with the year producing a net loss of $0.722 million.

    Overall sales were $26.721 million, down by 6.0% on the sales for the previous corresponding period (pcp), which was FY2015/16.

    The real story, however, can be seen in numbers such as the company's administrative costs, which went from $2.735 million in the pcp, to $2.171 million in the current period, a savings of $0.564 million, or 20.6%. Marketing expenses were also reduced, coming in at $0.307 million, down by 22.1% on the pcp. These are very respectable operational efficiency gains for any company, but especially for a smaller listed company such as Oldfields.
    Markets

    In terms of what has been shaping the company, Chart 1 shows some of the underlying numbers. While pure sales of products, including painting equipment and sheds, have continued to decline, revenue from the installation and rental of scaffolding has continued to grow.

    Comparing the company's two segments directly, consumer products sales came in at $7.722 million, a fall of 24.5% over the pcp. Earnings before interest, taxation, depreciations and amortisation (EBITDA) for this segment recorded a loss of $0.966 million, an increase in loss of over 40% on the pcp.

    In contrast, scaffolding revenue was $19.13 million, up by 4.3% on the pcp. Scaffolding EBITDA also rose, by 13.5% over the pcp, coming in at $2.85 million.

    Chart 1 (in the PDF magazine version of this story) shows the steady increase in revenue from scaffolding rentals, and the decline of sales. The scaffolding market in Australia is - to say the least - peculiar, with unexpected constraints in certain regional markets. Nonetheless, it is an area where Oldfields has operated for some time, and the underlying increase in construction in Australia - especially multi-storey - has boosted the overall market.

    In the consumer products markets, Oldfields faces considerable competition from a range of painting tools and accessories manufacturers. As far as its Treco range of sheds, aside from the extra costs associated with having its production base in Australia, new competitors have emerged over the past two years. In particular, Globel Industries sells sheds that are produced in China and have what some regard as a marked similarity to those produced by Oldfields. The company has moved to counter these competitive forces in 2017 by starting to offer the sheds for sale directly online.
    Outlook

    There are three stages companies transitioning to overseas production typically go through: consolidation of operations, either through divestment of non-core activities, and/or reorganisation and reduction of administrative and other costs, as they cut staffing; development of new and innovative products to better suit a changing market, which are then manufactured overseas; and the marketing of those products, as they seek to both emphasise the long-established advantages of their brand, while also building on its new capabilities.

    Oldfields is about to embark on the third part of its transformation process. With costs clearly in hand, the company has developed new ranges of products, including brushes. It is currently developing new channels to market, and further enhancing its brand image.

    The key to these developments is its ongoing work in product innovation. Oldfields is, in particular, making a strong push into the painting brush market. Its approach has two parts to it.

    The broader part of this approach is to present an overall simplified range of brushes. These break down into three areas: The "Classic" brush aimed at DIYers; the "Tradesman" brush aimed at tradies for whom painting is a part of their work; and the "Pro" brush for professional painters.

    All three of these brushes have been improved over previous Oldfields brushes. The Classic comes in a total of 12 varieties, with six sizes of wall brush running from 25mm to 88mm, and two sized each of sash cutter, angle sash, and oval cutter. These brushes are made from 100% PET filament (polyester). Oldfields states that the pulling force on the brush has increased from 325g to 715g, paint load increased from 26g to 31g, and paint release increased from 15% to 32%.

    The Tradesman brush range comes in a total of 12 varieties, including five wall brushes ranging in size from 38mm to 88mm, three sash cutters from 50mm to 75mm, two angle sash brushes, and two oval cutter brushes. The brushes are made from 70% PBT and 30% PET, providing a different brush feel from the Classic. Oldfields claims the pulling force has been increased from 518g to 546g, the paint load increased from 20g to 30g, and paint release from 30% to 37%.
    The Pro brush

    It is the third brush type, the Pro Series, that really reveals the second direction in which Oldfields is heading. While the other two ranges continue many of the company's past efforts, with improvements, the Pro indicates a more defined and genuinely new direction. Oldfields has spent a good deal of time and expertise coming up with what it considers to be an "ultimate" brush. It has developed its own filament material, which it calls E4 Mark II, which it claims has a number of significant advantages, including "maximum paint hold and release" and "continuous solid coverage". There are four sizes of wall brush that are square cut, but the rest of the range - three sizes of wall brush, three sizes of sash cutter and two angle cutters - are all oval shaped.

    Very clearly what Oldfields is doing (in part) with this market move is supplying a range of independent stores - both hardware and paint specialists - with brushes that will at least equal if not exceed the quality of brushes supplied by Austbrush's Monarch brand (among others). This is a very clever move, as it provides a strong, non-Bunnings brand, and a point of clear difference for small suppliers.
    Marketing

    As part of this push into new product lines, it has become more important than ever before that Oldfields engages with marketing on two levels, both direct to the actual users of the product, and to the retailers who will be selling to those users.

    Certainly the initial efforts the company has made show true promise. HNN attended an event held in Melbourne to help launch the new ranges of paint brushes (another event was held in Sydney). It was a smaller mid-sized event, which gave a select group of retailers and some end-users the chance to get to grips with the new range. There were sample packs of the brushes, and also an opportunity to try them out by using the painting station (complete with smocks) that Oldfields supplied.

    It's an intelligent way to begin the marketing push, and it brings Oldfields staff into direct contact with elements of the market, and gives them a chance to get direct feedback on the brushes themselves, but also on how the audience responds to the marketing effort.

    In terms of the marketing, Oldfields is faced with a familiar dilemma. On one hand with an over 100 year history in Australia, the company wants to stress the strength of its heritage. On the other side, the new paint brushes are the result of considerable modern technology being brought to bear.

    Combining those two messages is difficult, and Oldfields is still experimenting with this. However, there are good signs in terms of marketing collateral such as brochures and advertisements, that the company is well on its way to developing a brand identity suited to the current market.
    Analysis

    In the somewhat hard cold world of stockmarkets it's to be expected that companies will be judged purely on the basis of numerical performance. However, it does seem to HNN that there should be room in the hardware industry itself to consider other elements of a company. Companies like Oldfields (and GWA Group) really did spend time, money and effort trying to retain their Australian workforces, and only gave up when it became evident this would not succeed. That they have managed to reorganise, and to build on their major strengths - product design, servicing of clients, and marketing - is something that really does deserve to be acknowledged.
    Bigbox
    Big box update
    Devonport Bunnings building from project management company, Willow Frank
    HNN Sources
    Roy Morgan Hardware Store Customer Satisfaction September 2017. Source: Roy Morgan Single Source Australia, October 2016 - September 2017. n=14,910. Base: Australians 14+.
    A Bunnings in Auckland's Grey Lynn sold in September on a 4.9% yield for $37.77 million with a 12-year lease
    Click to visit the HBT website for more information
    Bunnings stores continue to be built around Australia with more in the pipe line; proposed stores in Kingaroy (QLD) and Cootamundra (NSW) gain momentum; customers vote for Bunnings over Home Timber & Hardware; Bunnings Kawana has welcomed its first customers, providing competition to the nearby Kawana Hardware and Garden Centre; the site of the Bunnings Fyshwick (ACT) may have a different future; four newly-built Bunnings stores have been sold to property investors; and Woolworths has completed the sale of its shares in Masters' holding company.
    Bricks and mortar builds for Bunnings

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

    Bunnings general manager - property, Andrew Marks, told The Advocate the new Devonport store is expected to be open sometime in December. Construction work is almost complete at the site. He said:
    Recruitment has been completed with more than 80 residents...Bunnings Devonport will cover more than 8,000sqm...The development represents an investment of over $19 million.

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

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

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

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

    This location, where Bunnings signage has recently been installed, will see the store nearby other stores such as Freddy's Fishing and Outdoors, Petstock and Autobarn. Mr Marks said:
    We can confirm we have reached an agreement with the landlord to convert the former Masters Rockhampton site into a new Bunnings Warehouse. Conversion and reformatting works will occur in the coming months and the new store will span over 13,000sqm.

    The Bunnings trade centre will remain in its current location.
    Kingaroy, Cootamundra developments

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

    Not surprisingly, Bunnings general manager - property, Andrew Marks welcomed the decision. He said:
    We can confirm we have received development approval for a new Bunnings Warehouse in Kingaroy and will continue to work with the council throughout the planning process. The new warehouse will represent an investment of over $15 million...

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

    While the council is prohibited by Queensland law to consider commercial competition when approving development, Cr Fleischfresser said Bunnings would be good for the town. He said:
    I've heard people say they are disappointed with us accepting a Bunnings application, however I can say every tradesperson in the South Burnett that I speak to keep asking me the same questions: are they coming and when are they going to be here?
    The advantage of this business coming to town far outweighs the negatives.

    https://www.southburnetttimes.com.au/news/bunnings-clears-hurdle/3266980/
    Support for Cootamundra store

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

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

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

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

    Deputy mayor Dennis Palmer acknowledged that staff had prepared the instrument for refusal in accordance with adopted council policy and guidelines, however felt this could be varied in particular circumstances. He said:
    We have been elected to look after the future of our towns and we must be proactive...

    Cr Palmer said a newly developed side would be better than the current building. He also argued the car parking code could be altered subject to Traffic Committee approval. He added:
    This council needs to be a 'can-do' facilitator, rather than a 'can't do' authority.

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

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

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

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

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

    According to the Roy Morgan, approximately 13.1 million Australians visited a hardware store during the last three months. Michele Levine, CEO, Roy Morgan Research, said:
    Bunnings is undoubtedly Australia's best known hardware store...Today's customer satisfaction results show Bunnings' impressive reputation is built on a high rate of customer satisfaction - now at a market leading 89% in September...
    HTH has performed consistently well over the past few years winning the annual Roy Morgan Hardware Store Customer Satisfaction Award in four out of the last five years (2012, 2013, 2015 and 2016) although the 2017 Annual Award looks set to go down to the wire with Bunnings aiming for its first victory in the category since 2011.
    Bunnings Kawana open to customers

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

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

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

    In the two decades since then, he has seen a number of independent hardware stores close down in the Kawana Waters, Buderim, Caloundra and Maroochydore areas. His enterprise has survived but he expected sales would be affected by a new competitor. He told the Sunshine Coast Daily:
    When Caloundra (Bunnings) opened, we really felt it and that lasted six to eight months, then it went back to normal. I think we will see a fall in sales through the Christmas period.

    He said Bunnings had excellent marketing.
    I don't know how we compete with it.

    He said a focus on customer service and providing products outside of the Bunnings range were among his tactics.
    We try and stock what they don't.

    Mr Witten said he was getting some benefit from the commercial and residential expansion at Birtinya and Bokarina.
    We supply the bricklayers and landscapers but a lot of it is corporate purchases. When people need maintenance on their houses later on, that is where we come along.
    Bunnings Fyshwick may become train station

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

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

    Bunnings said in a statement that a final decision had not been made on the future of the Fyshwick site, but it was likely that it would continue to trade "in one form or another". Acting state operations manager, Robyn Hudson, said in a statement:
    Team members will either relocate to the new Canberra Airport site or remain at the current Fyshwick store. We will continue to ensure our team members and the community are kept up to date with any progress on our plans.

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

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

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

    The new Bunnings $47 million outlet at Windsor Gardens will be one of the largest in South Australia. Complex manager Simon Ahladas heads the team at the new store at 432 North East Road and spread over 13,000sqm. He said:
    We have been a part of the local community for over 15 years.

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

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

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

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

    But she is now working in a supervisory role in the leisure and landscape section of the store. She told the Illawarra Mercury:
    Their approach is beautiful. They have this whole family feel about the business. There is plenty of innovation and team development so Bunnings was very appealing to me.

    And she hopes her story about changing careers will encourage others. She said:
    I'm really happy to have a second family here with the team that I am working with. I am incredibly grateful.
    Bonnyrigg

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

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

    Bunnings Dalby store manager, Jodie Ianna, is joined by over 25 Dalby locals who are now official team members of the new $12 million, smaller-format store. Ms Ianna has worked at Bunnings for 12 years. She told The Chronicle:
    Team members have supported a number of community groups already, working with Goodstart Early Learning Centre to extend the centre's outdoor environment with a sensory garden, as well as helping to revamp the Dalby Diehards Football Club's 100-year-old grandstand.

    Bunnings Dalby is located at the corner of the Warrego Highway and Eton Street in Dalby (QLD).
    Four more warehouse stores sold

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

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

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

    Bunnings' general manager - property, Andrew Marks said the sale was consistent with the group's long-term strategy of diversifying its investor base and recycling capital on lease terms that provide it operational flexibility. He told Fairfax Media:
    We are pleased to have completed another successful sale at a yield that is reflective of the market and on lease terms that take into account our operational objectives.

    CBRE Global Investors director Chris Johnston said the group intended to work with Bunnings on future transactions for similar assets. He said:
    This portfolio provides exposure to a strong credit tenant who is a leading retailer in the home improvement market with quality assets and attractive lease terms.
    Woolworths makes final exit from Masters

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

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

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

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

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

    The sale to Home Consortium includes 40 Masters freehold trading sites, 21 Masters freehold development sites and 21 Masters leasehold sites.
    Retailers
    Indie store update
    The proposed Total Tools store for Tamworth (NSW) is located very close to the existing Bunnings
    HNN Sources
    The Langs Building Supplies store in Caloundra (QLD) has just opened
    Inside a Langs Building Supplies store
    Click to visit the HBT website for more information
    Total Tools looks to open hardware store in Tamworth (NSW) for local tradies and Lang's Building Supplies launches a $20 million store on the Sunshine Coast (QLD).
    Trade store planned for Tamworth

    Total Tools has submitted a development application (DA) to Tamworth Regional Council, for a $300,000 development in Taminda (NSW), on the corner of Lockheed and Jewry Street. The proposed site is located opposite Bunnings Tamworth on Lockheed Street.

    If the Tamworth development is given the green light, it will be the company's furthest inland store in NSW. Total Tools project manager Mike Lazzaro said Tamworth "ticked all the boxes" in regards to demographics and population. He told the Northern Daily Leader:
    Regional Australia is no different to the high-density areas, it creates a market for us.

    Mr Lazzaro said Total Tools had no problem being located across the road from home-improvement giant Bunnings. He said:
    In fact, we rather destination-type centres, it provides the focus for a lot of customers to come to us. It suits our footprint if you like. It's all about providing competition and being able to promote the brand.

    If approved, Mr Lazzaro said the store would "be looking to open in December", with at least six staff working at any one time.

    The development application indicates a Total Tools store can serve up to 100 customers a day, with an average of 55 customers a day.
    Langs store opens in Caloundra

    A $20 million drive-through trade store was unveiled recently on the Sunshine Coast (QLD). Langs Building Supplies has opened its second store in the state and is expected to inject an annual economic contribution of $193 million. Along with a trade store, it will provide the local community with a bulk building supplies and on-site manufacturing of roof trusses, wall frames and floor trusses.

    Sunshine Coast Mayor Mark Jamieson opened the store. He said:
    It will support local building and construction industry as well as providing great employment opportunities for locals. It's the investment shown by companies such as Langs, along with the growth existing in our region, that helps to support positive business confidence ... Langs plan to double their existing staff numbers in the next 12-18 months, followed by an additional 50 jobs when the company starts on-site aluminium window frame manufacturing.

    A decade of planning has culminated in the centre's opening, with the Caloundra-based store doing battle with southern rival Ipswich. But for Langs general manager David Wuiske, the move here was one full of confidence. He said:
    We had two choices, a site at Ipswich and here, we did our research and thought there was a lot of growth potential here. From the coast we can easily service the north side of Brisbane and right up which made us very confident. The sheer scale of the place is exciting. Bob Lang hasn't built this business by halves.
    Companies
    Supplier update
    An August smart lock, now owned by Assa Abloy
    HNN Sources
    Portwest has been growing at a rate of 30 per cent a year and sells in 110 countries
    GearWrench has undergone a brand identity change
    Subscribe to HNN weekly e-newsletter
    Old-guard lock company Assa Abloy bought smart lock startup August for an undisclosed amount; Portwest has reached an agreement to acquire a second workwear company in Australia; Brickworks has purchased the Urbanstone business; Husqvarna said its latest products are designed to make lawn and garden care more productive and intuitive for operators; Bunnings Group's venture into the UK is providing opportunities for Selleys; Milwaukee Tool has been awarded USD27.8 million in case against Snap-on; and TTI introduces portable generators with EFI technology.
    Assa Abloy buys smart lock maker

    Swedish lock conglomerate, Assa Abloy said it has signed an agreement to acquire August Home, a business that makes smart locks and smart home access products and services. Based in San Francisco, August Home primarily focuses on developing solutions for the DIY market.

    According to Thanasis Molokotos, executive vice president of Assa Abloy and head of the Americas division, the acquisition of August Home will strengthen the company's residential product portfolio through the addition of smart locks, video doorbells and solutions for home delivery. He told Security Info Watch:
    August is an entrepreneurial company that is innovating in the traditional lock space by enhancing access control through software and service experiences. It is a strong complement to our current focus.

    In addition, Mr Molokotos said August Home is very synergistic with Assa Abloy's Yale brand.
    August's focus is primarily the DIY channel with retrofit locks that offer an exceptional user and software experience. Through the Yale brand, Assa Abloy's focus is on full replacement locks that are connected and served by the professionally installed channel.

    Founded by Jason Johnson and Yves Behar, August Home has developed three generations of smart door locks and two generations of video doorbells, placing them among the leaders in the smart home industry when it comes to technology, partnerships and retail sales. For example, the company has entered into recent partnerships with Amazon, Apple, Google, Nest and Airbnb.

    This has helped to make August Home, which has seen lock sales increase by 300% year-over-year with more than 260 million lock operations and 500,000 users.

    August raised USD25 million in July to help fund its recent launch of new, cheaper August Smart Lock Pro locks intended to make the high-tech gadgets more appealing to mainstream consumers.

    When asked how August Home will be integrated into Assa Abloy, Mr Molokotos said that they will "jointly evaluate" their opportunities once the acquisition closes, which is expected to occur during Q4.
    We believe keeping the August culture and leadership intact after acquisition is vital for success for all involved so we are excited Jason Johnson will remain and focus on implementing the vision.

    Now in the arms of a bigger company, August will get more direct help to sell its products to the masses, the tradeoff being that it loses its independence as a more nimble startup. The acquisition also highlights the challenges consumer hardware startups face creating big-hit products that result in big enough sales to help them compete with much larger businesses.

    The acquisition is subject to regulatory approval and customary closing conditions. Financial terms of the agreement were not disclosed.

    Related:
    Making house keys obsolete - HNN
    Irish workwear firm expands in Australia

    Wesport, Ireland-based safety clothing and protective equipment maker Portwest has spent EUR10 million buying another Australian company to expand its presence in this market.

    Portwest said that due to a non-disclosure agreement, the name of the Melbourne business cannot be disclosed for the moment. Six months ago the firm acquired Australian company Prime Mover Workwear in a deal worth EUR7.5 million.

    The second acquisition will more than double the Irish company's turnover in Australia and New Zealand to between EUR20 million and EUR25 million, which will represent about a tenth of its overall business. Brett Birkill, chief executive of Prime Mover, told the Irish Times:
    This acquisition now follows on from the original acquisition six months ago. It catapults it to the next stage of growth.

    Australia's buoyant construction industry made Portwest's additional investment sensible, while pushing further into this market would "help spread the load" of mitigating risk from Brexit, according Mr Birkill.

    Trading since 1904, the company is being run by the third generation of the Hughes family, led by brothers Cathal, Harry and Owen Hughes. It has 2,100 employees and sells its products in 110 countries. CEO Harry Hughes said:
    The company is working to a 5-year plan with a growth rate of 30% per year. Although all growth to date has been organic, acquisitions will play a more important part of future expansion. Our sights are firmly fixed on our new markets of US and Australia and we have an outstanding pipeline of new designs and innovations to drive this growth.

    Related:
    Workwear category dominated by UK player - HNN
    Brickworks grows its masonry business

    West Australian paving and masonry company, Urbanstone has been sold to Brickworks for $13.5 million. Family-owned Schaffer Corporation has divested the last of its building products assets with the sale of Urbanstone to Brickworks.

    The deal does not include Urbanstone's land and buildings in WA, which will be occupied by Brickworks under a long-term lease with Schaffer Corp.

    Schaffer executive chairman John Schaffer said the sale would allow the group to focus on its automotive leather business, its Delta precast division and its property investments.

    Brickworks said Urbanstone was a logical bolt-on acquisition for its masonry business, providing additional scale and diversifying its product range and geographic exposure.

    The sale is expected to generate an after-tax profit of $3.9 million for Schaffer, one of WA's oldest listed companies, having joined the stock market as Calsil in 1963.

    Schaffer Corp made a net profit of $5.9 million last financial year on revenue of $215 million, including a break-even result from its building materials division on sales of $38 million.

    The bulk of its revenue is derived from its automotive leather business, which supplies manufacturers including Nissan, Mercedes and Audi from plants in Australia, Slovakia and China.

    Brickworks' portfolio includes Australia's largest bricks producer Austral Bricks, Austral Masonry, Bristile Roofing, Austral Precast and Auswest Timbers.
    GearWrench unveils new brand identity

    Apex Tools-owned GearWrench has a rebranding campaign. The company sees its new identity embodying the brand's commitment to excellence in manufacturing and innovation. The rollout involves every aspect of the GearWrench brand, including its logo, tagline, colour palette, typography, and product design.

    The new Gearwrench logo, "Forge Ahead" communicates the brand's approach toward forward-thinking, according to the company. Ray Smith, vice-president - marketing, North American Hand Tools, said:
    The GearWrench brand has grown remarkably over the past 20 years. We've undertaken this comprehensive new brand identity program to reflect that progress. This new visual identity will help communicate the high quality of our products, our customer-focused culture, and our commitment to innovation.

    The logo it replaces has represented the brand since it appeared in 1996 when GearWrench introduced the first professional grade ratcheting combination wrench.

    Looking forward, the company plans to continue expanding its redesigned product line. By the end of 2017, GearWrench said it plans to have 4,100 different products available for purchase.
    Husqvarna demonstrates latest products

    The annual Green Industry and Equipment Expo (GIE+EXPO) in Louisville, Kentucky positions itself as the largest trade show for the outdoor power equipment, lawn and garden equipment, light construction and landscape industries. Husqvarna introduced several new products at the recent 2017 event.

    A new model for its Automower robotic mower series was presented, as well as additional products for the company's lineup of battery-powered range and new chainsaws and chainsaw accessories for professional landowners and farmers.

    In 2018, the Automower 310 can serve 0.25 acres and slopes up to 22 degrees. This model also features "Connect from Home", its new connected Bluetooth functionality.

