Reports
Email scam defrauds import-export businesses
The original FBI advisory
Krebs on Security
Technology firm, Ubiquiti Networks gets scammed
Supply chain company, Scoular gets scammed
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How does your business authenticate matters such as wire transfers? If it comes down to just an email from "the boss" to the account administrator, you could find yourself in trouble. Basically, as suppliers and retailers in home improvement expand their operations overseas - especially to China - new vulnerabilities can emerge in payment and other systems.

While most of us are on the alert for "phishing" scams, which get users to click on fake links in emails to download malware, there is a kind of "social phishing" that relies on scamming the interpersonal trust in an office.

The sums involved in this social phishing can be huge. US companies recently lost US$179 million during a 14-month period to fraudsters using this sophisticated email scam, according to the US Federal Bureau of Investigation (FBI). The average amount scammed is US$100,000, though some scams have resulted in losses of over US$45 million.

Known as business email compromise (BEC) or "CEO fraud", the social phishing scam relies on infiltrating executive email inboxes, then using information obtained there to convince other executives in the same company to make overseas wire transfers.

According to the alert from the FBI:
The scam has been reported in all 50 states and in 79 countries. Fraudulent transfers have been reported going to 72 countries; however, the majority of the transfers are going to Asian banks located within China and Hong Kong.

One tactic the fraudsters use is to send emails from addresses that look very similar to that of the target company, for example substituting the numeral "1" for an "L" in a domain name.

The best way to prevent such losses is to have a non-email based verification process in place, such as a text message or a voice phone call, and to require this for any and all wire transfer authorisations.

If a company is regularly using email to arrange the movement of money, it should really consider using some form of email encryption. This will not only make sure messages are not intercepted, but provides guaranteed authentication of the sender.

One of the best systems to use is Pretty Good Privacy (PGP) which works on a system of shared public keys combined with private keys. For details on how to set this up, Lifehacker has a good series of articles:
Pretty Good Privacy on Lifehacker

One final note on email security. A fact that is commonly not understood by email users is that the "from" address that appears in an email is highly insecure. It is not in any sense a "system" address - that is, it does not relate to any of the actual delivery mechanisms for the email. It is set by some text in the text "header" of the email message.

A common hacker trick is simply to change that text. It is easy to "spoof" the sender of an email to display as almost anything - from the President of the USA, to a top CEO. This can be extended to the "cc" part of an email as well.

So it is possible to send an email that not only looks like it was sent by someone else, but also appears to have been carbon-copied to people who do not receive it.
Reports
Gen Y prefer high-rise housing
Traditional home ownership is fading for Gen Y
Gold Coast Bulletin
The apartment boom is ongoing in Australia
Gen Y will set the housing agenda in the next decade
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Generation Y are embracing their own high-rise dream: living close to where they work, surrounded by cafes and restaurants, and walking to the supermarket.

Less than five years ago, only 10% of new home approvals were in high-rise complexes of more than four storeys, according to CommSec chief economist Craig James. Today more than a quarter of all new homes being built are in high-rise buildings.

James says the trend will mean more restaurants, bars, supermarkets and service businesses like hairdressers are established in nearby areas, creating opportunities for businesses. He said:
The millennials have indicated a preference for living close to where they work, to cafes and restaurants and the like rather than commuting.

That's in contrast to baby boomers or some of generation X who preferred to have a quarter-acre block in the suburbs, commute and spend their weekends mowing lawns. James said:
The gen Y or the millennials are effectively saying 'no, that's not for us - we want to be travelling, we want a different sort of lifestyle'.

Australia's multi-unit apartments and townhouses industry has enjoyed strong growth over the last five years, based on research by IBISWorld.

That's been underpinned by the shift towards more high density living particularly in capital cities and urban areas, a search for more affordable housing for first home buyers and a continued move towards downsizing, said IBISWorld senior industry analyst Spencer Little.

Urban Taskforce Australia chief executive officer Chris Johnson argues the property development industry is really just providing a product the market wants. Johnson says it's not only gen Y who prefer to live in inner-city apartments. Downsizing baby boomer retirees are preferring to live in apartments close to shops, amenities, entertainment and transport. He told a federal parliamentary inquiry into home ownership:
A lot of people are preferring this sort of lifestyle.

But economist Saul Eslake argues that while a substantial decline in home ownership rates in Australia may reflect changing preferences, it's more likely in response to deteriorating housing affordability. He told the inquiry:
It's much more likely that this decline is largely in response to deteriorating housing affordability and