    The Automower X-line will be introduced next year, which Husqvarna says makes the Automower Connect app standard for those models. This app allows owners to control the mower from their smartphone no matter where they are.

    The app works for Android and iOS devices and lets owners receive their Automower's current status and change settings remotely. It also transmits the Automower's precise GPS-tracked location in the event of a theft.

    Husqvarna said it will give its 400 e-series saws a full upgrade in 2018. The 435e, 440e, 445e, 450e and 450e Rancher chainsaws will all have improved start-ability through Smart Start for low rpm ignition, a slimmer saw body and flip-up tank cups, snap-lock cylinder covers and quick release air-filters.

    Additionally, Husqvarna also introduced new saw accessories. The X-Cut SP33G is the company's first-ever chain designed, developed and manufactured from the materials to final product in its production facility in Sweden. The carefully engineered thickness of the chrome layer ensures a lasting sharpness and a high capacity, and the chain requires less power from the saw than the standard cutting systems.

    Available with a 48- or 54-inch commercial ClearCut deck, Husqvarna says the V548 and V554 stand-on mowers provide excellent grass cutting and management. Its latest zero-turn mower series consists of 11 products, four Z500 models and seven Z500X models, ranging from the Z548 to the Z572X.

    The company also announced a line of commercial zero-turn mower blades featuring Fisher Barton's laser edge cutting technology. Husqvarna says these blades feature long-lasting sharpness, reducing downtime for lawn care professionals and increasing cut quality and fuel efficiency.

    With its new BLi100, BLi200, BLi300 batteries, Husqvarna introduced a new line of lithium-ion technology that will replace the current models. The company says these offer faster charge times (50-80 minutes), higher capacities and 100Wh, 200Wh and 300Wh respectively.
    Selleys sees UK opportunities

    The Selleys brand is working with Anthem Worldwide (Australia) to help break into DIY market in the UK with the latest revamp of its brand and packaging, tailoring it towards the British consumer.

    While Selleys is relatively unknown in UK and competing in a category with many established brands, the extreme Australian weather conditions provides strong credentials for Australian brands claiming superior strength and performance. However, with up to 40% of consumers walking away from shelves empty-handed, understanding how customers navigate this category was the focus of Selleys' launch. Ami Heath, account director, Anthem Worldwide (Australia) told Build.com.au:
    Entering such a category as an unknown brand provides both great challenges and opportunities. While brand awareness and trust will always take time to gain traction, opportunities such as this are rare - to be able to reassess norms and provide customers with a fresh approach to old category problems. Targeting both unconfident and confident DIY-ers, we really needed to use design carefully to both appeal to the new British consumer, as well as respect 75 years of Selleys' proud heritage.

    Creative director, Marcel Wijnen added:
    Addressing an age-old category problem of intolerable clutter, we took a bold new iconography-led approach to differentiate from competitors who mostly led with technology cues.

    Paired with a strategic use of colour, the new range significantly simplifies the packaging hierarchy, greatly improving range navigation. This straightforward approach still pays homage to Selleys' no-fuss Aussie persona, but allowed the brand to also unify the range and complement it with a newly refreshed Selleys brandmark.
    Snap-on to appeal patent suit

    Tool maker Snap-on said it will appeal a US federal court's verdict that awarded Milwaukee Electric Tool (not to be confused with the Techtronic Industries-owned Milwaukee brand) nearly USD28 million in a patent-infringement lawsuit.

    The federal lawsuit, filed three years ago in the Eastern District of Wisconsin, involves three Milwaukee Tool patents for battery packs used with cordless power tools.

    The Journal Sentinel reports that Rick Secor, director of corporate communications at Snap-on said the company strongly disagrees with the jury's verdict and will "vigorously appeal."

    In the lawsuit, Milwaukee Tool said the lithium-ion battery packs it invented greatly changed the industry after being introduced in 2005. The technology replaced packs that used nickel-cadmium batteries. A spokesman for Milwaukee Tool said:
    The introduction of Lithium-Ion technology to the professional power-tool industry was groundbreaking and resulted in multiple patents for our company that we continue to aggressively defend. [The] jury verdict by the federal court affirms Milwaukee Tool's leadership in new-to-world technology in cordless tools for the trades.

    Milwaukee Tool asserted in its lawsuit that "no other technology could offer the combination of high power, light weight and compact size made possible by Milwaukee Tool's inventions."

    The lawsuit contends Snap-on infringed on Milwaukee Tool's patents when the company made lithium-ion battery packs for Snap-on tools. But Snap-on argued in court filings leading up to the trial that Milwaukee Tool's claims were invalid because Canadian battery maker E-One Moli Energy had actually developed the technology and brought it to Milwaukee Tool. Moli eventually gave up its patent ownership rights in 2006 and established a license agreement with Milwaukee Tool.

    "Snap-on does not believe, that there was anything inventive about using a Li-ion cell in a high-powered cordless tool battery pack. But assuming...there is an invention here, Moli conceived of it, and not (Milwaukee Tool)," Snap-on attorneys wrote in seeking a summary judgment.

    The jury hearing the case concluded that it was more likely than not that Snap-on's lithium-ion battery packs infringe on Milwaukee Tool's patents. It determined the award was a "reasonable royalty" after determining Snap-on had likely willfully violated elements of three different Milwaukee Tool patents.

    Milwaukee Tool's victory in its lawsuit alleging patent infringement was not surprising, said Scott Hansen, one of the lawyers who represented the company.
    The amount was fairly based on the amount of Snap-on's infringing sales.

    He noted that the jury deemed the infringement willful. That finding, Mr Hansen said, allows the court to increase the damages Snap-on could have to pay by up to three times the amount of the jury's award.
    TTI portable generators with EFI technology

    Techtronic Industries Power Equipment (TTI) said it is bringing closed-loop electronic fuel injection (EFI) technology to its Ryobi branded line of portable generators.

    EFI technology has been used extensively in the automotive and houseboat industries as an environmentally responsible advancement in engine technology. TTI is introducing the performance enhancing advantages of EFI technology to its product lineup.

    The new EFI engine option is featured on the RY907000FI model generator and provides up to 20% greater fuel savings, compared to a standard carburetted engine while also improving starting and performance at all elevations. Most significantly, the on-board electronic engine management system greatly reduces Carbon Monoxide (CO) exhaust emissions emitted from the engine. Lee Sowell, president of TTI Power Equipment Outdoor Products division, said:
    The most effective way to mitigate the potential for CO related injury is to first address the hazard at the source by lowering the amount of CO produced. This new engine technology being applied to portable generators has the potential to save lives and prevent countless injuries...

    TTI began production of the Ryobi model RY907000FI generator in September 2017.
    Retailers
    Retail update
    Tradelink's Wade Young, Dean Walton and manager Shannon Ryan from the Bundamba store
    HNN Sources
    Mitre 10 New Zealand has 81 stores in its group
    Neil Cowie, Mitre 10 New Zealand chief executive
    Click to visit the HBT website for more information
    Housing and renovation hubs are the ideal location for Tradelink, according to its management team; and Mitre 10 New Zealand continues to operate in "a highly competitive market" as it presents its latest results.
    Tradelink branch opens in Ipswich

    A Tradelink store has opened in Bundamba (QLD), less than a kilometre from the newly opened Bunnings.

    Next door is a paint store, over the road is a bathroom design store, a carpet store, and just down the road is a Dulux paint store, plus work is nearing completion on a new Taubmans store. It is now a highly concentrated area for those keen to do some home renovations.

    Tradelink has added to its 220 branch network with this location which currently employs three local staff.

    Manager Shannon Ryan from Springfield made the move from assistant manager at the Underwood store to take the reins at the Bundamba location, and loves the fact that he is bringing his 15 years of experience to those who live and work in his own town. He told the Queensland Times:
    I think people are renovating more than ever. They are improving what they have. Instead of buying brand new homes people are choosing to improve the homes they already have, and it's always only going to improve the value of your property.
    There is a definite opportunity in this area. We have three paint stores within 500 metres of each other and the Bunnings up the road has helped...it's a hub for tradies and people with the renovation bug.

    This is the seventh store Tradelink has opened across Australia this year, and plans are under way for another 13.

    Tradelink's general manager Tim Broxham said that the new store was another example of how the business was identifying opportunities to continue improving their service offering to the trade community by positioning stores in convenient locations.
    We know that plumbers prefer not to travel more than 15 minutes from a job to get parts, so no matter where our customers are working, we want to make sure that there is a Tradelink branch nearby.
    Mitre 10 NZ posts gain in full-year profit

    Mitre 10 New Zealand posted a 38% gain in full-year profit after reining in some expenses including wages, helping to offset some margin pressure on seasonal products.

    Profit was NZD4.4 million in the 12 months ended June 30 from NZD3.2 million a year earlier, the Auckland-based company said in a statement. Revenue from the sale of goods rose to NZD818 million from NZD767 million.

    The hardware retail co-operative, whose shares are held by its store-owning members, supplies goods and services to the 81 outlets in the group. Chief executive Neil Cowie said:
    We're cautiously optimistic. There's been some softening around the edges through the 2017 election but people will still be investing in their homes and there will still be homes being built. If you look at construction, the new coalition is looking like investing in houses and having a push on infrastructure.

    Mitre 10 Chairman Martin Dippie also said a number of external and internal factors its drove growth over the past year.
    Our members are continually investing in their stores, upgrading, expanding and finding new ways to deliver the best in-store experience for our customers. Complementing this in-store growth is our commitment to create a complete online experience for our customers as well...

    Reflecting this, Mitre 10's online sales grew 48% compared to last year, and the company added another 7,000 SKUs (stock keeping units) to its online product range.

    Mr Cowie said the omnichannel approach has strong appeal with customers in both the retail and trade segments because they can easily buy online, and it offers the freedom to get inspiration and advice and compare products and prices, 24/7.
    Having done their homework online, our customers then have the option to visit their local Mitre 10 store and take advantage of our showrooms, range, product knowledge and advice. Our recent kitchen showroom rollout helped drive a strong increase in kitchen sales, compared to 2016, and we are also rolling out our new bathroom showrooms which we expect will perform well.

    Total stores fell by one during the year as a result of the earthquake-related close of the Kaikoura outlet. The aggregate of Mitre 10 store sales rose to NZD1.36 billion in the latest year, from NZD1.24 billion.

    Cost of sales rose to NZD747 million in the latest year from NZD692 million. Margins were squeezed after a mild winter last year, which saw the chain forced to mark down heating products. This year, Mitre 10 has faced a wet spring season. Mr Cowie said:
    It's still early days so hopefully there's a bit of pent-up demand. Seasonal categories can be under pressure. But we're picking that it's still going to be a strong year for our business.

    Mr Cowie said as part of Mitre 10's restructuring it moved to paying member rebates by installment rather than at the end of each year, which helped its members manage their cash flow and reduced the financing "bulge" it previously faced.

    Unlike rivals such at Fletcher Building's Placemakers and ITM, the Mitre 10 outlets rely less on trade sales and the split is currently 70% retail and 30% trade, Mr Cowie said. Mitre 10 stores are currently rolling out revamped bathroom departments having spruced up its kitchens departments in a move that led to a 30% increase in kitchen sales, he said.
    Our trade strategy is to not just to sell concrete and Pink Batts - we're happy to sell them (builders) the kitchens and bathrooms as well.
    Retailers
    Europe update
    Inside the newly-opened Bunnings Basildon store
    HNN Sources
    Travis Perkins reassures on profits despite rising costs and market volatility
    Toolstation continues to expand its network of branches
    Click to visit the HBT website for more information
    Bunnings in the UK has confirmed plans to open 20 stores in Britain by the end of this year and is exploring a number of formats. Travis Perkins said it faced an "increasingly difficult market environment" in the third quarter but its Toolstation achieved "excellent" like-for-like and overall sales growth.
    BUKI looks at different format stores

    According to UK trade journal Property Week, Bunnings United Kingdom & Ireland (BUKI) could trial smaller format stores. This would see stores ranging from 30,000sqft to 80,000sqft open in central city areas as part of the expansion drive, directly targeting the millennial market. BUKI managing director Peter (PJ) Davis said:
    We would love to have a network of 80,000sqft stores, but the reality is not like that. We will be opening Bunnings stores before Christmas to test how that smaller format will work in the UK.
    We are happy to buy property and turn it over as we go through the investment cycle. Our investment (in the UK) in future is going to be quite big. We will continue our test, learn and improve approach through our Bunnings pilot store programme in the UK and Ireland, which includes many varied formats, including smaller stores and larger warehouses.

    Mr Davis added that it would also be seeking warehouse sites between 50,000 and 200,000sqft in high-footfall areas.

    Michael Schneider, CEO of Bunnings Group, has also stated that previous reports of 100 stores opening the UK were incorrect. He said:
    We have no current plans for network expansion in the UK. Our absolute priority is on proving up the Bunnings pilot concept and improving execution in the Homebase stores. While we will always look to optimise locations of our stores, references to plans for large scale store openings are completely incorrect.

    In a sign that it will target built-up areas as well, Bunnings says it is weighing up developing multi-level stores where it will operate on the ground floor and units could be built above its stores.
    Store openings and plans

    BUKI officially opened its first Homebase conversion in Essex in early October 2017. It measures 57,000sq.ft. Basildon complex manager, Neil Potter, said the team helped with projects in the local area ahead of the opening.

    BUKI also launched a 76,000sqft store in Worle, a large village in North Somerset. The outlet is on the site of the former Homebase at Queensway Centre. former British number one tennis player Andrew Castle was part of the opening.

    Another Homebase conversion store opened in Harlow, west of Essex. The new store is 78,000sqft and managed by complex manager Joanne Broadhurst.

    A smaller store in Bicester will open in December.

    BUKI also announced plans to open a store on Twickenham Road in Hanworth, early next year. Hanworth is an urban and suburban London district on its south-west edge. Historically in Middlesex, it now forms part of the London Borough of Hounslow.

    A Bunnings Warehouse has been proposed for Loudwater in 2018. It will open in place of Homebase - which is in the process of shutting down - in Knaves Beech Retail Park.

    In addition, a new store on Oaks Drive in Newmarket is being planned for next year. Newmarket a market town in the English county of Suffolk, approximately 65 miles north of London.
    Travis Perkins sales up despite uncertainty

    Builders' merchant and DIY supplier, Travis Perkins, recorded a 3.5% year on year increase in revenues in the three months to the end of September despite what it described as "market volatility".

    On a like-for-like basis, the rise was 4.1%, though it noted that the results were in part boosted by a "weak comparable" in 2016. Like-for-like sales in the group's consumer division, which includes the Wickes DIY chain, slowed to 2.4% from 4.7% at the half year.

    The past year has been a difficult one for Travis Perkins with economic uncertainty intensifying concerns about the group's prospects. John Carter, Travis Perkins' chief executive, said:
    We have delivered a good like-for-like sales performance across the Group in the third quarter against a challenging market backdrop of input cost inflation and market volatility...Trading conditions in our markets continue to be mixed, with consumer discretionary spending under pressure from rising inflation and on-going uncertainty in the UK economy.

    The results come after the latest survey of purchasing managers in the construction sector suggested activity in September declined for the first time in 15 months, off the back of "fragile confidence and subdued risk appetite" in the commercial building sector.
    Toolstation accelerates expansion

    Travis Perkins-owned Toolstation is ramping up its property portfolio with ambitions to accelerate its number of store openings per year. It is looking for a range of sites, including small units measuring 2,800sqft and standard units measuring between 3,750 and 6,000sqft, to add to its existing 280-branch network.

    The retailer is also on the lookout for London high street locations measuring 4,000sqft with parking in close proximity.
    Retailers
    USA update
    Ace Hardware makes a strategic purchase in acquiring The Grommet
    HNN Sources
    Lowe's releases two new augmented reality apps
    Craftsman tools will be distributed through Lowe's, not the Home Depot
    Click to visit the HBT website for more information
    Ace Hardware is betting on the on growing Maker Movement where inventors create new products to fulfill emerging needs and the consumers in search of them; Lowe's continues to explore new technologies that have advanced uses for retail; and Stanley Black & Decker has chosen Lowe's as a channel partner to sell the Craftsman tool brand.
    Ace Hardware invests in e-commerce startup

    Ace Hardware has acquired a majority stake in The Grommet, an e-commerce startup that brings to market products from independent entrepreneurs and emerging companies.

    Launched in 2008, The Grommet has worked with more than 2,500 inventors, entrepreneurs and small businesses to launch dozens of household products and brands on its website. FitBit, IdeaPaint and SodaStream are among the items that were showcased on The Grommet as they were launching. Co-founder Jules Pieri explains:
    We've both been duking it out for the little guy. Ace has been doing it for 93 years and we've been doing it for just under nine years. There's a lot of heart and soul and passion for helping people realize their dreams.

    Ace Hardware is now the controlling owner of The Grommet but will not alter the company's strategic direction, according to a company statement. Employees will continue to have some equity ownership of the company and will remain autonomous. Terms of the deal were not disclosed. John Venhuizen, president and CEO of Ace Hardware said:
    We both stand as strong advocates for the underdog. From the very beginning we have appreciated our alignment in support for and advancement of the independent maker. Under Ace's ownership, I believe The Grommet can offer our customers more of that which fuels global economies and makes America special - the unbridled creativity of the local entrepreneur.

    The Grommet evaluates and selects products called "Grommets" across 16 categories and promotes them on its network by telling the stories behind each product. Only 3% of all products submitted and evaluated are launched on the site.

    Ms Pieri said they took a gamble by establishing the company in 2008, during the height of the economic crisis. Now, the company has grown to 85 employees and boasts more than 3 million subscribers.

    In 2016, The Grommet partnered with Ace for a pilot program called Innovation Incubators - a freestanding Grommet display in Ace's bricks-and-mortar stores that holds about 40 different products they test each quarter, Ms Pieri said.

    About 20 products have graduated from the incubator program into "the big leagues" and are being stocked in all 5,000 Ace stores, according to Ms Pieri.
    It's a way for us to really expand the opportunities for the companies we work with into a really healthy and long term relationship with Ace.

    Ms Pieri said the goal of the incubator program was to bring new, unique and otherwise undiscovered products from entrepreneurs into select Ace stores. Products range from traditional hardware to personal accessories and pet products.

    The Grommet helps emerging companies and entrepreneurs market their products in the "post-Kickstarter phase," explains Ms Pieri, adding that retail was the company's "next natural step."

    The deal aligns with Ace's focus on being a champion for small business and bringing locally relevant, innovative products to its independently owned stores, according to Ms Pieri.
    While we get a lot of data and interaction from our e-commerce site, the reality is that over 90% of retail is still physical. So we're living up to our promise to our makers by making them realise their business potential.
    Lowe's has two augmented reality apps

    Lowe's Companies is launching two apps leveraging Apple's new ARKit capabilities - Measured by Lowe's and Envisioned by The Mine - to transform smartphones into measurement and design aides.

    Unlike other apps, Measured by Lowe's allows users to get instant measurements and share measured moments on social media, straight from the app. It is one of the first accessible apps using augmented reality to turn any iPhone model 6S or newer into a visualisation tool to measure an object or distance within the phone's camera view. It can be done quickly and easily, and saved it for later.

    Envisioned by The Mine (a Lowe's company) allows users to view high fidelity digital images of furnishings at scale, in their own home or a commercial space. Customers begin their journey by navigating through The Mine's designer-inspired product catalogue.

    Once an item is selected, users can immediately place a high-quality, accurate-to-scale 3D version into their room, and modify, rotate or duplicate. The app's photo mode then allows users to capture images, share and purchase.

    The app also integrates with TheMine.com to provide a seamless shopping experience with existing, high fidelity 3D models that are generated by Lowe's Innovation Labs proprietary 3D content creation and distribution technology called LIL 3D. According to Michelle Newbery, president of The Mine:
    Our customers come to The Mine for a seamless, high-touch shopping experience that combines design-inspired home furnishings with a personal concierge level of service. With our new app, we're taking this virtual showroom a step further to build customer confidence before they buy.
    Lowe's to sell Craftsman tools

    Lowe's is betting the Craftsman name, once linked to Sears, will give it an advantage over Home Depot Inc.

    Starting in the second half of 2018, Lowe's will offer the 90-year-old tool brand. Almost as important, this means Home Depot won't, giving Lowe's a way to differentiate from its top rival. The deal also includes developing exclusive Craftsman-branded products for Lowe's. Jackie Pardini Hartzell, a spokeswoman for Lowe's, said:
    We always try to have a wide breadth of brands that people know and trust, and Craftsman is certainly one that will help us deliver on that.

    Stanley Black & Decker bought Craftsman from Sears Holdings Corp. earlier this year for USD900 million, part of a years-long run of asset sales by the struggling retailer. Sears had kept distribution of the tool brand tight with only about 10% of purchases coming at other chains.

    In buying Craftsman, Stanley aimed to revive it by investing in product development and expanding distribution. It has chosen Lowe's as the next retail destination for its Craftsman brand.

    Lowe's will also sell the products online. Orchard Supply Hardware, a small retailer Lowe's bought in 2013, was already offering Craftsman items. They are also sold at Ace Hardware, which has more than 5,000 stores.

    Craftsman is still sold in Sears stores and on its website. The purchase by Stanley Black & Decker provided Sears the right to sell Craftsman products made by its existing suppliers, royalty-free, for up to 15 years.

    Related:
    Craftsman sold to Stanley Black & Decker - HNN
    Products
    Pliers built for tough jobs
    The 8" long-nose gripping pliers are specially designed for areas difficult to reach
    Utility Products
    The Knipex 11" welding gripping pliers have moveable jaws with clamps for cumbersome workpieces
    The 10" universal gripping pliers feature a pivoting bottom jaw that automatically adjusts to any workpiece in the field
    Click to visit the HBT website for more information
    Knipex Tools has released its series of gripping pliers. The 10" universal gripping pliers feature a pivoting bottom jaw that automatically adjusts to any workpiece in the field, including square, round, hex and flat materials. The pliers have toggle lever action for a high clamping pressure grip, making the pliers ideal for secure, one-handed operation.

    The 8" long-nose gripping pliers are bright zinc-plated and feature narrow, long jaws at a slim width of 1/4". The pliers are specially designed for areas difficult to reach. These pliers also have a non-serrated gripping area for pinching off hoses.

    The Knipex 11" welding gripping pliers have moveable jaws with clamps for cumbersome workpieces and sections with high ridges up to 1 1/2". The maximum gripping capacity of the pliers is 3 17/32".

    All Knipex Gripping Pliers have a heavy-duty design with an adjustment screw and release lever for ease of use. They feature one-hand operation and a toggle lever action for high clamping pressure. The body of the gripping pliers is made from high-strength rolled steel and the gripping jaws are forged out of chrome vanadium electric steel.
    News
    HI News V3 No. 11: Murphy's Mitre 10 Monbulk
    Download the latest issue of HI News Vol. 3, issue no. 11
    HI News
    A view of Murphy's Mitre 10 store in Monbulk (VIC)
    Natbuild accuses Mitre 10 of breaching its website, page 26
    Click to visit the HBT website for more information
    An in-depth story on the Murphy's Mitre 10 store in Monbulk (VIC) and the woman who runs it, Julie Murphy dominates the pages of the latest edition of HI News. We also analyse the potential ramifications of Natbuild's accusations that Mitre 10 allegedly breached its data.

    Simply click on the following link to download this edition:
    HI News V3 No. 11: Murphy's Mitre 10 Monbulk

    In other Australian industry news, we write about long standing supplier Romak Hardware and its role in helping to establish Hardware & Building Traders as a buying group.

    Bunnings is also facing opposition to its planned store in Kingaroy (QLD) and Tasmanian hardware retailer Kemp & Denning explains its change in strategy to its shareholders.

    On the international front, we cover Kyocera's planned acquisition of Ryobi power tools and the issues currently facing plumbing specialist, Reliance Worldwide as it stocks its products in both major US big box retailers, Lowe's Home Improvement and Home Depot.

    Still in the USA, Home Depot has teamed up with Google so that it can start selling its products online through voice commands and Lowe's launches its latest social media campaign on Instagram Stories.

    Over in Europe, we include stories and about Kingfisher's latest results and Bunnings United Kingdom & Ireland transitioning the Homebase website.

    Black & Decker's GoPak battery, Cabot's latest deck coating system, the Festool Hybrid Sander and the cordless pruning saw and chainsaw from Worx all feature in the products section.
    Editorial
    NatBuild accuses Mitre 10 of breaching website
    Natbuild has a substantial online presence
    HNN Sources
    The TradeNET login
    Google Authenticator eases use of two-factor authorisation
    Give to Amnesty International
    Sometimes it can seem like the internet's second purpose is to function as a giant irony machine. In that vein, it's worth noting that October 2017 marked the fifth iteration of Cyber Security Month across much of the world. Nicely synchronised with that, it was also the month when allegations emerged that person(s) working for Mitre 10 (part of the Independent Hardware Group (IHG), which is owned and operated by the Australian Stock Exchange-listed Australian wholesaler and retailer Metcash) had made an unauthorised access to the website of The National Building Suppliers Group (NatBuild) in late September 2017.

    News of this alleged breach was scooped by Sue Mitchell of Fairfax Media, writing in the Australian Financial Review (AFR) of 2 October 2017. Her article can be accessed here:
    Mitre 10 in legal stoush with Natbuild after website breach - AFR

    Since then, further details have emerged, largely through filings with the Federal Court of Australia. We summarise below what is known so far, and how that information came to light.
    What we know so far
  • The AFR article states that an "emergency audit" conducted by NatBuild indicates an alleged unauthorised access of its TradeNET website took place on 22 September 2017.
  • TradeNET is used by NatBuild members to access information about the confidential trade agreements reached between it and suppliers.
  • The investigation is centring on a specific individual who worked at Mitre 10. (Though it is publicly available, HNN has chosen to not disclose his name at this time.)
  • As far as HNN can tell, this individual seems to have previously occupied a senior middle-management position at Mitre 10, apparently the equivalent of a category manager.
  • The AFR also states that this unauthorised access is alleged to have made use of the credentials of a person who works with long-term NatBuild member Dahlsens.
  • That access is alleged to have been made by a computer using the Mitre 10 and HTH/Danks internet access point, as indicated by the computer's IP address.
  • According to an affidavit cited by the AFR, NatBuild's emergency audit alleges that the unauthorised access included 44 supplier agreements worth $359.7 million, 17 price lists, and the minutes of meetings with suppliers.
  • There have been two Federal Court hearings to date, with a third scheduled for 23 October 2017.
  • The first Court order names four respondents: Mitre 10 Australia, Home Timber & Hardware Group (HTH), Danks Holdings, and the individual alleged to be responsible for the unauthorised access.
  • Orders stemming from the first Court hearing were largely to do with preserving potential evidence held on Mitre 10 and HTH computers, as well as devices used by the person on whom the allegations are centred.
  • Orders stemming from the second Court hearing went to further securing evidence, in particular the forensic examination and copying of data from one particular smartphone.
  • These Orders also sought information about all persons at Mitre 10 who would have had any access to any information that might have been obtained in the alleged breach.
  • How alleged breach was uncovered
  • Individual from Mitre 10, in negotiations with supplier Corinthian Doors, is alleged to have indicated knowledge of highly confidential deals between Corinthian and NatBuild.
  • Notified of this allegation, NatBuild cannot determine any way individual could know of these deals, and so instigates emergency audit of website.
  • Audit allegedly indicates one suspicious access of those deals, obtained by a user allegedly using login details that belonged to an employee of long-time NatBuild member Dahlsens.
  • Further investigations indicate that the person using those login details allegedly did so through the internet access point operated by Metcash subsidiaries Mitre 10 and Danks/HTH, as indicated by the IP addresses used.
  • The damage done

    The affidavit is said by the AFR to cite NatBuild product category manager Jon Rodman as alleging that the direct damage done by the unauthorised access could be between $8 million and $18 million. Further, according to Mr Rodman, this would place Mitre 10 in a better position to lure existing NatBuild members away.

    Ms Mitchell's AFR article quotes NatBuild chairman Martin Hartcher as saying:
    We are concerned that the information has been accessed unlawfully and we are concerned that this will impact on the confidentiality of our agreements with suppliers. We are at a point in time where we are openly competitive with Mitre 10 for independent building supplies firms, and that this forms part of that competitive struggle.

    Much of the investigation into this alleged breach is going to centre on exactly how much damage could result. Beyond giving a legal rendering of the extent of damage caused, it is also, of course, vital in an operational sense to NatBuild, which now finds itself, through no fault of its own, embroiled in an effort to control and limit any damage caused by the alleged behaviour.

    The core difficulty with unassociated breaches of highly confidential information that have occurred in the past is that, to use an American expression, they represent a bell that cannot be unrung. Once confidential information has been accessed, it cannot be unaccessed. Even if it can be proven that confidential information was not widely disseminated, it is always the case that little can prevent its future dissemination.

    Beyond NatBuild, there are also the concerns of the suppliers themselves, who are uninvolved bystanders. Corinthian Doors, in particular, has found itself at the centre of these issues, and may face exposure to the public of many of its confidential dealings with NatBuild, though it is likely steps will be taken to limit any harm from this by the Courts. It is a risk that applies whether the allegations are proven true or not.

    Just how vulnerable any interference in the business of negotiating rebates with suppliers can make Mitre 10 parent Metcash is revealed in the statements of Metcash's auditors, Ernst & Young, in its audit of annual accounts:
    The Group [Metcash] receives income from suppliers which is determined based upon a number of measures including quantities purchased, quantities sold, purchase values and the performance of promotional activities.
    We considered this to be a key audit matter as supplier income contributes a significant value to the Group's results, there are a large number of varied agreements in place and some of the arrangements require judgment to be applied in determining the appropriate consolidated statement of comprehensive income classification based on the terms of the agreement.
    This is not a "hack"

    While some commentary has suggested that what is alleged is that "Mitre 10 hacked NatBuild's website", what is alleged is really not a hack in the conventional sense.

    In purely general knowledge terms, there is just no way that anyone with any real computer knowledge at all (including many savvy 15 year-olds) would ever use unauthorised credentials to access a website from a known, fixed IP address. At the very least, even if you aren't very technical, you could use the WiFi at a shopping centre, a library, even a McDonald's. If you are technical, there are a dozen different ways of masking an IP, by using a proxy server or VPN host, and so forth. Sites such as Hidester (/https://hidester.com/proxy/}Hidestar.com) offer these services for free.

    Speaking entirely hypothetically, based on experience in other, different cases, sometimes people have obtained confidential login information, and think the "safe" thing to do is to log onto the website using a smartphone, so as not to compromise their company's systems. Except, of course, that the smartphone turns out to be connected to the office WiFi, and therefore uses the company's IP address.
    Who is to blame?

    Setting aside the specifics of this particular case, we're really looking at a very common type of situation in the world today. There are three players in these situations: the company that has the online data resource; an individual or small group of individuals that has obtained information, altered information, faked data or something of that nature; and then there is the company that person or people work for, which stands to benefit (theoretically) from their activities. It has a very wide range, from conventional hacking for information, to what happened at Volkswagen over its intentional hacking of tests for diesel engine pollution.

    Much of the debate in these cases comes down to whether we are willing to accept the narrative of the "rogue employee", or if we acknowledge that the company that employed the hackers shares some responsibility as well. In cases such as Volkswagen, and even in the case of "rogue" financial services traders, it is increasingly the case that the individual and his/her employer are seen as sharing the blame.

    Senior managers at Volkswagen are now undergoing scrutiny and prosecution for what is seen as their part in emissions dodging. French Societe General trader Jerome Kerviel was convicted for his part in EUR4.9 billion in trading losses. While his conviction was upheld, Societe General has now been judged unjustified in his firing and forced to pay compensation. Additionally, instead of being required to pay back billions of euros, Mr Kerviel is now held accountable for EUR1million. That's because the courts recognised that Societe Generale was largely responsible for those losses through their past conduct. (Society Generale is appealing these rulings.)

    In general terms, there has been a shift to see employers as having an active responsibility in these matters. The questions that get asked include: did they provide clear ethics guidelines to all employees? Did they enforce ethics, or covertly encourage unethical behaviour by concentrating only on results, and not on means? Was there any audit/review process in place to ensure employees were acting ethically?

    It's likely that as the business world comes to terms with the allegations involving NatBuild that all of Metcash operations are going to come under this kind of scrutiny.
    NatBuild's role

    First and foremost, NatBuild really should be congratulated, especially NatBuild's IT team. This is some great work, and they deserve kudos. Not only were systems set up which enabled NatBuild to trace information accessed by a specific login, but also they were evidently able to act swiftly and effectively in getting that information to management.

    HNN notes also that NatBuild has a very good terms and condition document on their website. (We checked, this is the same one they had in February 2017, so it wasn't updated after the fact.) Among its terms and conditions it states:
    You must not: republish material from this website (including republication on another website); sell, rent or sub-license material from the website; show any material from the website in public; reproduce, duplicate, copy or otherwise exploit material on this website for a commercial purpose; edit or otherwise modify any material on the website; or redistribute material from this website.
    Where content is specifically made available for redistribution, it may only be redistributed within your organisation.
    If The National Building Suppliers Group provides you with a user ID and password to enable you to access restricted areas of this website or other content or services, you must ensure that the user ID and password are kept confidential.

    And later adds:
    Without prejudice to The National Building Suppliers Group's other rights under these terms and conditions, if you breach these terms and conditions in any way, The National Building Suppliers Group may take such action as The National Building Suppliers Group deems appropriate to deal with the breach, including suspending your access to the website, prohibiting you from accessing the website, blocking computers using your IP address from accessing the website, contacting your internet service provider to request that they block your access to the website and/or bringing court proceedings against you.

    So not only a good IT team, but a good legal team as well.

    That said, as of 22 September 2017, the rules for data security in the home improvement industry have radically changed, and this applies as much (if not more) to NatBuild as to anyone else.

    From now on the minimal acceptable standard for securing data online will be a two-factor authentication (TFA) system. If a company securing valuable data online is not using TFA, and there is a data breach, they could be held responsible. Beyond that, as the NatBuild situation indicates, even the suggested breach of this kind of data has long-running, severe consequences, and no company can risk that happening.

    TFA is a system that many are by now familiar with. Accessing services such as MyGov, for example, typically requires TFA. After logging in with a username and password, the system will text a four-digit temporary "PIN" to your mobile phone, which you then enter to obtain access.

    Had TFA been used on the NatBuild website, the alleged unauthorised access would have been almost impossible. In the case of an unauthorised access, the person whose credentials are used would receive a PIN notification, and could alert NatBuild's IT department that an attempt had been made.

    Fortunately, TFA systems have become more sophisticated and easier to deploy. Companies such as Trilio offer packages that include TFA. Also Google Authenticate is an app for both Android and iOS devices that eliminates reliance on texting for TFA. The app enables you to set up a special PIN generator, based on a "secret" that users share with the website they are accessing. When you want to access the website, you enter your username and password, then look up the PIN on your smartphone, and enter that as well.

    It is vital that every buying group, as well as suppliers, and even retailers, make the move to TFA. These security needs are only going to increase.
    Analysis

    It is important to note that the progress of these allegations through Australia's legal system is in its very early stages. We really cannot tell, objectively, how much substance there is to the NatBuild allegations. That is what the Federal Courts are for. HNN will be following every aspect of this case as closely as we can.

    For many of us in the home improvement industry, however, these allegations do not come as a big surprise. We've all been aware of how heated the competition has been to get the best possible price and biggest ever rebate from suppliers. There has been for some time a fair amount of "grey area" dealing around this, with some retail buying groups working on the very edges of what is ethical when it comes to finding information.

    Perhaps the real question we need to ask is whether this concentration purely on knocking suppliers down to the lowest price possible is such a great idea. One cause behind it all is the perceived need to compete with the giant of the industry, Bunnings, on its own terms.

    HNN would contend that this is a massive misreading of the market (and of Bunnings). Certainly, Bunnings does seek low prices from suppliers, but it does so in the context of demonstrated, consistent high volumes of sales across a broad range of products. It also has arrangements that enable it to work closely with suppliers to tailor products to the needs of its stores and the markets they serve. Captive brands such as Ozito and Tactix provide it with unique advantages, as do exclusive distribution deals with brands such as Ryobi and AEG.

    To respond to such a sophisticated supply infrastructure by merely negotiating over small percentages of margin for a very limited range of products is to demonstrate an inability to grasp how the home improvement market differs from broad commodity retailing in areas such as supermarkets. It limits the ability of suppliers to effectively market their products, makes innovation very difficult for them, and will, eventually, create markets controlled by supplier duopolies.

    HNN would strongly suggest that it is not simply the case that "customers want low prices". Customers actually want a lot of things, and low prices is just one of them. It is possible that some retail buying groups have become obsessed with low prices and little else because the other deliverables -- real product knowledge by staff, genuine in-store help, and a focus on helping customers get things done -- are a lot harder to achieve.
    Companies
    Profile: Lawrie Peck, Romak
    Lawrie Peck, national sales manager, Romak Hardware Distributors
    HNN Sources
    Lawrie Peck, left, Mitch Cameron, right, and Betty Tanddo, middle
    Lawrie Peck with Romak's new display stand
    Subscribe to HNN weekly e-newsletter
    In a business environment where the relationship between home improvement suppliers, buying groups and retailers can seem a little fraught at times, Lawrie Peck and hardware company Romak could serve as an example of a better world.

    Romak, of course, is one of the best known names in hardware in Australia. The list of what it can supply is so extensive it's hard to grasp. This includes: Bed fittings, brackets, cabinet fittings, door fittings, door handles, door locks, flyscreens, gate and garage fittings, cabinet and door hinges, wheels and castors, curtain fittings, grommets, nuts, washers, sheds, house numbers, mailboxes, signs, bathroom and plumbing accessories, child safety accessories, padlocks, mirror fittings, cleaning products, garage system storage, and, of course, a wide range of shelving storage.

    Over the past 25 years and more it has filled a slot as a supplier of choice to many hardware stores, big and small, corporate and independent.

    Lawrie has been part of Romak almost from the beginning. Recently, the company has restructured, with the result that Lawrie has found himself once again more heavily involved with the side of the business that he most relishes: dealing directly with independent retailers.
    Lawrie's background

    Lawrie's own life in hardware began at a very early age.
    My father was a roof tiler and, during school holidays, I would go with him on work sites and help him with roof tiling. I used to talk to the builders working on the houses and knock off all their nails. I used to pinch some of their tools and stuff! So I was always in that environment.

    After leaving school at 15, Lawrie ended up working at what seems to have been virtually the university for many hardware stalwarts, the hardware retailer McEwans.
    Like a lot of people in the industry today, I started at McEwans. I was with them for 13 years. That was back when the Luxton family owned the business. So back then, in a sense it was a family-owned business, an independent business. And it was one of the major hardware stores.

    A little less than a third of McEwans was sold to Repco in 1979, which resulted in a partial exodus of staff, who went to work elsewhere in the industry. Lawrie ended up leaving the hardware industry for a short term, going to work for an electrical company.

    However, he wasn't gone for long, soon returning to work for HM Cowdroy. He parted ways with that company in the depths of "the recession we had to have", which began in mid-1990. After working elsewhere for a brief period, Lawrie accepted a position with Romak around 1993, and has stayed with the company ever since.
    Romak

    Lawrie's career at Romak started shortly after its original owner had sold the company to Mark Wu. Mark had been joined by Oscar Lin, who is a director, and one of the hands-on executives involved in the business.

    Lawrie sees Romak as being in a very fortunate position. It has a manufacturing base in China, with Chinese owners, but a strong presence in Australia.
    We are lucky at Romak, we have China-based owners, we have manufacturing plants in China, we have a big distribution centre in China. We are lucky in the sense that we have a lot of openings that we can go to. For arguments sake, if there were products made in China for storage or flat pack stuff, we would be able to source it. We can respond quite quickly to different product demands.
    We do our own manufacturing which is fantastic. We have a lot of people contact us to see if we can make products for them. So they can send samples and we'd just get it done and give them a price, and it would have to be in the thousands for it to work, but we are open to that.

    Romak has a wide-ranging business, including sales to North America.
    Out of China they also export to America. We also manufacture for ED Oates, some of their buckets and things. They sell those scissor brooms so we do those for them. We manufacture for McIntyre Steel and we used to manufacture a bit for Geelong Sales, their tool boxes.

    Romak at the moment is going through something of a growth spurt, according to Lawrie, as it moves into new areas.
    We are currently in the process of improving some of our product ranges, and increasing our ranges especially in the gate hardware side of the business. We are almost doubling the size of that business.

    One piece of news that is really going to excite a lot of Romak customers is that the company has finally gotten around to redesigning its packaging. While Romak products have long been held in high regard, it has become almost traditional for long-standing customers to rag Lawrie about the slightly "daggy" design of Romak's packaging.
    We are also looking at our packaging - which will probably make a lot of people happy out there. We are redesigning our packaging! We are currently employing a designer to do this.
    We've designed some new boxes and we are doing them in yellow to go with HBT colours. We are producing labels with a photo on the front et cetera. And we'll be using them for a lot of our bulk products. We are doing all this in-house which is exciting.

    Romak is also pursuing deals with fellow suppliers, with a view to presenting a comprehensive solution for retailers.
    I can see a lot of growth for Romak hardware in the next 2 to 3 years. That's got a lot to do with the changes we've discussed with some complementary suppliers.

    Nowadays, much of Lawrie's attention is on the independent Australian retailers.
    I mainly concentrate on the HBT group. We do a bit with the Natbuild group which is backed up by Bowens and Dahlsens, always have been. Then there is Hardware & General up in Sydney.

    It's a nice change from some of the tasks he's had to do in past years.
    I was tied up in the office for about three years. I was still very involved with the independents, but at the time we needed someone with knowledge of the industry to service inquiries that originated with Bunnings customers. A lot of end-consumers bought products, who had DIY issues with them. That took up a lot of my time before we employed a few people to look after that side of the business.
    We used to receive about 90 to 100 calls per day, nationally. They would ask, how do I install a door lock? Well they probably shouldn't have bought one in the first place! They would mistakenly buy a privacy lock and ask advice on how to install it, as a front door lock.

    Not that Lawrie was idle during that time. Aside from managing customer service calls (he was the only person who was completely across all the Romak products), and dealing with his favourite independents, he also helped get stuck into the website tech.
    We relaunched our new website a few years ago. The website connects with the nav system. And the orders go straight out to the warehouse. We never had that before, we just had order pads and it was all manual.
    The new program has been fantastic. If we do any changes to our price files or anything, this a 24-hour change around and the website is updated. So a member can login, there is a history of their sales that they can look at, they can automatically see what we got in stock or what's out of stock when they are placing orders. Once they placed an order, they automatically get confirmation back about their order. And we've never had that before so that's been a great improvement.
    It has speeded up the picking in the warehouse, and our order turnarounds have speeded up. Now a lot of the orders can go out the same day whereas before it took 3 to 4 days. Very rarely are we sitting on orders that are two days old.
    HBT origins

    While Lawrie has contributed to Romak's success in a wide variety of ways, it's evident that it is in dealing with independents, and especially HBT, that his talents come into sharp focus. It actually wasn't that long after Lawrie started working for Romak that the first stirrings of what would come to be the Hardware & Building Traders (HBT) began.
    When HBT was first formed, wholesalers like Romak used to close over the Christmas period for three weeks or so. Prior to this one Christmas, I heard a rumour in New South Wales that there was going to be a split. There were some unhappy people that will with the Danks group at the time. Back then we didn't have a great deal of business in New South Wales, we only had a handful of customers. So I was desperate to find out about this group.
    It came up to the Christmas holidays when we traditionally shut down so when we came back I started to put out the feelers again to try and find out what was going on. And then I received a call from Margaret Manwaring saying, look, we've got this group of people that want to break away and form another group. I thought, wow.
    So we set up a meeting just outside of Sydney. That's where we met Mitch Cameron Mike Coates and Jeff Cornford. I took Oscar Lin with us. Anyway, we sat around this table and they told us the story, and I said yes let's go with them, because I love the independent side of the business and I want to see these guys flourish. I said, let's go ahead with it.
    So Oscar and I came away, and I put a proposal together. We submitted it to the group and they accepted it. So that's where it all sort of started.

    Looking at how successful and well-organised HBT is today, it's hard to believe, but the group really was started on the spur of the moment, when a number of store owners reached a breaking point with the buying group they belonged to.
    In terms of history, there was so much negativity regarding that particular buying group, this provided the motivation to start another group. Mitch Cameron was the main driver, because he was over it. It was a big gamble for them at the time, it really was, it was a huge gamble for them to do it. And good on him. I mean he just stood up to the pressures and saw the opportunities.
    So I think it was a gutsy decision. I don't think there was a lot of actual thought, prior thought put into it. He just had enough and came up with this crazy idea, let's form our own buying group.
    I think he walked out and he was followed by three or four others at that particular meeting, and they went and had a coffee somewhere and that's where it all sort of started. So it was really over a coffee where they decided, let's do this, and that's how it happened. It wasn't preplanned or anything. It was like a spur of the moment thing -- and they were probably absolutely panicking at the time!

    HNN will definitely get the inside story of what happened from Mitch one day, but all that Lawrie could tell us is that there were questions Mitch wanted answered by Danks, and he didn't get the responses he needed. There were also, Lawrie tells us, some problems with catalogues.
    At the time, there were the catalogues which forced members to take on product that they don't really need. They couldn't return that stuff if they couldn't sell it, so they were stuck with it. And that's what HBT don't do.
    HBT Stage 2: Tim Starkey

    In the late 1990s HBT began employing the services of one Tim Starkey to help manage the group. By 1999 HBT had grown large enough that Mr Starkey could work full-time, as the group's hardware manager.
    If you look at the history of HBT, I said to a few people at the last conference, if anyone wanted to kick off that same sort of scenario they would really struggle in this day and age. The story of HBT will never happen again, I don't think, to be honest. HBT will just continue on.
    Tim Starkey used to say the only thing is that there will be an exit of members because they are family businesses and the kids don't want to take over. That's the only negative side of it, I guess.
    HBT members are so entrenched in what they are doing, I don't see another group coming out of that. If another buying group was formed, he would have to be very special circumstances for them to change.
    Tim has locked everyone in, bless his soul, he is the forebearer virtually of what HBT is today. So many members had so much respect for Tim. So I can't see anyone forming another buying group and taking away members from HBT. And a new group would have to sign up suppliers. !If suppliers already have a deal with HBT then why would they bother? The only way they bother is if the deal wasn't as tough as what HBT might have negotiated - but then they wouldn't be in the marketplace, would they?
    HBT Stage 3

    It's hard to believe, but it is a year since Tim Starkey passed away. In that period HBT has continued to build on the foundations he helped to establish, and really thrived. One particular bright spot has been the ongoing development of the H Hardware stores.
    It's exciting to see where HBT are now, especially with the H Hardware stores coming along and expanding. Let's hope they do keep expanding and I hope they don't go down the corporate path - but I doubt it because that's not their culture.

    In some ways, Lawrie was out ahead of the H Hardware plan by a considerable margin.
    I presented some H branding for hinges to the group about eight years ago. It was when they were first talking about the H business. And I said at the time we were set up to do that but we would need a commitment from the stores, because we would be just duplicating a product for a brand. So I had our design team put together some product cards etc. to set up the branding. Took it to the conference and presented it. However, it was knocked on the head, at the time.

    Lawrie has some ideas about how H branded products are likely to develop in the future.
    I think further down the track -- and they are probably already doing it -- they will have an indent type of order. One-off special order branded stuff. Like they do with the wheelbarrows and things like that.
    Branding product can get complicated because there are so many categories in a hardware store. Specifically for our area, I've got about 23 different categories crossing over a whole hardware store. I selected hinges for the H-branded product, and that's already a huge range. So I'm not sure where it's going but we are open to it. We can do it.
    Ongoing relationship

    While many people know about the role people like Mitch Cameron and Mike Coates played in getting HBT going, fewer realise what a key role Lawrie has played in the lives of many HBT store owners. Lawrie has found good retailers who were in HBT but starting from a low base, and helped them bring there stores along.
    You talk to Wayne at Wynyard (Tassie store). I was just down there a week ago and he still says to this day, that when he first decided to join with HBT, his business was in a real mess. And he did say that there were suppliers that wouldn't take him on. We were one of the ones that said, okay let's go with you.
    So he was like Chris Moorfoot, just buying ones or twos, and we supported him. I just said, let's get on with this guy, and his margins went from really small to really big. To see his business today, it's just incredible.

    So that's the relationship that Romak has had with HBT, you hear those stories quite a lot. We asked Chris Moorfoot to comment on his relationship with Lawrie:
    I would call Lawrie a "seasoned campaigner". Someone who has always been in hardware; it's in his blood; his DNA.
    He is so experienced. It's great talking to people like him because they have a lot of history in the business and so much knowledge to willingly share. He seems to know all facets of hardware and it is obvious that he cares about his customers and the success of each of their businesses.
    And he is such a likeable bloke; we are always happy to welcome him into the store, in fact we don't even ask.

    Chris is particularly impressed with the way Lawrie handles the supplier relationship:
    He/Romak was the first supplier to spend the time with us to identify the right core hardware lines we needed in the store. He went through aisle by aisle; category by category; and page by page of the catalogue.
    Lawrie really helped us out when we started because the business was a mess when we took it over. I could only buy one or two of each product just to represent the range and re-establish the categories.
    The relationship flows through to today. We are working closely with Lawrie to develop a bulk offering in some categories instead of carded (like the corporate stores). He is researching and developing the requirements for us to merchandise a number of different products to better serve our customers and increase our margin.
    Lawrie just seems to always find a way to make things happen!

    Of course, it is not all one-way traffic, and, in the best HBT tradition, while Lawrie has benefitted HBT, HBT has also been of benefit to Romak.
    It's been a good area for Romak to grow. When I first started, we had about 1500 product lines, and now we have over 5000. We went up to about 7000, but we have reduced it now. A lot of that has to do with our connection with HBT.

    One of the recent highlights of Romak's product expansion has been its letterboxes and signs, which were requested by HBT. As Chris says, Lawrie just has a talent when it comes to making things happen.
    With the letterboxes, I was very lucky because we are very close to Sandleford. We actually manufactured some of their products. So that was our connection. When I was approached by HBT about letterboxes, I did initially go offshore to find some, but it was too difficult. So I approached a Sandelford. And now it is working quite well.
    When an order comes through from a customer, we just place an order with Sandelford and it is here the next day. It was initially slow but picking up now. Since the conference with had pretty good success with it.
    The future

    Lawrie's long experience in the industry has left him a little philosophical when it comes to its future.
    I've seen lots of changes in the industry, some good and some not so good. But that's life and that's the industry. I think it's in a good place at the moment.
    I had a close look at the Masters thing, we all know what happened there. I just couldn't believe that they went ahead to be honest. And we never really had a connection with them. We made an executive decision not to go down that path.
    I can't see many other major changes. Bunnings will continue to keep growing obviously. With Mitre 10/IHG, I'm not really sure where that's going to go. There's a lot of uncertainty there.

    Lawrie does think that independent retailers do need to pursue a strategy of specialisation.
    Tim Starkey hit the nail right on the head, when Woollies announced they were going down the track of hardware in relation to Masters, and there was that scare campaign and HBT members were worried, and that sort of thing. One of Tim's discussions he had at a conference was, he says we've got all this happening as well is Bunnings, you've got to get your little niche and be different. He was onto that and kept pushing it. That's one thing I remember.
    A lot of the little hardware stores that we see today do have their little niche in the market. They cater for their local area. For example at Chris [Moorfoot]'s store, how many hardware stores do you see have toboggans? He was the first one to do it. Which is great.

    Lawrie is particularly a fan of longer term strategic planning for investment.

    A lot of forward thinking is required. Dave from Cooma is a good example, he says.
    Dave is expanding, he is building a huge business up there. He's got a new shed, H Hardware branded. A few years ago, he bought a roof truss plant to go with his business. So that's all forward thinking.
    And he's got the main hardware store with all this timber and his hardware, then he's got the truss plant on top of that, he's actually built it himself. He poured all the concrete slabs for it. He showed me photographs at the conference. It's a huge place.
    He is offering a huge service. His main market is farms, rural. He would also be supplying a lot of stuff to the snow areas too, Jindabyne and places like that.

    Things are also looking good for Lawrie himself.

    For Lawrie personally, the future is looking especially bright, because he gets to do the things that he is most keen on.
    I'm on the road a lot, I try to get out a fair bit. I love doing that, making good connections. Need to do the face-to-face but I don't get out as much as I'd like to.

    For Lawrie, the business always comes back to relationships, and to establishing real trust.
    I think back about the early days of HBT, and I have so many friends there. So it's been a wonderful experience for me. Taking myself out of Romak Hardware, just meeting these people like Mitch Cameron, and Ian and Graham Stafford, Margaret Manwaring, Jeff Cornford. Up in Byron Bay you've got Mike Ahern, and his son Matty, they are just lovely people. And I have found that throughout the whole group. There's Dave Kent, he's a character.

    Then there is Lawrie Peck, in with that group. A bit of a character too, and just about the very definition of a solid bloke you can rely on.
    Bigbox
    Big box update
    The map indicates the close distance between the Sunshine Mitre 10 store and the proposed Bunnings store in Kingaroy (QLD)
    HNN Sources
    The ex-Masters store in Heatherbrae (NSW) is just one of several that is being turned into a Bunnings store
    The Bunnings Bonnyrigg store has moved next door
    Click to visit the HBT website for more information
    A number of local business are petitioning the South Burnett Regional Council to reject Bunnings' application to build a store in Kingaroy; the ex-Masters Heatherbrae store in NSW will become a Bunnings Warehouse; the Burnie-based Bunnings store in Tasmania has been purchased by Charter Hall; and Bunnings Bonnyrigg is re-opening on the site next door.
    Objections to Bunnings in Kingaroy

    Mitre 10 owner, Metcash claims Bunnings has not adequately addressed negative impacts on local employment for its proposed Kingaroy (QLD) store. A spokesman said the impact of the proposal on employment and the economy in an area was a relevant matter to be taken into account by the South Burnett Regional Council. He told the South Burnett Times:
    We believe council should require Bunnings to undertake a proper retail impact assessment, with a focus on job impacts, or alternatively the size of the proposal should be significantly reduced.
    Industry experience at Mitre 10 is that a Bunnings store of the size proposed in a town the size of Kingaroy will lead to a reduction in competition, not add to it.

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

    Bunnings said the Kingaroy store would provide a "number of key benefits" to the community. General manager - property, Andrew Marks said the store would bring millions of dollars of investment and new jobs.
    If approved, the new warehouse will represent an investment of over $15 million and would create over 60 new jobs and an additional 130 jobs during construction...
    Locals organising to reject Bunnings

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

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

    A letter to Council also questions Bunnings' job creation claims. The letter has been written by a hardware chain employee who formerly worked for Bunnings in operational roles from 2010 to 2014. It states:
    When a Bunnings store first opens, more staff are employed than required for the long-term operation of the store. In the first four weeks of a Bunnings store opening, the store will be over-staffed. The staff numbers will then be thinned out to operate the store within a tight wage budget.
    Generally speaking, staff numbers will be reduced by between 30-40% during this time. The staff jobs that are removed are mainly the staff serving on the floor, working on the registers, or filling stock.
    Although Bunnings have claimed this new store in Kingaroy will be providing 60 jobs, I know in reality the long term number for a 7600sqm Bunnings store is closer to 35-40 people, which is really between 20-25 full-time equivalents (FTEs).
    Anything more than 25 FTEs would make the store unviable in my experience, having been part of the operational budget setting for Bunnings stores.
    The management team for all new Bunnings' stores will be current employees brought in from other stores. This includes the complex manager, the operations manager and three department managers.
    A 7600sqm Bunnings store also requires a significant level of sales to be viable. In my experience, a store of this size needs to have an annual turnover of at least $15 million, and total hardware turnover across the South Burnett is less than $15 million now.
    I am concerned about the effect this very large hardware store will have on other local businesses in Kingaroy and the surrounding areas. When $15 million of trade is taken from local businesses, they will reduce their staff numbers dramatically. Some of those local businesses will close altogether. The net result will be fewer jobs in Kingaroy and the surrounding areas.
    The Council can confirm all the above statistics by requiring Bunnings to provide it. Bunnings will have already prepared modelling for the operation of this new store, which will include staffing and sales projections.
    If Bunnings is not prepared to provide this data publicly, the Council should not be prepared to approve this application. I am certain this application will reduce jobs and be the nail in the coffin for many small businesses in the Kingaroy region.
    Size matters

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

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

    Earl's Paints manager Mark Petrakis said he backed the petition and it was likely he could lose at least one staff member if a Bunnings of the proposed size was built. He told the South Burnett Times:
    By all means Bunnings should come to Kingaroy, we're not saying no, but does it need to be a store the size of the Toowoomba?

    South Burnett Mayor Keith Campbell said the council did not take commercial competition into account when assessing development applications.
    The potential impact of the Bunnings store on retail competitors is not a relevant planning matter to consider by Council and existing case law confirms that Council may not consider trade objections in its decision making.
    There will be positive wider economic benefits of the proposal in that it will attract more people to Kingaroy that are currently travelling to Dalby and Toowoomba to visit a Bunnings store.

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

    Objections to the development application closed on September 13.
    Ex-Masters Heatherbrae turns into Bunnings

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

    Bunnings general manager - property Andrew Marks said the new store was expected to open later this year.
    Conversion and reformatting works will commence in the coming weeks and the new store will span over 12,000 square metres...

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

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

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

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

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

    Charter Hall's chief investment officer Sean McMahon told the Sydney Morning Herald:
    The Burnie property is strategically located in a land constrained, core location with no direct competition providing an ideal long-term facility for Bunnings.

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

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

    Related:
    Big box update: Bunnings expansion through Masters sites - HNN
    Bunnings Bonnyrigg moves to site next door

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

    The brand new Bunnings Warehouse will have an approximate total size of 15,000sqm as well as the main warehouse that will stock a larger range. All current staff members will transfer to the latest store and will be joined by 40 additional team members to take the total team to more than 150. Bunnings Bonnyrigg complex manager, Andrew Shalala told the Fairfield Champion:
    Team members have supported a number of community groups already, working together to assist in local community projects including renovating the kitchen at Bonnyrigg Police Citizens Youth Club and planting garden beds at the Cerebral Palsy Alliance.

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

    Related:
    Big box update: Bunnings building at Bonnyrigg - HNN
    News
    Indie store update
    Rose Bay Hardware in Sydney's eastern suburbs closes after 35 years
    HNN Sources
    Tasmania's Kemp & Denning recently held its annual general meeting
    K&D as been serving Tasmanians since 1902
    Click to visit the HBT website for more information
    The owners of Rose Bay Hardware will permanently close the store after being in business for 35 years; and the chairman of Tasmanian retailer Kemp & Denning has told shareholders "the bleeding has effectively stopped".
    Locals farewell Rose Bay Hardware

    After 35 years of serving tradies and DIYers in Sydney's eastern suburbs, the Rose Bay Hardware store is closing its doors. Owner Paul Shillan told the Wentworth Courier:
    I haven't had a holiday in 25 years. We were the first shop in Rose Bay to open seven days a week ... for 11 years I worked every day.

    Not surprisingly, Mr Shillan and his wife Gloria are looking forward to a holiday after working hard for so long. He said they had loved working at the shop because of the customers.
    I've seen three generations of customers going through. It's quite bizarre when you look back like that, it makes it real that you've been there that long. I look in the mirror and still see a bloke in shorts that feel 21 - although nobody else does.

    Mr Shillan said there had been many challenges along the way, including the floods in 1984 when his shop was washed into the harbour, as well as a global financial crisis and a couple of recessions. He said:
    You just stick your head down and work through it. It's just the way of life I guess.

    The Shillans decided to close their store when its building was sold and the lease was up. Mr Shillan said:
    It was time to move on. There was no point battling any further. People these days, they're not as handy as I grew up being three generations ago.
    People are more likely to pick up the phone and call somebody to change the light bulbs, mow the lawn or their landscaping whereas 35 years ago everybody, well most people, did it themselves.
    Strategic change and "improved outlook", says K&D

    Shareholders at the recent annual general meeting of Tasmanian hardware retailer Kemp and Denning Limited (K&D) have been told that the company's outlook is "greatly improved". Chairman Greg Goodman said the company expects to break even this financial year after a $9.8 million loss in 2016-17. According to The Mercury, he said:
    We have now closed this very difficult chapter in our history and I am delighted to report the bleeding has effectively stopped...Your directors believe the potential for shareholders is greatly improved as a result of our efforts to quickly close loss-making operations and sell our trade business.

    In an announcement likely to increase speculation about the future of its Melville Street store in Hobart, Mr Goodman said there had been a revaluation of the K&D's property assets by several registered local valuers. Mr Goodman said:
    While the variations have not yet been adopted by the Board, it is pleasing to note that there is additional equity in our property holdings.

    The site was valued at nearly $18 million in the latest annual report and is believed to be of interest to commercial rivals.

    Mr Goodman has said in the report that the company "has a clear strategy to get more value out of its real estate holdings".
    With the well-established positioning of our CBD sites (103 Melville Street) K&D is poised to meet the challenges ahead. To maximise our impact we will increasingly look for opportunities to maximise the benefit of these properties.
    Bunnings forced strategy change

    K&D also dropped its 2016 strategy of focusing on supplying the building trade and closed stores because it feared a price war with Bunnings and Clennett's Mitre 10. Shareholders were told the company faced a potentially devastating cash flow squeeze from the expansion of Bunnings.

    In 2016 then-chairman Ray Brown told shareholders that the sheer weight of increased competition in the retail landscape had prompted the board to transform the business model so that it was predominantly trade focused.

    Mr Hutton, who replaced former CEO Nick Fazzolari in March, was asked why that strategy had been abandoned. He responded:
    The market changed quickly and consequently we believed the Tasmanian trade market was not big enough for three players [Bunnings, Mitre 10 and K&D].
    Profitability in the trade area is largely dependent on scale and we thought it was too risky to engage in a price war that we couldn't fund. If we lost significant market share there was chance that asset values would fall.

    The also meeting heard that the early termination of a lease at the Cambridge store cost the company $500,000 with redundancy costs of $530,000 while early termination of a lease at Devonport cost $2.5 million. Tenders for K&D's Kingston site, valued about $3 million, closed recently.

    Related:
    Indie store update: K&D store closures - HNN
    HI News 3.7: K&D trade sold to

    Clennett's Mitre 10, page 13
    Companies
    Supplier update
    Kyocera looking to buy Ryobi power tool operations
    HNN Sources
    The Sharkbite product could be de-ranged from more Home Depot stores
    A new era for Rhino Tanks as it becomes part of Kingspan
    Subscribe to HNN weekly e-newsletter
    Kyocera seeks to diversify through purchasing Ryobi power tools; Reliance Worldwide remains upbeat despite facing a potentially bigger backlash from Home Depot; Bisley Workwear could change hands; speculation surrounds the sale of Gerard Lighting; new industrial premises for GWA Group; and Rhino Tanks transitions into Kingspan.
    Kyocera takes on Ryobi's power tool operations

    Japanese electronics maker Kyocera is seeking to acquire the power tool business of Ryobi for about 15 billion yen.

    Ryobi's power tool sales are believed to reach almost 20 billion yen annually, making it the third-largest player in Japan after Makita and Hitachi Koki. Kyocera aims to expand its product lineup and sales network with the acquisition, which would include a Ryobi plant in Dalian, China.

    The world's power tool market is growing at a 3.9% on an annual basis, and is expected to be worth USD30 billion by 2021, according to research by US-based Freedonia Group. Emerging economies in Asia are key drivers of the trend.

    Kyocera's main business in ceramic products has enjoyed strong demand for smartphone-related parts, among others, but is still vulnerable to macroeconomic factors. The Kyoto-based company has also closed and streamlined factories under its flagging solar battery and mobile phone businesses. The company is now looking to diversify, particularly into the power tool sector.

    It aims to expand group sales by about 500 billion yen to 2 trillion yen in fiscal 2020.

    Related:
    Supplier update: Kyocera is the new owner of Senco - HNN
    Plumbing specialist remains confident on growth

    Plumbing products designer and manufacturer Reliance Worldwide reported a 26% rise in net profit of $65.6 million in its first full-year financial results, exceeding its prospectus forecasts.

    Revenue of $601.7 million for the 12 months to June 30 was up 12.6% on its pro forma results the previous year, while earnings (EBITDA) of $120.7 million was 21.8% better than the pro forma $99.1 million.

    Net sales grew 2.4% on the prospectus forecast while net profit after tax rose 4.8%.

    Reliance, which raised $919 million in Australia's largest initial public offering of 2016, is forecasting robust earnings growth of between 20 and 24% in 2017-18, but a potentially dark shadow is hovering above it in the US.

    The company has its Sharkbite push-to-connect plumbing fittings now being sold through most of the 1700 Lowe's hardware stores in the US, after making the decision to try to have both Lowe's and Home Depot as major retail distribution channels.

    But Home Depot, which still stocks Sharkbite in most of its 1900 US outlets, has cut the product in just under 100 of its outlets in the Pacific Northwest region. It has dropped Sharkbite in those stores and replaced it with a rival push-to-connect product called Tectite.

    More than six months ago, Home Depot had already ditched some other Reliance products in PEX pipe and crimp fittings in most of its 1900 stores. There is a risk, therefore, that further losses of Home Depot contracts can occur.

    But Reliance Worldwide chief executive Heath Sharp said he was confident that Home Depot wouldn't go much further and remove Sharkbite from more of its stores, or even worse, from all of its stores. He told The Australian Financial Review:
    They would have preferred we didn't go to Lowe's.

    He said the two big retail chains in the US hardware market often aspired to having "exclusive" products. He said:
    They both watch what the other does very closely. When they can, they want to have brands that are exclusive.

    Mr Sharp said Reliance was taking the view that Sharkbite, as the leader in a new category of push-to-connect plumbing fittings which save time and costs, would become the prized brand across the entire market and therefore a "must stock" item for all hardware retailers. He said:
    It's a young category and it's still early on its growth curve.

    It would take time to convert more plumbers, who had grown up using traditional methods to attach fittings.

    "We believe in the fullness of time we can get it back," he said, referring to the lost business from Home Depot. He used the analogy of a big tissue brand like Kleenex in consumer goods, with customers across the board expecting to be able to purchase it from all retailers. Reliance produces 72% of its total sales from the Americas region.

    Mr Sharp said the forecast lift in earnings in 2017-18 would come from a combination of expansion of the push-to-connect business in the Americas, a full-year contribution from the Holdrite plumbing products business in North America acquired for USD92.5 million, opportunities in the Asia Pacific, new plumbing fittings products and efforts in commercialising the latest "Internet of Things" applications for water flow monitoring.
    Supplier update: Reliance inks deal with Lowe's - HNN
    Supplier update: Plumbing company IPO - HNN
    Bisley Workwear could see change in ownership

    Independent expert Deloitte Corporate Finance is deciding if the proposed $35 million sale of the Bisley Workwear business by ASX-listed Gazal Corporation to one of its major shareholders is fair and reasonable.

    Bisley, which competes against the Wesfarmers-owned workwear brands King Gee and Hard Yakka, generated a 4.2% rise in annual sales to $62.1 million and produced earnings before interest and tax of $5.7 million for the 12 months ended June 30, 2017.

    The Bisley brand has a sponsorship arrangement with the Sydney Roosters in the National Rugby League competition, emphasising its high-vis workwear in promotions with Scott Cam, the host of the Nine Network's renovation show The Block.

    The booming Sydney housing construction and renovations market had given the workwear category impetus, while increasing regulations around health and safety were also a driver for purchases.

    IBISWorld said improvements in the mining industry were also lifting demand in the workwear segment. Demand has been strong in the housing construction market over the past five years even though housing starts are now tapering off from record levels, while a renewed pipeline of infrastructure spending by governments around Australia is also a driver of demand. This is offset by the decline in manufacturing as the automotive industry shuts down by late 2017.

    But loyalty to a particular brand was diminishing. "People are often willing to give other brands a go," said Maurice Mulfari, owner of At The Coalface, a workwear and safety boots retailer in Sydney's North Willoughby. Fashion was behind the big rise in popularity of "wheat" coloured work boots, which he said now represented about 70% of total work boot sales.

    Nathan Cloutman, a senior industry analyst with IBISWorld, said the growth of young brands like FXD had been symptomatic of the shifts in the industry away from a highly generic uniform look. He said:
    Over recent years, the industry has begun to shift towards incorporating design into the functionality of workwear.

    Companies had also been expanding their workwear ranges for females, in line with higher participation rates.
    Ownership change

    Gazal has owned the Bisley trademark since 1991. It owns 50% of an Australian joint venture vehicle with United States brand owner PVH Corp, and distributes the Calvin Klein and Tommy Hilfiger brands in Australia.

    The proposed Bisley sale to David Gazal, one of the veteran retailing brothers who control Gazal Corp, will leave the firm with its stake in the PVH Corp joint venture as its major asset.
    Gerard Lighting could be target of sale

    Sources have told the Dataroom column in The Australian that private equity firm Anchorage Capital could be circling Gerard Lighting with a view to buying the recapitalised business.

    However Gerard chief executive Les Patterson said no talks were in progress with any parties surrounding an acquisition and it had no plans for a sale.

    Earlier this year, Gerard Lighting was in discussions with its lenders and has been up for sale in the past two years through investment bank UBS. But the business was offered a lifeline by Investec and Bain Capital in the past few months when the lenders bought the operation from Champ Private Equity.

    Still, Bain and Investec are seen as unlikely long-term owners of the operation and a divestment may prove another lucrative turnaround opportunity for Anchorage.

    Phil Cave's Anchorage Capital Partners was the group that amassed massive profits from the acquisition of Dick Smith Electronics from Woolworths for less than $100 million in 2012. In 2013, Anchorage floated the operation for $520m.

    However, Dick Smith later collapsed after it was listed with cashflow pressures and excessive debt costs blamed for its failure.

    Anchorage is seen as an opportunistic buyout firm that targets turnaround scenarios and is likely to be fielding plenty of approaches to acquire out-of-favour companies in the media and retail space.

    Gerard Lighting is a supplier of lighting for the commercial, trade and residential markets, along with major construction and infrastructure projects. Bain and Investec have been long-term lenders of the operation and part of the terms of its acquisition was to invest capital into the business to reduce its debt.

    Related:
    Supplier update: Restructure deal for Gerard Lighting - HNN
    GWA moving into new industrial site

    GWA Group is consolidating its manufacturing and warehouse operations into a new facility at Charter Hall's M5/M7 Industrial Estate on a 10-year lease. Located at 290 Kurrajong Road, Prestons (NSW) the project is estimated to cost $45 million.

    The bathroom and hardware supplier is redesigning its distribution network to include a purpose-built distribution centre, in order to reduce their operational costs and environmental footprint. This facility is also expanding GWA Group's R&D resources. GWA group general manager Sean Mitchell told the Urban Developer:
    The transformation of our warehouse management system will future-proof our business. The outcome will provide us with flexibility to grow with improved supply and operational efficiencies.

    Construction of the 31,029 square metre facility is currently underway by Charter Hall. It is anticipated to be operational in 2018.
    Rhino Tanks undergoes brand refresh

    The owner of Rhino Tanks, Kingspan Environmental, has invested in new signage at its Deniliquin (NSW) distribution centre, signalling a new era for Australian made Rhino Tanks.

    Eastern states operations manager for Kingspan Environmental, Chris Butcher, said it has removed the "Rhino" from the recognisable logo, but it's "business as usual". He said:
    Kingspan's logo features a lion, so we have updated the Rhino logo to support our parent brand...So visibly there are some changes, but our water tanks are the same - they are still made in Perth from BlueScope Steel and lined with the most stable and safest food grade materials available.

    The company plans to capture new markets and grow its network of distributors and installers. As part of its commitment to the region, Kingspan Environmental has renewed its lease in Deniliquin for another three years. Mr Butcher said:
    Along with our Kingspan Rhino Rural range, we also offer residential made-to-measure water tanks with capacities ranging from 500 litres to 29,000 litres across the eastern states, and our new BioDisc sewage treatment range Australia wide. Our commercial range goes up to a capacity of approximately two million litres.
    Kingspan produce other waste water treatment solutions and solar and wind power products, so there is a huge potential to grow in the future and expand into other markets.
    Retailers
    Working with Amazon: SRG, Beacon Lighting
    Amazon Australia is launching very soon
    HNN Sources
    Amazon Marketplace is open to vendors wishing to sell on the online platform
    Beacon Lighting grows its digital sales in its 50th year of business
    Click to visit the HBT website for more information
    Super Retail Group (SRG) - owner of Supercheap Auto, Rebel, Amart Sports, BCF and Rays - is tackling the impending arrival of Amazon in Australia head-on, opening up a dialogue with the US retail giant and strengthening its digital offerings.

    Chief executive Peter Birtles confirmed to the Courier Mail the company has had "conversations" with Amazon when asked whether it would consider selling goods through the US online retail behemoth.

    Meanwhile SRG's digital sales have grown substantially. In the last financial year digital sales in the company's auto-division grew by 75%, sports division was up 73%, while the leisure division was up 150%. Mr Birtles said:
    As a company you explore all options. We work with eBay today, and we will explore that (working with Amazon) too. Amazon are a really great organisation who have great capabilities. You have to be open to considering every single option.

    Unlike Harvey Norman founder Gerry Harvey, Mr Birtles remains upbeat about the company's ability to compete with Amazon. He said:
    We recognise that the retail industry is going through unprecedented change as the result of the impact of ever more demanding customer expectations, global competition and digitisation.
    We have been considering these forces for a number of years and our strategy has been developed to ensure that we continue to succeed in this evolving environment.

    SRG's investment into its digital strategy has helped deliver growth in this part of the business. Mr Birtles said much this was largely driven by click-and-collect - a competitive advantage a retailer with a large physical network of stores had over online only businesses. He said:
    The advantage that we have is we can serve the customer in whatever way they want to be served - they can shop with us how ever it is they want to shop.
    Beacon Lighting

    Another retailer that recently listed on the ASX is also looking at Amazon as an opportunity for growth. Beacon Lighting founder and executive director, Ian Robinson told The Australian:
    Our e-commerce model in Australia has been very successful and we have the opportunity to expand that internationally.

    Online now represents more than 4% of sales and was up 54% over the past year.

    Beacon already sell into the US and Europe with Amazon and has registered as a supplier in Australia. Chief executive and son, Glen Robinson said:
    If you have your own brand like we do, we are in a pretty good position. It is another way for us to get to our customers. We will cater a range to suit the Amazon platform for Australian buyers.

    The lighting retailer turns 50 this year and now employs 1000 people worldwide, exporting to 26 countries. Ian Robinson recounts the early days:
    I started with nothing. And we went through many years of really hard times. We went through the '89 recession and really just survived and had to reinvent the business. I still have the memories of difficult times.
    I am still very aware of keeping your feet on the ground and not getting carried away. Tomorrow you could lose the whole lot. You are in business and you have no certainty it will continue forever. I wish the family all the success for the future but businesses do fail and if it fails it fails - do not take it too much to heart if it does happen. But all things being equal it should be very successful.

    Beacon saw its shares rise to dizzy heights in the two years after the float, soaring to three times their issue price before a profit downgrade 15 months ago sent them crashing to earth.

    They have since remained below their listing price and remain down more than 20% over the past year. They fell further after the group reported a 9% fall in net profit to $16.6 million, a result hit by the discounting of lighting lines following the closure of the Masters Home Improvement chain last year.

    The tough times are testing the resolve of the leader of the second generation, Glen Robinson, but he wouldn't have it any other way. He said:
    What a perfect induction, training process you have when you get to work with your old man in the business. We get to discuss things. Some of the things we are discussing are big decisions that need to be made. And you don't need to worry about the Ps and Qs. You just go for it.

    The younger Robinson started on the Beacon shop floor when he was 12 years old. He said:
    The family runs the business, my brother and two sisters work in the business. It is absolutely important for us to grow this business into the second, third and fourth generation.

    Beacon remains one of the larger beneficiaries of ongoing strength in the housing market and soaring energy prices, which are driving demand for more energy efficient lighting.

    Beacon will open 14 new stores this calendar year and its goal is grow to 145 stores from the current 102. It has also taken over six stores owned by three competitors this year.

    And while he may no longer have his hands firmly at the controls, Ian Robinson is adamant the family can continue to grow revenues in the broader business ''at 10 per cent-plus per annum''. He said:
    I have enjoyed building a business over a long period of time. Every day is a challenge in retail, you have to do 1000 things right every day. And it keeps you mentally stimulated. You have your ups and downs along the journey.
    Retailers
    Europe update
    Kingfisher's One strategy remains on track despite H1 pre-tax profit decline
    HNN Sources
    Homebase home delivery comes to a halt as BUKI revamps the website; image credit: Mike Brocklebank, flickr
    Grafton Group's Heiton Buckley delivered revenue gains in its first half results
    Click to visit the HBT website for more information
    Home improvement group Kingfisher said the transformation of its business is on track; Bunnings United Kingdom & Ireland is moving the Homebase website to a new online platform; Grafton Group remains confident about Irish and UK construction despite weaker demand; and French DIY website raises EUR60 million to take on B&Q in the UK.
    Restructure keeps Kingfisher's pre-tax profits down

    UK home improvement group Kingfisher - owner of B&Q, Screwfix in the UK and France's Castorama - made pre-tax profit of GBP402 million in the six months ended July 31, compared with GBP427 million a year earlier. This represents a fall of 5.9%.

    Total group sales rose 4.5% to GBP6.01 billion, but like-for-like sales declined 1.3%.

    The retailer saw solid growth at its Screwfix brand and also in Poland, but this was offset by a 5% fall in sales in France.

    Kingfisher is also investing in digital, with B&Q at 4% online sales, up 17% this year. A mobile platform is launching soon at B&Q.

    The company said it remained comfortable with full-year earnings per share expectations but chief executive Veronique Laury is "cautious on the second half backdrop in the UK and France."

    A recent survey by UBS analysts suggested such caution might be warranted: !Intention to spend on DIY remains weak in the UK and (surprisingly) in France ... In France, Leroy Merlin is continuing to outperform Kingfisher, with Castorama scoring particularly poorly.

    The company is working its way through a five-year plan, which it began 18 months ago. This includes streamlining the products it offers across its outlets. This has meant offering products it planned to phase out at discounted prices. Kingfisher's revamp has also included widespread changes to its IT system as well as closing some B&Q stores.

    Kingfisher said it will deliver a GBP500m "sustainable" annual profit uplift by the end of 2021, which will cost GBP800m, but that until it has finished streamlining the business, it will not be able to expand by much.

    Analysts at Barclays have suggested "the turnaround plan will take longer, will provide substantial disruption to company operation in the next several years and will eventually provide a smaller benefit than is currently expected."

    Some analysts have also suggested the company may work better broken up. Screwfix is growing faster than the rest and France's Castorama is underperforming.

    But Ms Laury said this was "not something we would consider at all". She added:
    The power of the group is to be together.
    BUKI revamps Homebase website, store update

    The home delivery service at Homebase stores has been suspended while Bunnings United Kingdom & Ireland (BUKI) completes its separation from previous owner Home Retail Group and moves to a new web platform. A Bunnings spokeswoman said:
    This is temporary and part of the website re-platform, to make it easier for customers to browse our great ranges, advice and ideas.

    Bunnings said Homebase's home delivery service would return soon after a transitional period is complete.

    It marks another stage of the retailer's journey to transition from Homebase to Bunnings. BUKI continues to convert a string of Homebase stores and plans to have between 15 and 20 Bunnings Warehouse stores fully operational by the end of this year.
    Broadstairs and Chichester stores

    BUKI also officially opened its latest warehouse store at Westwood Gateway Retail Park in Broadstairs, Kent. It measures 67,000 square feet and the second Bunnings store in Kent, following the Folkestone store in July. Broadstairs' complex manager, Simon Woodhall, said:
    It is great to finally open our doors. All our team members have worked really hard to get the store ready for opening and have undertaken many hours of training to make sure we have the expertise to help customers with home or garden projects."

    It has also been announced that the Homebase store on Discovery Park, Barnfield Drive, Chichester will close in November, as work commences on its conversion to a new Bunnings Warehouse store, which will open later this year.
    Uncertainty in UK market, says Grafton

    Grafton Group has reported a 9% rise in revenue for the six months to the end of June as its pre-tax profits rose by 16%.

    The building supply company, which includes brands like Heiton Buckley and DIY chain Woodies, made a profit before tax of GBP75.4 million in the six month period, on the back of almost GBP1.34 billion in revenue.

    Looking ahead, Grafton said that recent softer trends in the UK economy are likely to be sustained over the remainder of the year. The company stated:
    The strength of housing starts should support house building activity while the residential RMI (repair, maintenance & improvement) market is expected to be broadly flat with continuing competitive pricing conditions.

    However Grafton Group chief executive Gavin Slark said he expects construction in both Ireland and the UK to grow. He believes fears of a skills shortage, around Brexit and the slow pace of homebuilding in Ireland and the UK would impact the construction sector were premature. He told the Irish Examiner:
    The underlying fundamentals in the UK are relatively strong. There are 60 million people living there and it is a mature economy. The need for housing isn't going to go away and the need for repairs and maintenance isn't going to go away. You might see a few speed bumps along the way but we look at the next three to five years in the UK with a fair degree of confidence.

    Breaking down its divisions, Grafton said that revenues in its merchanting division rose by 8.6% to GBP1.221 billion while adjusted operating profits were up 13.4% to GBP74.6 million. The division makes up 91% of total group revenue.

    Meanwhile revenues at its retail division - which makes up 6% of group revenue - rose by 15.5% to GBP84.4 million while operating profits increased by 53% to GBP4.7 million. Grafton's DIY chain Woodies saw its like-for-like revenue increase by 6.6%.
    French DIY website looks to UK for growth

    Paris-based online DIY marketplace, ManoMano has raised EUR60 million from private equity investors to fuel expansion across Europe, with Britain one of the top markets in its sights.

    Its latest fundraising round was led by General Atlantic, the private equity and venture capital firm. Chris Caulkin, a principal at General Atlantic, said ManoMano has an opportunity to capitalise on the relatively low take up of online sales in DIY and gardening in the UK. He told the Financial Times:
    DIY is one of the last retail categories to start transitioning online. If you compare it to categories like clothes where maybe 20% of sales are already through the online channel, this category is below 5% in many countries. There's a very attractive medium-to-long term growth opportunity in looking to shift DIY online.
    We believe the DIY and gardening category today has low online penetration despite the advantages over traditional retail, including a wider product offering and the ability to search and filter products and drill into technical information.

    This funding injection will be spent on a marketing blitz across all markets, as well as increasing the product range, and hiring more business development staff in the UK and Germany. Christian Raisson, cofounder of ManoMano, said in a statement:
    In the UK, we will be focusing on a number of key issues, notably: implementing new logistics and delivery services for consumers and sellers, facilitating cross-border trading and European expansion for partners, as well as redesigning the website to allow for easier navigation, a simplified purchase funnel and more efficient pre-sales advice.

    In its 18 months of operation in the UK, the company has made GBP9 million in sales. ManoMano co-founder, Philippe de Chanville said:
    In France, the web represents roughly 3-5% of its sales; in the UK, close to 8% of its sales are on the web. We are aiming to get the biggest market share online.

    ManoMano also hopes its Europe-wide supplier network will help it keep costs down. Mr de Chanville said:
    Spain and Italy are well-known for faucets, bathtubs and showers; electricals come from France, power tools from Germany and the UK. Anything can be shipped from anywhere in 24-48 hours so we don't add cost by building huge warehouses.

    Founded in 2013, ManoMano sells DIY tools, products and furniture from a network of merchants, and is on track for overall sales of EUR280 million in 2017, up from EUR89 million last year. It operates in six countries in Europe and Germany is its fastest-growing market.

    The business said it has 1.9 million customers across Europe and has 1.2 million products listed on its platform.

    The company also plans to launch SuperMano, its DIY handyman service, in the UK after trialling it in France with over 1,800 handymen for the past 14 months. 

    Related:
    Europe update: ManoMano hails successful first year in UK - HNN
    DIY start-up ManoMano to challenge B&Q - HNN
    Bigbox
    USA update
    Home Depot is expanding its omnichannel strategy through its partnership with Google
    HNN Sources
    Lowe's recently launched an Instagram Stories campaign
    Lowe's is creating longer shifts for its store staff to enhance customer service
    Click to visit the HBT website for more information
    Home improvement big box retailer, Home Depot is joining Google Express, a move that will give its customers the ability to shop just by speaking their orders; Lowe's latest social media campaign uses Instagram Stories; and Lowe's plans to hire more customer-facing store workers after its latest earnings disappoint.
    Home Depot gets into voice shopping

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

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

    The new option expands Home Depot's omnichannel strategy, which currently encompasses 2,282 store locations and a digital endless aisle available online and through mobile devices. The retailer's online president and chief marketing officer Kevin Hofmann said:
    We're focused on delivering convenience and value as we continue to invest in best-in-class interconnected experiences for our customers. Google has been a key strategic partner for us over many years, and we're excited to take our relationship to the next level with the Google Assistant and Google Express.

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

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

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

    Lowe's partnered with the ad agency BBDO New York to create the Instagram campaign. The campaign was born out of the annual Facebook Creative Hackathon, and is designed to take an engaging, light-hearted approach to project videos, while showing how consumers can quickly change a small space into a more functional area. Derrick Wood, vice president of brand, content and advertising at Lowe's told Retail TouchPoints:
    There is great opportunity to get creative when reaching DIYers about projects. This campaign taps the narrow spaces of Instagram Stories as a platform to show transformations in micro spaces - using the exact ratios of Instagram Stories to flip an alcove to a kid's nook, a pantry to a coffee bar, and a closet to a bike storage.

    When filming the microvideos, Lowe's considered that many Instagram users are prone to skipping through stories. The teams decided to upload multiple still frames as microvideo clips to do the skipping for them. Mr Wood explains:
    These clips are short, and each will immediately skip to the next, creating a flip book effect of the room being transformed. The simplicity of each project is matched by a quick swipe to more detailed instructions and to easily purchase the supplies needed to complete it.

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

    "This campaign highlights the creative potential that Instagram Stories can hold for brands," said Kay Hsu, Global Instagram Lead at Facebook Creative Shop.
    Lowe's cleverly leverages the full screen vertical format to demonstrate how narrow spaces can be easily transformed with a smart hack. The brand shows a deep understanding of Instagram Stories and how audiences interact with the format - automatically skipping ahead before the viewer even had a chance to do it themselves. The result? Lowe's transforms boring, tight spaces into beautiful rooms that are Instagram-worthy.
    Lowe's longer shifts for workers

    Lowe's is increasing hours for store workers to improve customer service. This follows the US home improvement retailer's second quarter sales and profits results that were below what Wall Street was expecting. CEO Robert Niblock said in a statement:
    While our results were below our expectations in the first half of this year, the team remains focused on making the necessary investments to improve the customer experience. This includes amplifying our consumer messaging and incremental customer-facing hours in our stores.

    That probably means sacrificing some profit.

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

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

    Lowe's hopes to ride the wave of stronger shopper traffic with the investment in store-level workers - with a primary focus on weekends and peak traffic times during weekdays, the company said. Mr Niblock said in a call with analysts:
    We've said all along that productivity is not just about cutting costs. It's about investing in areas that matter most to the customer.

    Lowe's has also restructured other parts of the company, including layoffs of over 120 corporate tech workers recently.
    Products
    GoPak power tool battery
    Black + Decker has launched the GoPak System powered by the new 12V Max GoPak battery
    Torque Expo
    The system includes a drill/driver
    It can tackle household tasks and DIY projects
    Click to visit the HBT website for more information
    Black + Decker has launched the GoPak System, a four tool combo kit powered by the new 12V Max GoPak battery. Available as a four-tool combo kit, the system includes a drill/driver, jigsaw, detail sander, pivot-head LED work light and GoPak battery - the latter doubles as a power source to charge mobile devices on-the-go via a USB port.

    The drill/driver features an 11-position clutch to help prevent stripping of screws and the jigsaw blade can be changed without the need for another tool.

    The slim, compact design of the GoPak battery makes it easy to handle and take on-the-go. The integrated USB port, with 2.4A output, quickly charges devices such as phones and tablets, allowing users to charge devices when there is no traditional power outlet in sight.

    Rubber corner bumpers increase the battery's durability and the onboard LED state-of-charge feature shows the percentage of the battery's remaining charge.

    Targeting the DIY market, the GoPak System has been available in the US in October 2017. The GoPak battery will be available separately.
    Products
    Cabot's makes coating faster
    New Timber Prep imitates the effects of weathering, by drawing out the timber's tannins and oils
    HNN Sources
    Aquadeck promises a durable, lightly pigmented finish
    Deck Clean should be used on both new and weathered timber prior to coating to remove dirt and excess tannins
    Click to visit the HBT website for more information
    Cabot's has introduced its fastest deck coating system ever - Finish in 1 Day - to speed up deck prep.

    With data from Pollinate Decking Consumer Research 2016 revealing 52% of deck owners take more than a day to complete the coating process, and one in five have never coated their deck, Cabot's three step Finish in 1 Day system responds to a demand for more time-efficient coating.

    As the name suggests, the Cabot's Finish in 1 Day system turns what is usually a six-week process into a one-day job, thanks to a series of new product developments.

    Designed to enhance and protect the natural look of exterior timber, Cabot's Aquadeck decking oil now has a new formula, cutting down the recoat time from two hours to just one hour.

    Cabot's recommends teaming Cabot's Aquadeck with Cabot's Deck Clean and Cabot's New Timber Prep, a new product that allows deck owners to skip the four to six weeks of weathering typically recommended for new timber. James Fisher, senior brand manager for Cabot's, said:
    We know that many deck owners struggle to dedicate time to maintaining their deck, despite it often becoming the hub of the home during the warmer months. With this in mind, the Cabot's Finish in 1 Day system has been developed to make sure deck owners are able to spend more time enjoying their deck than they do caring for it.

    In three simple steps for new bare timber, or two for pre-weathered/grey timber, deck owners can achieve a finish that can be easily touched up as required throughout the year.
    News
    HI News V3 No. 10: Bunnings Australia grows
    Download the latest issue of HI News Vol. 3, issue no. 10
    HI News
    The development of Bunnings revenue and EBIT since 2010
    Joe Galli, CEO of TTI Group, being interviewed on Bloomberg Asia
    Click to visit the HBT website for more information
    Home improvement corporates dominate the latest issue of HI News: Bunnings, Techtronic Industries and GWA Group. We analyse their latest financial results and strategies.

    Simply click on the following link to download this edition:
    HI News V3 No. 10: Bunnings Australia grows

    Tasmanian hardware retailer, Kemp and Denning posts a major loss in FY2016-17 and Home Hardware store owner Craig Stibbard continues his vocal protest against changes to retail trading hours in Queensland.

    In terms of supplier news, fastener brand Senco has been bought by Kyocera and Mr Fothergill's buys a UK tool business. Closer to home, Adelaide Brighton said it will raise prices on pre-mix cement again.

    Our regular section on statistics takes a closer look at the end of the effects of historically low interest rates on housing. We also launch the People section which features Paul Hoye, managing director of Kilingspor Australia.

    European home improvement group, Kingfisher has taken over the Praktiker stores in Romania. In the UK, Travis Perkins has raised prices to help offset rising costs.

    US-based big box retailers Home Depot and Lowe's compete directly for pro customers. Ace Hardware and True Value also report on their second quarter results.

    Backpacks and other soft-side storage products are taking over the traditional metal toolbox. Other products in this issue include Boral Timber's newest flooring and Cub Cadet's brushcutter.
    Bigbox
    Bunnings-Wesfarmers results FY2016-17
    Bunnings FY2016-17 results
    HNN Sources
    Bunnings revenue and EBIT
    Store numbers and growth
    Click to visit the HBT website for more information
    The headline element in the full-year results for Australian big-box home improvement retailer Bunnings is its return on capital (RoC) ratio. For its Australian operations, this hit 41.8%, the highest it has been in eight years.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    In his comments on BANZ, Mr Schneider began by highlighting the retailer's progress in light trade sales:
    Sales growth was strong in both our consumer and commercial segments, with very strong performance among our light commercial segments, reflecting the good work that's gone into product innovation and offerings relevant to the various trade segments we serve as well as improved pricing in digital engagement.

    The subject of trade sales came up later in his remarks as well:
    Our engagement of light trades as well as deeper relationships with larger builders ensures we're well-positioned to meet the needs of this sector of the market.

    Mr Schneider also highlighted some of the extensive work that has been undertaken to significantly upgrade the existing store network:
    The images on the bottom of this slide show the demolition work underway at Caringbah and an illustration of our new warehouse, which gives a sense of the scale of these sort of projects. As we continue to develop our network, it's likely that similar scale developments will become a feature of our network planning.

    In the formal accounting documents accompanying Wesfarmers 4e report, it was mentioned that one negative offset to the good earnings growth was:
    ...higher store closure provisions within BANZ's trading results, arising from the agreement with Home Consortium for new sites, together with additional writedowns in the second half related to future network changes and in-store display assets.
    Further investment in store upgrades and category refresh works was supported by a disciplined capital expenditure program.

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

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

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

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

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

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

    It is hardly surprising that BUKI attracted a good deal of attention from analysts. Mr Schneider laid out a staunch defence of its operations and future prospects. He began by outlining those areas where BUKI had suffered setbacks:
    Trading during the year was impacted by price deflation following the introduction of Every Day Low Pricing across the Homebase business as well as lower volumes of high-value kitchen and bathroom sales as those categories were significantly repositioned away from an installation and in-home services model.

    He went on to outline what BUKI was doing to mitigate these problems:
    Our new range of kitchens is now in all pilot stores. A refresh and relaunch of this offer across the Homebase network is now underway. Whilst we are pleased with the new offer, we are conscious it will take some time to get traction with customers as they have become very used to a promotion-driven installation model across the market.

    Expansion plans, according to Mr Schneider, include up to 20 Bunnings stores in the UK by the end of calendar 2017.
    Our aim is to end this calendar year with between 15 and 20 Bunnings stores open or near completion. These will give us some important benchmarks to trading patterns and customer participation across the northern winter. As we've always said, further investment is predicated on successful pilots. Proof of concept is a very big area of focus for the business in the year ahead.

    He concluded by admitting to the difficulties BUKI faces, but reiterated that this is a long-term project.
    I expect trading to remain challenging for Homebase at least in the short-term as customers continue to adjust to the new offer. In addition, until we reach sufficient scale with the roll out of the Bunnings format, business performance will continue to be negatively affected by disproportionate non-operating costs and disruptions associated with the new store openings. As I said before, this is a significant long-term transformation project and PJ [Davis], the team and I are committed to driving the agenda hard in the year ahead.

    Respected analyst David Errington of Merrill Lynch picked up on some of these points in his questions:
    On BUKI, one of the most concerning things I've heard on this call was Mike saying that you're trying to convert UK customers to a non-promotional offer.
    Now you've lost a lot of money in this business this year. You lost - the biggest trading period, you've lost nearly $30 million, and that's your best trading period. And you're going to try to convert a market. Now most of us who have covered whether it be wine companies or the UK retail is the whole UK market is a promotional market, that's what the UK customers are based - that's what they deal on, whether it's BOGOFs [buy one get one free] or whatever it might be.
    You're going to try to convert the market to being non-promotional. That, to me, is a real worry, and I'd like to hear why you think that strategy is going to be successful going forward.

    Mr Schneider responded to this criticism by saying in part:
    We're seeing from the first five pilot stores that have been opened that when you're really clear on what EDLP is and you really strive to create breathtaking value for customers, they trust it and they shop with the store. So we're seeing that in the transaction sales [going] up ... in the pilot stores.

    He went on to agree that EDLP was "no silver bullet", but said this was only part of the developments at BUKI:
    The other thing that we've got is a whole lot of work happening now around different types of marketing collateral, both traditional and digital, to engage customers in the Homebase business. It's going to be a long slog, but certainly from what we're seeing in the way we've established the Bunnings pilots that they're performing well on an EDLP basis.

    Mr Errington responded with an acute point:
    But what's the worry, Mike, [is] that the Homebase stores, which is the bulk of the priority - the 260 Homebase stores that you're converting to being non-promotional. What's the risk that they turn into a real disaster?

    Mr Schneider agreed that there was a risk, but sees it as being offset:
    Well, I guess there is a risk. I think the challenge that the team have got in front of them and the work that we're doing is all about positioning the stores as a core home improvement and garden offer, and that's one of the big things that's sort of underestimated, I guess, in seeing the transition... It will take time for customers, irrespective of the pricing framework, to actually understand what those stores are there for, because that market's grown up with that business being something different.
    Analysis

    For what was a relatively tough year through at least three of its quarters, the results from BANZ are quite good. Not only did weather play a role in decreasing sales, but there was also, nearly a year ago, a high level of discount sales activity coming from the closing Masters stores.

    If there remains an open question around Bunnings' future, it involves the company's commitment to digital, online engagement. While there has been something of a dismissal in the past of the potential effect the entry of Amazon could have on the home improvement industry in Australia, it is worth noting that analysts this year have been sounding a note of caution about home improvement retailers The Home Depot and Lowe's Companies as regards competition coming from the biggest online retailer in the world.

    This has been partly fuelled by Amazon's move into selling larger home appliances sourced from Sears, but the greater point is that much of what Amazon currently stocks can suck sales away from home improvement: flashlights, lighting, batteries, light globes and so forth. Certainly, Amazon is better established in the US, but The Home Depot is headed for 2017 sales of USD100 billion and EBIT close to USD15.5 billion, yet is regarded as vulnerable.

    However, what has really drawn most analysts' attention is the activity at BUKI, whose success or failure could have consequences for what BANZ does here in Australia. To understand why analysts are so concerned, and why the investment in BUKI - only 8% of total Wesfarmers capital, according to incoming CEO Rob Scott - is seen as so critical, it's a good idea to look at how the different Wesfarmers interact, and how this plays into Wesfarmers' competition with its main rival, Woolworths.
    Segment overview

    Understanding the interplay between the different activities at Wesfarmers is of particular importance at the moment, as Mr Goyder is set to be replaced by the person who has managed Wesfarmers' industrials segment, Mr Scott, at the company's annual general meeting in November 2017.

    Speaking to a gathering at the Melbourne Business School in May 2017, Mr Goyder said:
    I don't worry too much about legacy. I'll walk to the next challenge. Rob [Scott] will change things, and he should change things.

    Mr Goyder went into particular detail about the importance of the Wesfarmers board:
    I was lucky. I always had a board that was patient. When I started at Wesfarmers, the board were all farmers, and now I think I'm the only farmer. There's a culture of being patient.

    This comment is notable, as some analysts have suggested Mr Scott could be overly influenced by the current chairman of the Wesfarmers' board, Michael Chaney. Mr Chaney was managing director of Wesfarmers immediately prior to Mr Goyder, and he was the primary instigator of setting up Bunnings, modelled on the US home improvement big box operator Home Depot.

    There are two areas at Wesfarmers Mr Scott will need to consider seriously. The first is exactly how a conglomerate such as Wesfarmers can function most profitably in the modern era. To what extent does each business division remain in its own operational silo, and to what extent are resources shared?

    The second is how the company manages its ongoing competition with Woolworths. At the moment the two companies are locked together in a duopolistic struggle over several retail markets - groceries, liquor and discount fashion - while, external to this struggle, the overall retail market continues to fragment, due to the entry of overseas competitors, and increased online competition.

    These two areas interact in interesting ways. In fact, if you wanted a tagline for this year's annual results from Wesfarmers it might well be "Grant O'Brien got one thing right". That one thing that Mr O'Brien - former Woolworths CEO and author of its disastrous rollout of Masters Home Improvement - got right was that Bunnings posed a direct threat to Woolworths' grocery business.

    This year, sales for Woolworths supermarkets in Australia rose by 4.5%, while EBIT fell by 2.4%. Coles, as mentioned above, saw EBIT decline by 13.5%. However, this represents less of a "winning" or "losing" situation, and is more an indication of how aggressive each retailer has become. As the managing director of Coles, John Durkam, put it in his remarks to analysts:
    We saw significant investment from our competitors, combined with a subdued consumer market. In response to these conditions, we took the deliberate decision to use FY 2017 to invest in the long-term sustainable growth of the Coles business.

    Wesfarmers can accept that kind of decline in Coles earnings as an investment in lower prices and gains in market share, because it has higher overall earnings, and more diversified depth, than Woolworths. Bunnings is an important contributor to that.

    It is also worth remembering just exactly how badly Masters and the mismanagement of its grocery business has affected Woolworths. Woolworths' market cap in 2007 was about $33.3 billion, while Wesfarmers at that time was at $17.7 billion. Allowing for inflation, that would translate into over $40 billion for Woolworths in today's dollars, and $22 billion for Wesfarmers. Today, Woolworths is still at around $33 billion, and Wesfarmers is around $48 billion.

    It's not really possible to make a straight comparison on a market cap basis over time (due to acquisitions and divestments, in part), but this does give something of a picture of what Woolworths has lost.

    This does not mean, however, that Wesfarmers has "won", or even that it is currently winning. Woolworths remains a strong competitor. The current CEO of Woolworths, Brad Banducci, appointed 18 months ago to the role, has managed to move its grocery business in a positive direction. In discount fashion, Woolworths' Big W retailer remains a disaster, and last year, through a major writedown, Wesfarmers acknowledged its failure with Target. Both operations could not be sold in the current market, and neither company can shut down its fashion retailer, as this would instantly hand an advantage to their competitor.

    The key strategy for Wesfarmers is to continue to fight what has become a war of attrition, between two competitors which are good at customer retention, but less good at increasing market share. Woolworths, in contrast, simply must innovate, potentially through increasing vertical integration in fresh food. That comes at the cost, though, of a higher risk profile.

    In this context, for some analysts Wesfarmers' investment in BUKI is similar to seeing a long-distance runner sign up for a 400 metre sprint right before the main race. It's a distraction, requires capital, and has an uncertain outcome.
    BUKI

    Wesfarmers' own point of view is quite different. Far from being a possibly destabilising development, the BUKI expansion is seen as potentially providing a form of longer-term stability.

    The expansion of the Bunnings store network in Australia in response to the launch of Masters was definitely an excellent strategic move, but it did open the company up to further risk in the event of a downturn.

    That is because, once a store network has expanded, there is no simple way to diminish that exposure. While the housing market currently continues to perform well, there is little doubt that at sometime in the next decade the market will contract, ceasing to grow at its current accelerated rate. By expanding overseas to the UK and Ireland, Bunnings is gaining entry to an economy that is associated with the Australian economy in only a minor way. In the event of a downturn, it could provide a much-needed continuation of growth.

    It is also a matter of timing: if Wesfarmers is to expand overseas, then late 2016 was a once-in-a-decade (at best) event. With Bunnings coming directly off a five-year campaign to reduce the impact of Masters, it was over-staffed with highly competent executives at the peak of their game, and teams existed which were used to working on aggressive expansionary tactics.

    That said, there is little doubt that Bunnings did underestimate the depth of the task BUKI represented. One part of that was that Homebase turned out to be, operationally for Bunnings, in worse shape than thought. The more important aspect, though, was that Bunnings did not understand how difficult making the necessary adjustments to a different culture, and a different market position, would be.
    Kitchens

    The place where the need for this kind of adjustment has become clear was revealed by Mr Davis during a site visit by investment analysts to Bunnings UK in mid-March 2017. In a tense question and answer sessions with Mr Errington, Mr Davis admitted that sales in the kitchens and bathrooms had not performed as expected. In part Mr Davis said:
    To be fair we didn't expect to lose the volumes in kitchen and bathrooms that we did. All right. So some of the strategic moves and the repositioning of the business have had impacts that we didn't project into the future. But we are reestablishing that right now.
    ...
    Well kitchen and bath [originally] consisted of] five brands. Some of it is produced in Germany, some of it is produced by one of our key competitors in this market. Three of the brands have not come across from HRG [Home Retail Group, former UK owner of Homebase].
    So we are going through a major transition in relation to kitchen and bath. Key principles are that we do not want to support one of our major competitors, in manufacturing, key principles are that we want a simple execution. We have closed installation down because we don't believe that it is key. We believe that, people will tell you can't sell kitchen and bathrooms unless you install them. We'll go talk to some other big players in the world that don't install kitchen and bath, including ourselves in Australia.

    Mr Errington then asked:
    But what about in the UK. Do they expect you to install in the UK?

    Mr Davis replied:
    But we had already had a large proportion of our business in this market that is not installed. What we want to do is to grow the non-installed part so that... Some of the issues we had were in remedials. So after a kitchen or bathroom is installed in someone's house, prior to us owning the business, we would've had to go back and repair it, and there are a lot of costs associated and a large team that were going back and fixing kitchens and bathrooms.

    It would seem that BUKI's solution to the kitchen problem has been to get its Australian supplier, Kaboodle, to design kitchens it thinks are suitable for the DIY UK and Irish markets, with a slight rebranding to "Kit+Kaboodle". Marketing for these kitchens has been launched in a brochure and on the Homebase website.

    As far as HNN can tell by looking at the illustrations, these seem as serviceable as any Kaboodle kitchen. The brochure goes to great lengths to assert the quality of the products, including a 10-year warranty, and a "lifetime advantage" extension of the warranty for customers who install kitchens in their principal place of residence.

    The parts of the brochure that deal with the mechanics of kitchen selection and installation are well done as well, following the pattern of Kaboodle's Australian marketing.

    However, much of the actual front-of-book display marketing is much less successful. This begins with a rather odd naming system. Two styles of kitchen are offered, classic and contemporary. The names for the classic styles are: steamer, roaster, griddle, poacher and baker. The names for the contemporary styles are glaze, simmer and miller.

    The copy used to describe these kitchens seems less than entirely professional. This begins with the airy paragraph:
    So, we found a way that families can save and still enjoy designer styling with high-end kitchen features. Imagine a kitchen designed by you, that comes in a box and is easily put together. The results? Take a look through our brochure and see for yourself!

    Not great, but not awful. The actual descriptions of the kitchens are less successful.

    For the "steamer" kitchen:
    Steam up a new kitchen in your space with my solid timber doors! Our Shaker style doors come in natural oak and two painted finishes - just in case you want to tone me down. My classic style is adaptable to suit both traditional and modern style kitchens.

    For the "griddle" kitchen:
    Try using my light blue country styled doors in your kitchen for a modern take on traditional. My retro farmhouse look is sure to steal glances and will bring your space to life. You'll be able to cook up a storm in no time!

    For the "poacher" kitchen:
    I am country, classy and everything in between! My poached cream doors with stylish grooves are an everlasting look that won't date your space. I work wonders with a timber worktop and plenty of natural light.

    ("Poached cream", as far as HNN can tell, is a form of Polish moulded custard.)

    Leaving aside the pronoun confusion in the first example, this copy seems to be emulating the text of a first-year reading primer. The marketing merit of conversationally inclined kitchen cabinets is somewhat questionable. It is not an approach that shows an effective track record elsewhere.

    The contrast with kitchens offered by B&Q is quite strong. Cooke & Lewis Carisbrooke, Santini, Stonefield, Sandford, Chilton, and Cooke & Lewis Appleby are names of kitchens offered by B&Q. The description of the Chilton White Country Style kitchen reads:
    Our Chilton White Country Style kitchen is tastefully traditional with modern updates for that easy, laid-back atmosphere. White units on white walls are a trend-led feature, anchored by a darker statement worktop, completing the look.

    That is professional copy. Equally, the kitchen images from Kaboodle are adequate, but the images used by B&Q to promote its kitchens, to an existing, well-established market, are more professional, showing people in the kitchens, and adding key background elements.

    As HNN has mentioned above, Kaboodle is generally a competent company when it comes to marketing, making a little go a long way. What seems to be happening in this case is that the company is being called on to manage a very difficult task - essentially the introduction of a new category of kitchen to a part of the market unfamiliar with the product - with only a very limited budget, limited means, and an imperfect understanding of the market it is approaching.
    Structural problems

    The point of this is not at all to criticise Kaboodle. It's that this minor misstep in marketing points to larger possible problems at BUKI. To really get to the roots of what that problem may be, it is helpful to go down a theoretical path.

    A helpful source is one of the more popular market development books of recent times. Jobs to be Done: Theory to practice by Anthony Ulwick has been a very influential work, especially on Clayton Christensen, author of The Innovator's Dilemma, which gave us the modern business theory of "disruptive innovation".

    To read the rest of this article, please download edition 3-10 of Hi News:
    HI News Vol.3 No.10: Bunnings-Wesfarmers results 2016-17
    Companies
    TTI 2017 first half results presentation
    Joe Galli, CEO of TTI Group, being interviewed on Bloomberg Asia
    HNN Sources
    Ryobi's best-selling ride on mower
    Milwaukee Tool has entered the drain clearing business
    Subscribe to HNN weekly e-newsletter
    CEO of global power tool and floorcare manufacturer Techtronic Industries Group, Joe Galli, presented the company's results for the first half of FY2017 recently.

    Following is a transcript of his presentation, edited for the sake of clarity.

    It is a pleasure to share with you record breaking results once again. Sales in local currency were actually up over 8% for the first six months. That reflects our ongoing guidance of growing strongly at a single digit. The Milwaukee growth engine was up again, over 20%.

    Our power tool equipment segment demonstrated outstanding growth and momentum. In the first half it was up 12.5%. I will share more detail with you in a moment about that. There are some fantastic highlights that made up that extraordinary level of growth.

    Floor care down 12%. That number obfuscates a bit the momentum and the progress we are making in floor care. First of all we exited our shredder business which we were in last year. That was a significant business that we dropped completely.

    Secondly, the floor care cordless stick-vac market, stick-vac business for TTI in a number of different brands was actually up over 50% in the first half. So our cordless floorcare focus area is growing like crazy. Of course the corded, the traditional legacy business, which was a big part of our floor care business in the past, is down sharply, and will continue to decline.

    The good news is that our cordless growth will overwhelm that. We have a bright future in our floor care business as you will see in the coming years.

    We were very excited about our first-half performance in gross margin. We were up another 50 basis points this year, which continues an extraordinary trend. Really it is a record-breaking trend. Our EBIT is up 15% on sales growth of 7.3%. That is after currency. This shows outstanding leverage.

    We actually maintained SG&A at a flat level, although we are investing like crazy in research and development on new products, which you will see in a moment, we still were able to generate excellent leverage. EBIT growth up over 15% is something we were excited about.

    Gross margin as we pointed out was up 50 basis points over last year first-half. This is encouraging. But when you look back for a moment on what we have been sharing with you for the past nine years, we have actually increased our gross margin as a percentage of sales over nine consecutive years from the 31.5% starting point in 2008, to this year's 36.6%.

    This is a track record that we are proud of. I can assure you that this trend will continue over the next five years. We have so much high-margin, accretive new product on the way that we believe we can continue to drive gross margin to higher and higher levels, which will generate increased EBIT percentages as we go forward.

    One of the basic productivity measurements we always use, is sales growth versus headcount, once again we grew sales 8% in change, while headcount grew by 2.7%. So, with all the investments we are making in geographic expansion, around the globe, with all the money, and all the heads we are pouring into research and development, and product management, to generate this kind of productivity and leverage in headcount is encouraging. I am very pleased with our team's disciplined performance in controlling these expenses.

    We were able to grow our power equipment business in all regions. Actually, when North America has the slowest level of growth, you know that our geographic expansion efforts are gaining great traction. I was really excited about how our

    European team performed in the first half. And, of course, rest of world means Australia, New Zealand and South Korea, and those numbers are exciting as well.

    And then, when you shift gears and look at only Milwaukee, Milwaukee was once again up over 20% in the first half of 2017. That 20% is an exciting number on a small base, but when you have a significant base, which we now do in Milwaukee, 20% is not so easy to generate. And yet we are committed to a 20% growth level on Milwaukee this year, the next five years.

    I don't think we have even scratched the surface yet in terms of the long-term potential of this vast cordless, industrial market that we are developing with our technology and our new products.

    You know, the geographic performance of Milwaukee is also a highlight. Again, North America up almost 20%. I was really proud of our European team. The European theatre is a tough environment. And yet throughout Western Europe, actually Eastern Europe, including Poland and Hungary, Czech Republic, Slovenia, Bulgaria, Romania, etc., these Eastern European countries are really selling Milwaukee like crazy.

    And of course once again, rest of world means Australia New Zealand and South Korea, where we are growing at rates that are unprecedented. It is very exciting where this is all going to lead.

    Now in the first half, our largest competitor actually reported impressive results, in fact our largest competitor announced that their organic growth for the last six months of 2017 for their tool and storage business, which is comparable to our power equipment business, they were up 7.1% in the first half. And we were impressed with that. That shows good performance.

    Certainly our competitor trumpeted that as an outstanding performance. Except that, we were up 12.5%. Of course, Milwaukee is up 21.5%, but if you take Milwaukee out, our DIY brand was up 10.4%. That is organic growth.

    Even the tactical AEG brand was up almost 10%. So, while our competitor is doing well, you can see that there is nobody taking any market share from TTI. And I can tell you that there will be nothing but a continuation of this kind of trend, over the next five years with the new product flow that we have on the way.

    There is one other interesting thing. You know, a lot of investors have asked me about a new, flexible voltage launched by our largest competitor. I have been answering these questions for nine months. And it is interesting, that since our competitor launched this flexible voltage cordless system, our growth rate in Milwaukee cordless and Ryobi cordless have increased.

    So, while our competitor are doing great with their program, I'm sure, we are doing even better than we were before they launched. So, I think it is obvious that there is going to be no slowdown in Milwaukee, or Ryobi cordless growth, based on competitive actions.

    This is an example of our strategy at TTI. We don't worry about what our competition is doing. We don't worry about macro economic issues beyond our control. Or political issues that are brewing in various parts the world. What we worry about, is things that we can control.

    New product development, hiring outstanding people, motivating our team, having a disciplined strategy that we focus on relentlessly. We have a geographic expansion program, that is not based on headlines, on geographic regions, but very specific countries, specific attacks in markets, where, like in South Korea, or like in Australia, we have focused and attacked with our strategy and we have achieved great results.

    So, our competitors are doing a fine job, and we respect them. But we don't react to them, and I can assure you that we intend at TTI to, of course outperform our competitors for many, many years to come.
    Ryobi

    Let me show you why I feel so confident. First of all the Ryobi brand, the Ryobi brand has become the most common brand in the world for DIY tools. This is an amazing statement. You know there was a brand called Black & Decker, it is a company I worked at for 19 years. It was number one in the world, for 80 years. For Ryobi to overtake the former leader, and to become the number one DIY brand in the world, is pretty special. The interesting thing is that not only are we number one, but we are outgrowing any other DIY brand in the world, and it is because of this amazing flow of cordless products.

    It is really the same strategy at Milwaukee and Ryobi. Ryobi One+ is now the number one brand of cordless tools in the world, and although we have over 100 One+ tools already, we are about to launch more in the next six months than at any former period in our company's history. So we have a new mitre saw, for Ryobi One+, that is the first ever cordless DIY mitre saw that performs like a corded tool.

    We have a new brushless motor cordless angle grinder, same technology as we use with Milwaukee. We were able to adapt it at the right price point for our Ryobi family, and with brushless of course you get more power, less weight. This thing will actually outperform a corded version of the same tool. Same with the brushless motor cordless Ryobi circular saw, this is a cordless circular saw that is lighter than corded, and will actually cut faster and more accurately than the corded DIY saws with which we compete.

    Then we have the metal shears, brand-new category, and then we have the pin nailer, brand-new category, then we have our second drain cleaning product. This drain cleaning is a technology that we have pioneered, in Milwaukee. The Ryobi team not wanting to be outdone, also wanted to have a DIY version of drain cleaning. The first one that we launched last year sold so well, that now we have a step-up drain cleaner in our DIY line.

    This is a Ryobi cordless bolt cutter. Yes, a bolt cutter instead of using a manual bolt cutter you can now buy one of these devices. You can cut chains, you can cut rebar, and for the burglar, of course, it is a perfect choice. Now we don't have a lot of control of these things! We just make the products.

    This is a fascinating product. This is a cooling cooler. So in warm climates we have a Ryobi cooler. You pack it with ice, your favourite beverage. And when you fire this up, it actually is an air-conditioner for the jobsite. So believe me, the contractor loves to stand in front of the cooler, not to only to enjoy the beverage now, but also to enjoy the cool breeze that comes from this unique cordless device.

    On to outdoor. So one of the things that people tend to miss about the Ryobi program, is that we have the only overarching platform of cordless, to serve the global DIY market. Not only do we have all of these fabulous power tools you see on the wall [of the conference room], we also have outdoor power equipment that works off the same 18-volt battery as our power tools, and this gives us a unique way to bring people into our system.

    When you walk into a Home Depot, no matter if you buy a drill, or a string trimmer or a chainsaw, doesn't matter, we serve that DIYer with the same Ryobi One+ battery. This is one of the reasons why we have been so wildly successful with this program.

    In the outdoor business alone, we are rolling out the six new products in the second half of this year, and for 2018. This will give us 30 different outdoor products in the One+ system. So, 30 outdoor products in the One+ system, which now gives us over 130, total Ryobi products that all work off that same battery. The same battery that we had 15 years ago when we launched One+, which gives us a backward-compatible system that is unique around the world and is gaining traction like crazy.

    In addition we have pioneered high performance cordless outdoor products. So in some applications, if you have a large yard, let's say in Australia, or Canada, or the US, you might require more runtime and therefore more power. That is why we developed the 40 volt platform of Ryobi outdoor.

    This platform has actually taken off so well, that we are going to launch all these new products next year to feed that 40 volt platform, which will give us something like 30 products in just the 40 volt system, just for outdoor. One of the most exciting developments at Ryobi and TTI over the past six months has been the category of cordless mowing.

    Not only have we pioneered the first ever DIY level, value-priced cordless riding mower - it costs USD2499 - we sold completely out of these last year. We intend to grow, we will probably triple our sales on this device next year, and we are just getting started adapting our unique technology to applications like this riding mower. So this is exciting, this is the flagship of the Ryobi brand.

    However what may be the most exciting development over the past six months is the unbelievable stampede that is going on from petrol mowers, which have been around for a long time, to the Ryobi cordless mowers system. If you think about it, as exciting as cordless is in power tools, when you switch someone from a cord to cordless, it is, there is an even more obvious benefit to switching from petrol outdoor products, to a cordless product.

    So, for example, a petrol mower has a pull cord that you have to pull, which is a challenging and frustrating process just to start the product. Then you have the issue of the fumes, because this is a petrol-burning engine. The fumes, of course, are not great for the environment, or that great for the user either. Of course with cordless, there are no fumes. Then you have heat, the petrol engine gets very hot, there is no heat in cordless. Then you have the noise.

    Our cordless mowers are one third the decibel level that you have with petrol mowers. Then you have the annual trip to the lawnmower shop to have these tuned up, replace the spark plugs, clean the carburettor. You have none of that with cordless. And don't forget, the petrol supplied by people such as Exxon, we don't get any of that revenue. But on the cordless mower, we sell the batteries. So the aftermarket we have for the power source, is a revenue stream that most investors have not yet even thought about.

    We were able to sell four times more mowers than our original forecast last year. I should say rather for the first half of this year. Four times more. Now you say, well, wait a minute, maybe the base was small. The base was not too small. But wait until you see what the base is next year.

    This may well be the fastest growing new business area in all of TTI over the next five years. That is because the market for global petrol mowers is vast, and our competitors have not focused on this category in the way that we have. So I think you will see exciting things in the future here.

    We were also able to develop a very exciting floorcare product in our Ryobi line. Floorcare at TTI is not just Hoover and Vax, we also in Milwaukee and Ryobi will sell floorcare products. This is a good example, this is a cordless pole-vac in the Ryobi system, that is going to be sold globally, and that will be a very significant contributor to the power tool business, although it really is floorcare.

    That is one reason why we are so excited about floorcare, because the technology works in a lot of places. Here is another example, this is a cordless wet dry vac, using the 18-volt One+ battery system. This is more powerful, it has better suction than a corded wet dry vac. And it is cordless, there is no cord so there is no electrocution risk, and there is unbelievable convenience and benefit here with cordless.
    Milwaukee

    Okay, so let's shift gears and talk about Milwaukee. You see from the three-dimensional display in our triumphant arch over here that we are very excited about the momentum that Milwaukee has. Yeah, we grew 22% in the first half, however I think that investors continue to underestimate the long-term potential of Milwaukee. We have just begun here, we are just getting started, in converting the global industrial market to cordless. We are leading the charge, our competitors are also doing a good job, a rising tide will lift all boats, but I can assure you we are committed to being the global leader in industrial cordless, Milwaukee will be number one, as we implement our strategy.

    We have so much new product on the way, that I cannot begin to get through it today, though I will try to give you some highlights of what we are launching over the next six months.

    First of all we have two platforms in Milwaukee. We have 18-volt, and we have subcompact 12-volt. I have been in the power tool business since 1980, and the most important launch in the history of our industry, is Milwaukee Fuel. The reason is, this is a revolutionary platform, with a unique battery, a unique motor, and unique onboard electronics. The electronics are the key to everything in cordless. We are so far ahead here that we believe we are still three years ahead of our competitor in terms of Milwaukee Fuel.

    So the Milwaukee Fuel range is set to expand a lot. This year and over the next six months we will roll out a whole new family of impact wrenches. These are heavy duty, heavy torque wrenches for driving lag bolts for infrastructure, bridge construction, tunnels etc.

    There is also a version for the automotive market. Every auto dealership in the world, every auto repair shop in the world will shift from pneumatic to cordless - in our opinion - in some degree, and we will lead that charge. This is our family of impact wrenches, that's only impact wrenches. No one anywhere in the world has this kind of range of cordless impact drivers, and that is one of many, many categories.

    We have in addition a brand-new 7 1/4 inch dual bevel mitre saw. Last March we shared with you our new 10-inch mitre saw, full-size. But to be honest cordless means lighter, more compact, easier to carry, easier to use. This 7 1/4 inch saw does something like 75% of the cuts you would do with the full-size mitre yet it weighs a lot less, the blade costs one third as much to replace, and it just works great. In addition we have a new hacksaw, a new full-size hacksaw utilising Fuel technology.

    This is another breakthrough product it is called a mud mixer. What is a mud mixer? That is American slang for a device that mixes concrete, paint, epoxy, and various other compounds that you use on a jobsite. You use it in new construction, and what is the common theme of new construction?

    There is no power, so having to operate one of these things corded is a real nuisance, because you need a generator and a long extension cord. That is over now, with the Milwaukee cordless mud mixer. And we have the same torque, the same power and torque with our cordless tool as traditional mud mixers had with the cord.

    Again we have a heatgun, this is a first ever cordless heat gun. This is a heat gun, it uses no butane, no dangerous gas cartridges. It is strictly lithium technology that we have created. It works like a normal AC heat gun. There are tons of applications for heat guns on jobsites. And in automotive. The full-size 18-volt line of Milwaukee cordless is the broadest in the world, it is growing like crazy.

    Okay, subcompact, 12-volt. We have pioneered finally full power 12-volt ratchets. These are for use in the automotive industry, and for other mechanical hand tool applications. So we are converting people here from traditional mechanics handtools, such as sockets and wrenches, to a cordless ratchet.

    Today, in automotive, people either use handtools, or they used pneumatic, which is loud, noisy, needs maintenance and so forth. Ours is quiet, and actually has more torque than pneumatic tools. So this is a stapler, a brand-new cordless stapler. It is used for installation of carpet, or insulation, or other fabrics that you attach to wood. Here is a new soldiering iron, a soldiering iron that heats up enough with our 12-volt technology that it can replace a corded soldiering iron. Brand-new technology.

    So it is interesting, our competitors talk about changing the market, in cordless, and leadership in cordless, and yet the fastest growing market for cordless is subcompact, the whole idea of cordless, just like your iPhone is smaller than payphone or a landline, the whole idea of cordless is smaller and lighter and more compact, more convenient, less unwieldy.

    That is what subcompact gives us. We have the broadest line, we have over 80 subcompact tools. No one in our industry is even close to being this committed to the fastest growing segment of cordless which is subcompact.

    But this keeps going. Let us talk about some new businesses that TTI is going to enter with our Milwaukee industrial brand. This is the drain cleaning market. Now I mentioned in Ryobi that we have DIY drain cleaners, but for the plumber, for the commercial plumber, or for the residential plumber, clogged drains are nasty business, right?

    We are going to give the plumber a safe, as in you don't get electrocuted, safe and fast way to deal with these unpleasant challenges that come up at various times in restrooms around the world. This is an air snake, so that instead of firing a cable through the drain to unclog it, this actually builds up enough pressure to blow air, blast air through the drains and unclog them, without the unpleasantness of having to feed a cable through the system. Now however there are times when you do need a cable, we will have the first ever cordless cable drive drain cleaners, this is a drain snake that is cordless, and it will outperform a corded version of that drain cleaner.

    Here is something that is called a switchpack, this is really cool. If you need 50 feet of cable to clean the drain, you can attach one drum to the switchpack and you can perform the application. If you need 150 feet, you can plug three of those drums together and you end up with a 150 foot cable.

    Fired from a cordless delivery vehicle, first-ever, so you can now deal with drains that are longer than you can imagine. This is the full family of drain cleaning products in Milwaukee, so this is a category we have never been in, we are famous with plumbers, this is one of the key applications of any plumber, and we have gone from never being in this, to global leader in the cordless versions of drain cleaning.

    So, the new businesses keep going. Another new business that we have shared with you is lighting. Lighting has become an immense opportunity for Milwaukee cordless. Why? Think about any construction site ever, a construction site needs light, whether you're working in the evening, or whether you are in a building that doesn't have light and power.

    Cordless lighting is a vast opportunity. So we are going to bring some more products to market here. Here is a good example. This is a we call this a Radius light, so you fired it up, and it gets very bright on the jobsite, that is working off of our batteries, but this particular light can also be activated from your iPhone. So this is our One-Key system, so from 200 feet away you can turn on 10 of those, with the iPhone. So if you are the foreman at a job site, you can control when the lights go on and off.

    In addition, that particular light also charges your battery. So if you can utilise the light and you can also put two batteries in and charge them so that you can use them later in your power tools. We think many users will also enjoy that application. Here's another cool light, this is an under-hood light for the automotive market. If you are repairing your car, let's face it, if you are in a garage even if the garage is well lit, under the hood, it is not very well lit. Now we provide the user with a cordless way, to work under the hood of the vehicle, and repair the car.

    Here is a shot of the current lighting line, this will be our lighting program by the fourth quarter 2017. Once again, that slide is going to change a lot over the next three years, we have so many lighting ideas that it will blow your mind. Remember, selling lights, this is like selling a power tool without a motor, which means the gross margin here is highly accretive, and it means that the same battery operates in these lights, but we see it as a very very exciting new business area.

    Okay another new area is personal lighting. We have had so many requests from end-users for lighting, that, say, a coalminer would use, or a contractor would use, or even DIYers, farm use, etc. There are thousands of applications for what we call personal lighting. We intend to have the Milwaukee brand become a leader in the space. This is what we're launching, in just our opening salvo. This is just our first step here. However it is quite exciting.

    Okay. Now let's shift gears. Of course power tool accessories matter a lot to us, we have engineered a line of what we call carbide-tipped Torch blades. Torch is a sub-brand. So the Torch blade with its unique carbide tooth technology will out-cut existing reciprocating saw blades.

    Torch cuts metal, with we also have a version of these blades that we call Ax, that is for cutting wood. In both cases we outperform anything in the market. The sales of high-priced, high-end blades are running right now about double what we had forecast. The margins are excellent. So we're very excited about our power tool accessory businesses, and this is a good example of that.

    Okay, brand-new business for TTI. This is something that we have never been in. It is called storage. We have competitors that classify storage as something so important that they actually name the entire business segment "storage". So, we intend to participate aggressively in the storage arena.

    This system is called "Packout", we rolled this out last month. This Packout is a revolutionary interlocking system, that is indestructible, it is convenient because you can interlock hundreds of different of storage devices eventually into the system, and you will be able to attach radios and lights and fans also to things.

    We think we are going to sell so many tools to our users, that they are going to want to store our tools in our storage solutions. And this is a good example that. Do not underestimate the long-term impact of storage.

    Every single user we sell to, has to store their tools. They either store them permanently, in a garage or workshop, or remotely in jobsites, or in vans, and they need wheeled storage solutions, much like your wheeled luggage through the airport. The reaction to this program has been just incredible.

    Okay, another new area. We promised you, what, four years ago we said we would build a billion-dollar global handtools business. We had never been in handtools. Our largest competitor feasts on this category, because the margins are inherently higher, there are lower distribution and transportation costs, people don't return handtools so there is zero returns at the retail level, and we need to be there.

    But we never said we are going to handle business with "me too", commodity boring traditional products. Every single handtool that we launch is designed to be innovative, a leading postion, priced at a premium, but it is designed to outperform our competition.

    This is a great example. We just rolled out 29 new screwdrivers. These have ergonomic grips, and better business-end tips. You might not have thought that we could reinvent the screwdriver, but we did. I'm very proud of our team, and this program and we believe this is going to sell like crazy.

    Another example, tape measures. We've been in this category now for three years. We are going to roll out 16 new tape measures over the next six months. 16 new tape measures. We have features here, and durability, that are unsurpassed in the handtool industry. This is a picture here of our hand tool range as of October. Four years ago that picture would've had nothing on it. Take a good look at it, because while there is a lot of stuff on it, believe me, a year from now it will be a very crowded slide and we will need two slides again.

    Let me make another comment now about the floorcare space. So floorcare is obviously an area that is going through transition. Are we pleased with the revenue results, with the profit results from floorcare? Of course not, in the first half. But there is no alarm here, we are participating in, and we intend actually to drive the stampede, the revolution from corded to cordless. You have to remember when you look at our results, that floorcare is not just Hoover, Vax, Oreck and Dirt Devil, it is also Milwaukee and Ryobi.

    In fact, these floor care products used to clean the surfaces of job sites and DIY areas and even around the home, these floorcare products in every single case are smash successes in our cordless family.

    Because we have so many people in our cordless systems, in both Ryobi and Milwaukee, that we have a presold line of floor care. So anytime that we roll anything out in these two battery platforms there are legions of loyal customers that will buy our floorcare, because they have the battery.

    And that means yes, they won't buy Dyson, won't buy Shark or any of the other competitors. In many cases they will go right to the power tool brand, which are really no longer power tool brands, these are broad power equipment brands, including cleaning devices for floors.

    To read the rest of this article, please download edition 3-10 of Hi News:
    HI News Vol.3 No.10: TTI results presentation by Joe Galli
    Retailers
    Indie store update
    K&D is forced to tighten its belt as tough trading conditions result in $98m loss
    HNN Sources
    Craig's Highfields Home Hardware is not in favour of the changes to retail hours in QLD
    The late Tim Starkey was inducted into the National Hall of Fame recently. The award was presented by HBT's Mike LoRicco and accepted by Tim's daughters, Maddison and Georgia.
    Click to visit the HBT website for more information
    Competitive pressures has forced K&D to tighten its belt and changes to store hours in Queensland will not benefit independent retailers, according to Craig's Highfields Home Hardware.
    Trading conditions lead to K&D's $9.8m loss

    Tasmanian-based hardware retailer Kemp and Denning Limited (K&D) has made cost cutting culture a priority after recording a $9.8 million loss in 2016-17.

    A competitive environment resulted in an 18% reduction in revenue from $89 million to $67 million. The after-tax loss increased from $558,846 to $9.83 million.

    General manager Jason Hutton said it had been a period of particularly tough and adverse conditions for retail and trade. He wrote in his report:
    Both markets have been very competitive with challenges around sales and margin retention. In response, the Board and management determined that in order to remain viable we must simplify our operations and implement an aggressive cost reduction culture.

    Chairman Greg Goodman said directors had taken decisive action to restructure the company with the closure of unprofitable operations in Devonport and Glenorchy and the sale of the trade division to Clennetts Mitre 10. He told The Mercury:
    The sales have significantly strengthened our balance sheet and facilitated the repayment of all outstanding debt [$6.8 million].
    The board decided to sell the trade business to eliminate ongoing operating risk and ensure shareholder value was preserved. Excellent progress has been made in the reduction of operating costs and working capital.

    K&D also closed its Cambridge store, despite an ongoing lease going through until March 2018. It plans to sell the land and buildings at Kingston by the end of September.

    The company's annual report says K&D has a strong balance sheet, assets of $38 million compared with liabilities of $14 million, and a clear strategy to get more value out of its real estate holdings. The directors report to shareholders said:
    To maximise our impact we will increasingly look for opportunities to maximise the benefit of these properties.

    The report also indicates that K&D's continuing operation in Melville Street, Hobart earned $22 million revenue but contributed $4.5 million to the loss.

    The discontinued operations, including Glenorchy and Devonport, earned $44 million in revenue in the year to May but lost $5.2 million.

    Related:
    Indie store update: K&D store closures - HNN
    QLD trading hours changes: Not happy

    Craig's Highfields Home Hardware owner Craig Stibbard has criticised the Queensland Government's changes to trading hours, saying it would put more pressure on small businesses.

    The amendments to opening hours for hardware stores, butchers, shops at international airports and tourist areas were passed through the Queensland Government recently, after Labor secured the LNP's support through extra changes.

    But Mr Stibbard said allowing all hardware stores to open at 6am every day would only benefit large chains like Bunnings. He told The Chronicle:
    I think it's crazy - most of the hardware stores are already open at 7am. It's just ludicrous. The big guys are just trying to squeeze the little guys out, there won't be any small ones left.
    I probably don't think it's achieved a lot - you might be able to attract people outside of the normal trading hours, (but) with your overheads, your electricity prices, labour prices, opening a door is all a cost.

    Toowoomba Chamber of Commerce CEO Jo Sheppard had a mixed reaction to changes which were designed to give small businesses more flexibility with their opening hours to help attract customers.

    She said it was unlikely to be the last time the state government reviewed opening hours, considering the changing nature of business in Australia. Ms Sheppard said:
    A couple of points I'd make is we need flexibility for businesses to have extended trading hours. Customers' expectations are that they are wanting extended hours for those bigger regions.
    Toowoomba is one of the biggest online shoppers in the country, so to compete with that side of shopping traders need to be able to open more often. I don't think any government should look at this and say that's final.

    Mr Stibbard said he was also unlikely to extend his opening hours.

    Related:
    Indie store update: Impact from new QLD retail hours - HNN
    Products
    Alt-toolboxes for tradies
    Stanley 4-in-1 toolbox
    HNN Sources
    Irwin tote bag
    Milwaukee Tool's bucket bag
    Click to visit the HBT website for more information
    It's no secret that, for most trades, the number of tools each tradie needs to tote around increases every year. Whether its hand tools, power tools, or measuring and inspection tools, designers and manufacturers keep coming up with better ways to accomplish construction and maintenance tasks.

    With great power comes ... well, the need to tote around a lot of gear, actually.

    While for many the traditional style of toolbox continues to work well (pull up in ute/van, put tools in box, go to work), for many, especially those who find themselves working on multi-unit dwelling construction, tool transportation has become a bigger issue.

    Depending on the task at hand, there are two potential paths for this need breed of tradies to follow: they can go for the big, pull-along toolchest, which means they can take everything with them, or they can go for more easily transportable solutions, such as backpacks.

    Backpacks have been growing in popularity in part because they've become so much a part of our culture - it's what you carry your sporting kit in, your groceries, photography equipment, and so forth - and because they are a great solution when your workday begins with a kilometre walk, followed by a long climb up scaffolding and ladders to reach your worksite.

    What HNN is presenting here might be called the "alt-toolboxes", some well thought out solutions to new ways for tradies to keep their tools about on the different sorts of work environments they encounter.
    Veto Pro Pac's Tech Pac

    One of the best made and best designed (and more expensive) solutions, this backpack is specifically designed for use by tradies who need to walk a fair distance to the jobsite, or who need to work doing tasks such as servicing equipment on a ladder or elevated platform. The backpack has 56 pockets for tools in total, and is designed for quick and easy access to all of those pockets.

    The design was tested in the field, and resulted from a great deal of research.

    According to the designer of the pack, Roger Brouard:
    We wanted to see first hand how tradesmen in the field deal with those conditions, so I spent weeks with them on the job observing them - from looking at OSHA standards of three points of contact on ladders, hauling tools up with a rope, to the need for a backpack that would fit through cages and stand up when being used, to a backpack that is comfortable and won't get wet when placed down in wet or muddy conditions.

    Like better hiking packs, the pack features a thermo-formed EVA padded back panel that helps cushion the load, and also provides structural stability. A padded load displacing shoulder strap system with multiple adjustment strap points makes it easy to wear the pack for long periods. It's designed to not tip over when stood upright on the ground, and is the right size to fit through safety cages on construction sites.
    Veto Pro Pac's Tech Pac
    Milwaukee Jobsite Backpack

    While this is a smaller pack, with just 35 pockets, its designed to suit most builders and construction workers. It features a total of 35 pockets, and six elastic straps to hold tools. On the inside it has a large pocket in the centre, two medium pockets to either side of that, a further 10 small pockets, and three zippered storage pockets. On the exterior, there are two side pockets, and another zippered pocket on the back, as well as four straps. Finally there is one very large pocket on the back, which could hold a hard hat.
    Milwaukee Jobsite Backpack
    Stanley Fatmax 4-in-1 Mobile Work Station

    This is a unique product from Stanley. Packed up for transport, it's the usual tall and wide toolbox we're all used to. Deployed for use, however, it transforms into a four-area tool access stand, including a toolbox, parts bin, portable flat tray, and an oversized lower bin for items such as power tools. It comes with its own built-in wheels, and includes a telescoping handle. The designers even thought to include a V-groove in the top of the work station, making it easy to hold materials such as lumber and pipes steady for cutting. The whole box of tools can be locked at a single point.
    Stanley 4-in-1 toolbox
    Stanley Fatmax Tool Back Pack

    With 50 pockets, the Stanley offering provides extensive flexibility for storage. It also features an internal sleeve for tool storage that can be lifted out of the backpack to provide ease of access to a wide selection of the tools. The backpack has a separate pocket for the storage of a laptop, or power tool.
    Stanley Fatmax Tool Back Pack
    Irwin Centre Tote Tool Bag

    Something like a combination of a backpack and a more traditional toolbox, This tote bag offers 42 pockets for storage, along with a separate power tool holder. It features an open design that makes it easy to find and access tools. Comes with a padded shoulder strap, making it easier to carry tools and leave hands free.
    Irwin tote bag
    Milwaukee Bucket Organiser Bag

    A great idea from Milwaukee, this is a like a tool belt for a bucket. It's a nylon belt that wraps around a standard bucket, and provides storage via 30 exterior pockets, plus two large zippered pockets.
    Milwaukee Bucket Organiser Bag
    Milwaukee Bucketless Organiser Bag

    Like the above, but without the need for a bucket. Provides an additional 20 storage pockets, bringing the total to 50. Includes a hammer holder that keeps the hammer upright, and easy to grab a hold of.
    Milwaukee Tool's bucket bag
    Companies
    Supplier update
    Kyocera has purchased Senco
    HNN Sources
    Adelaide Brighton will increase prices on pre-mixed cement for the second time in 2017
    Mr Fothergill's expands with Darlac purchase
    Subscribe to HNN weekly e-newsletter
    Kyocera's acquisition of Senco has strengthened its position in the fastenings category; Adelaide Brighton is expecting to raise prices again; Mr Fothergill's Seeds has bought garden tools and equipment supplier Darlac; and Tenaru is actively supporting the Master Painters association.
    Multinational takes Senco from private hands

    Japan-based Kyocera Corporation has acquired Senco Brands, a fastening tools and fasteners maker since 1948, for an undisclosed sum. This will expand Kyocera's fastening tools business in the residential, commercial, manufacturing and construction sectors.

    As a result of the acquisition, Senco will now operate as a part of the Kyocera Global Tool Cutting Division. Renamed Kyocera Senco Industrial Tools, the company will continue to be headquartered in Cincinnati, Ohio (USA).

    Kyocera takes on Senco in a move that takes the business out of private ownership. Ben Johansen, CEO of Senco Brands, told Pro Tools Review:
    We expect this acquisition to strengthen our new product development capabilities, bolster our ability to provide innovative fastening solutions to a wider range of customers and enhance our global distribution network.

    Senco is known for its product quality and diverse line, which includes pneumatic and electric nailers, staplers, screw systems and compressors, as well as nails, staples, screws and specialty fasteners.

    Kyocera first entered the industrial tools market in the 1970s with a line of high-speed metal processing tools, and has steadily expanded into precision tools for electronics, aerospace, automotive, medical and woodworking applications. Kyocera's 2011 purchase of the Unimerco Group in Europe added a fastening tool product line that should have synergies with Senco's expertise in the fastening tools and fasteners market.

    With the acquisition of Senco, Kyocera plans to increase its sales of fastening tools and fasteners to JPY40 billion by the fiscal year ending March 31, 2021.
    Price increases from Adelaide Brighton

    As Australia's largest cement maker, Adelaide Brighton is set to lift prices for pre-mixed concrete a second time later in 2017.

    It announced recently a 10.9% drop in net profit after tax to $68.7 million for the six months ended June 30, 2017. Revenue increased by 4.7% to $718.4 million.

    The housing and infrastructure boom on the eastern seaboard is triggering price rises for pre-mixed concrete and aggregates used in construction.

    Adelaide Brighton chief executive Martin Brydon said that demand was continuing to rise, particularly in Melbourne and Sydney and a second round of prices increases for a range of products was anticipated later this year.

    The company had already instituted a round price rises for various products on April 1.

    Mr Brydon said rival companies had already signalled to the industry that they would implement "meaningful increases" on October 1. He said no final decision had been made but Adelaide Brighton was also expecting to raise prices again later in calendar 2017.
    I think it's likely we will follow the market.

    Mr Brydon declined to comment on the likely amount of the price rise. He said 2018 was looking very strong for the property construction industry, while the growing number of big infrastructure projects on the drawing board augured well for future demand.
    Mr Fothergill's expands through Darlac acquisition

    According to a report in Horticulture Week, Mr Fothergill's Seeds has bought UK garden tools brand Darlac. The company hopes that by adding the 50-year-old brand it will make its business less seasonal. It is also aiming to double turnover through this acquisition, and intends to keep its main focus on seeds.

    Mr Fothergill's joint managing directors, John Fothergill and David Carey took over the company shares held by their fathers in March 2017. Regarding the purchase, Mr Carey said:
    This is a significant step for our business. We remain committed to being one of Europe's largest seed houses...However, Darlac offers us wonderful opportunities to expand our portfolio in the UK and abroad.

    Turnover for Darlac is currently under GBP1 million. Horticulture Week believes the take over of Darlac is part of a growing trend for large garden centre and general retail garden suppliers to expand ranges. Larger suppliers have been buying several niche companies recently.

    These acquisitions make the most of existing head offices, websites, catalogues, warehouses, merchandising, transport and trading relationships.
    Tenaru partners with Master Painters association

    Tenaru Timber & Finishes has become a silver sponsor of Master Painters Australia (NSW), the peak industry body for the surface coating sector in NSW. Tenaru is the exclusive Australian distributor of brands that are the preferred choice for professionals, including Sikkens, Hammerite, Mirka and Dynamic Paintware.

    The sponsorship provides Tenaru with opportunities to engage with the association's members through awards programs, events and training sessions.

    Tenaru will be sponsoring a category and be a guest presenter at the Master Painters Awards for Excellence in October, and via product demonstrations at member networking events.

    According to Brian Hamilton, Tenaru managing director, as the Tenaru portfolio evolves there is a growing need to have a direct communication channel to the professional painter. He said:
    Tenaru's portfolio includes the globally established, premium products Sikkens, Hammerite, Dynamic Paintware and Mirka. Each brand complements the others and provides a full suite of surface coating solutions for our customers and trade professionals.
    Tenaru has a very experienced team, passionate about problem solving and providing the best advice for projects. We are keen to share our expertise by working more closely with MPA (NSW) members.

    Master Painters Australia (NSW) CEO, Therese Lauriola, said, "We are excited to have Tenaru partnering with us and look forward to some great times ahead."
    Retailers
    Europe update
    Kingfisher buys DIY retailer Praktiker in Romania
    HNN Sources
    Travis Perkins, owner of Wickes, hikes prices amid profit slump
    Travis Perkins also owns Toolstation stores in the UK
    Click to visit the HBT website for more information
    Kingfisher is adding the Praktiker DIY stores operating in Romania to the group and Travis Perkins chief executive John Carter said the company delivered "pleasing" results as it protects its margins through implementing higher prices. He also believes there will be continuing pressure on the business as householders choose overseas holidays instead of weekends at home sweating over time-consuming DIY projects.
    Kingfisher set to buy Praktiker chain

    European DIY retailer Kingfisher will acquire its rival Praktiker in Romania for an undisclosed sum. Kingfisher is the owner of French-based Brico Depot which already operates in Romania. Adela Smeu, CEO of Brico Depot Romania, said the deal will allow the company to expand its market share on the back of a growing market for DIY and interior design.
    Romania is an attractive, growing home improvement market and we have always been clear about our intention to expand our business over the medium term. Subject to competition approval, the strategic acquisition of Praktiker Romania, combined with our existing Brico Depot business, gives us a strong presence right across the country.

    Kingfisher purchased the DIY chain from Turkish businessman Omer Susli who is an active investor in the construction sector. He said:
    We are satisfied that we have managed to grow the business up to this level, where Praktiker is one of the main players on the DIY retail market, reaching a turnover of about EUR140 million in 2016 - up 3% from the previous year - with a network of 27 stores...

    Praktiker has invested EUR1.2 million in the revamp of two of its stores in Ploiesti and Oradea and the company aims to reach 20 redesigned outlets by the end of 2017.

    Brico Depot has 15 stores and around 900 employees in Romania.
    Travis Perkins hikes prices as profits dip

    British builders' merchant and home improvement retailer Travis Perkins has raised prices to help offset rising costs from the weakened sterling as it posted a 4.5% drop in half-year profits.

    For the half-year period ending June 30, the parent company of DIY retailers Wickes and Toolstation reported pre-tax profits of GBP168 million, compared to GBP176 million in the same period last year.

    It said it was also affected by weakening housing transactions and consumer confidence during the period, but group sales grew 3.5% to GBP3.2 billion, and by 2.7% on a like-for-like basis.

    Travis Perkins said trading volumes were impacted by price rises that were implemented to offset soaring costs brought about from the post-Brexit depreciation in the pound and rising commodity prices. Despite this, the company said raising costs has helped protect profit margins (at the expense of volume).

    Its consumer division, which includes 642 Wickes, Toolstation and Tile Giant stores, was also buoyed by a 2.3% increase in underlying earnings to GBP45 million and like-for-like sales increasing by 4.7%. Overall sales in this division rose 7.3% to GBP822 million.

    During the period, Wickes continued with its store refurbishment program, completing a further 18 refits. The retailer also bolstered its online proposition, with range extensions and same-day, one-hour delivery slots.

    Travis Perkins also continued to expand its Toolstation network, opening 19 new UK stores in the period, as well as five in the Netherlands. It said its newly improved digital customer experience, including reduced click-and-collect times, better product reviews and personalised offers, drove a "significant step up" in sales growth.

    However these results were weighed down by the company's plumbing and heating arm, where earnings crashed by 32% to GBP13 million.

    As a result, Travis Perkins revealed a turnaround plan for the division, including integrating its City Plumbing and CTS branches to be run by one management team. The turnaround plan also includes changes to the company's ranges, pricing and online offering, while setting up a dedicated supply chain.

    Chief executive John Carter said the company's overall performance was "solid" against a "challenging market backdrop of pronounced input cost inflation and market volatility".

    Mr Carter also believes British consumers are preferring holidays to DIY. He said:
    With DIY you are competing against holidays, sofas and new cars. In the past few years we have been successful because if they can afford it, consumers want to improve their homes. But with consumer confidence and worries about the economy, they are leaving doing up the kitchen or bathroom because they work hard and definitely want to go on holiday - that's almost a given.

    The core business supplying builders reported revenues 1% higher at GBP1.055 billion, though it is facing similar issues. He said:
    People are looking at repairs, and those have to be done, maintenance, which leads to repairs if not done, so they are spending there, but improvement is being put off.
    Bigbox
    USA update
    Lowe's trails Home Depot in the second quarter of 2017
    HNN Sources
    Ace Hardware reports its second quarter results
    True Value said it has progressed in the most recent quarter
    Click to visit the HBT website for more information
    Professional renovators have provide growth for Home Depot and leaves Lowe's behind; Ace Hardware has its biggest revenue result of USD1.5 billion; and True Value CEO said he is encouraged by the company's "strong achievements" in the second quarter.
    Pro customers deliver for Home Depot, less for Lowe's

    Home Depot and Lowe's have both been beneficiaries of the improving housing market in the US. But there has been a stark divergence in their results, with Home Depot consistently beating out Lowe's, including the latest quarter.

    The difference largely comes down to how they serve the "Pro" customer.
    Q2 results comparison

    Home Depot's net income for the second quarter grew to USD2.7 billion compared to USD2.4 billion, one year ago. Revenue came in at USD28.11 billion for the period, a 6.2% increase from the same time last year.

    Sales at stores open for more than one year rose 6.3%, while comparable sales at US stores increased 6.6%, Home Depot said.

    Lowe's said that its net profits rose to USD1.4 billion in the second quarter from USD1.2 billion in the same period last year. Its second quarter sales increased 6.8% to USD19.5 billion compared to the prior-year period.

    Comparable sales were up 4.5% and hit a peak of nearly 8% in July, executives said in a statement.
    Pro customers

    Home Depot has catered more aggressively to the professional customer, which includes renovators, general contractors (tradies) and small business owners. In fact, 40% of Home Depot's sales come from this customer category, which tends to spend more, take more trips to the store and conduct bigger projects.

    In contrast, Lowe's only gets about 30% of sales from this category.

    This is a notable gap, especially as Home Depot's professional comparable sales growth was 9.6% in its most recent quarter compared to 4.6% comps in its DIY category, according to Wedbush Securities analysts. Meanwhile, Lowe's pro comps were estimated to be roughly 4%.

    Importantly, the professional customer spends more on big-ticket items, which has dominated sales growth. This category includes appliances, roofing and special-order kitchens.

    At Home Depot, comparable store sales for purchases of USD900 and above were up 12.4% last quarter. This has helped to lift overall results, as big-ticket items make up 22% of sales at Home Depot.

    Serving pros with big-ticket items has been in focus as these areas are seen as more immune to encroachment by online retailers. Home Depot has continued to drive share in these categories with more exclusive products, more financing options, and delivery alternatives. The big box retailer recently beefed up this business with its acquisition of Interline Brands in 2015.

    All of this is aided by a superior online strategy, analysts say, which is critical given increased concerns about Amazon getting into the home improvement category.

    Last quarter, Home Depot e-commerce sales grew 23% year-over-year and now account for 6.4% of total revenue. The company has emphasised its order-online, pickup in store option, with 43% of online orders still being picked up inside stores.

    Lowe's online business, while also growing rapidly, represented just 3.5% of sales as of the end of 2016.
    Ace Hardware reports Q2 sales increase

    Ace Hardware Corp. posted net income of USD51.1 million for the second quarter of 2017, down USD12.3 million from the 2016 period. In the second quarter, it recorded a USD7.8 million of one-time pre-tax charges primarily related to the future closure of certain warehouse and distribution facilities. The charge and higher expenses hit net income.

    The retailer also reported a 3.2% increase in comparable store sales from the 3,000 of its affiliated retailers who share daily retail sales data. This is a gain it attributed primarily to the combination of more favourable weather and strong retail execution.

    Net revenues for the second quarter were USD1.5 billion, up USD66 million or 4.6% from last year's period. Increases were noted across most departments with outdoor living, housewares, impulse and tools showing the largest gains.

    Retail revenues from Ace Retail Holdings -- Westlake Ace Hardware stores -- were USD90.3 million versus USD87.4 million in the second quarter of 2017. This represents a 3.3% increase from the second quarter of 2016, and was the result of new retail stores added over the period.

    Operating income was USD53.6 million versus USD67.3 million in the year-prior quarter.

    Ace added 27 new domestic stores in the second quarter of 2017 and cancelled 28 stores. This brought the company's total domestic store count to 4,357 at the end of the second quarter of 2017, an increase of 42 stores from the second quarter of 2016.

    On a worldwide basis, Ace added 52 stores in the second quarter of 2017 and cancelled 31, bringing the worldwide store count to 5,024 at the end of the second quarter of 2017.
    Amazon-proof?

    In an interview with Business Insider, Ace Hardware CEO and president John Venhuizen, said of Amazon:
    [It] is quite arguably the most disruptive company in the history of business and they impact everybody without question.

    That Amazon can lose money to help its customers and still hold Wall Street's support is "terrifying," he said. The online retailer recently forecast its first quarterly loss in two years.

    Investors have sent Amazon's stock up 31% this year, compared to a 10% gain for the S&P 500. The US iShares home construction exchange-traded fund, which includes major players like Home Depot and Lowe's, is also surging, up 26% year-to-date.

    But home-improvement retailers won't enjoy endless favour from Wall Street. Home Depot shares fell after Sears announced it planned to start selling its Kenmore-branded appliances on Amazon, and was launching a line of appliances that can be voice controlled with Amazon's Alexa.

    Longer-term, however, stores like Home Depot and Ace Hardware have three key attributes that can protect their market share from e-commerce giants: what they sell, service, and location.

    The nature of the products they sell lends itself to human interaction. Buyers still want to ask a person how things work, or how to mix paint, or which colours to select in the first place.

    And the more exceptional the service, the better. Mr Venhuizen said:
    When a local business provides an irrational level of service to their local neighbours, that's hard to compete with on a big-box or a dotcom national scale. Every small business can do that.

    Although free shipping is convenient, having thousands of stores near the neighbourhoods that customers live in is also a big advantage, Mr Venhuizen said.

    Ace Hardware, like other hardware retailers, has billions of dollars worth of inventory sitting in its stores across the USA. One way to exploit that is by promoting online pick-ups (online orders that are picked up at a store), essentially blending online and offline strategies.

    Mr Venhuizen said Ace Hardware's online sales grew 61% in the second quarter. Ninety-three per cent of those transactions were picked up in the store. The company is also starting to experiment with home delivery, he added.
    Many people like to still physically see and touch and have the five senses. We had a big 5,000-store celebration...Many of them were out there smoking meat on a grill. You can't smell that on Amazon.
    Progress and expansion in Q2, says True Value

    True Value Company saw its comparable store sales edge up in the second quarter, as the hardware retail co-operative said it progressed with its multi-year strategic growth plan.

    Total comparable store sales were up 0.9% for the quarter ending July 1, 2017, with increases in seven of twelve regions in the US and in six of the company's nine product categories.

    Targeted initiatives and investments led to a 22% increase in visits to TrueValue.com and a 19% increase in online sales. Destination True Value format comparable store sales were up 1.8% in the quarter and 1.1% year-to-date.

    Revenue was USD430.4 million, a decrease of 1.9% or USD8.3 million.

    The company posted a net margin of USD16.7 million in the second quarter, up 28.1% from a year ago. The increase in net margin was primarily driven by good gross margin rates and tight monitoring of overhead expenses, according to the company. President and CEO John Hartmann said:
    We are now in the third year of our multi-year strategic plan and I'm very encouraged by the strong advancements we are making. After a record-breaking year for ground-up and remodelled stores in 2016, we have continued to make good progress in building a stronger business.
    Our retailers are benefiting from strategic initiatives in areas such as omnichannel, retail excellence and product assortments that improve the customer experience and generate sales growth. And we are doing all of this at the same time as delivering strong net margin expansion.
    Looking forward, we will continue to look for ways to accelerate our strategic growth plan to ensure that True Value is helping our stores to remain relevant in their communities and supporting their long-term growth, profitability and independence.
    Products
    Equipped for adventure
    The new spade from Rhino-Rack is useful to bring on outdoor adventures
    HNN Sources
    It is detailed with slip resistant grip that provides optimum handling
    Rhino-Rack's Facebook page
    Click to visit the HBT website for more information
    When off-roading, overlanding or adventuring with mates, the quality of tools is an important consideration. Quality that ensures they are in working condition every time that they needed, and minimises maintenance.

    The new spade from Rhino-Rack wants to be one such tool. It is crafted using heavy duty, heat treated hi-carbon steel, and finished with zinc plating and a powder-coating.

    It is detailed with slip resistant grip that provides optimum handling. The spade is designed for comfort, ease of use and convenience.

    It is a compact 42-inch in length for increased manoeuvrability under vehicles. The size also aids in storage, whether it is stored inside the vehicle or utilising a mounting bracket.

    The versatile spade can dig out the vehicle when it gets stuck in the mud, or assist with other outdoor adventure related events.


    User Name:Password: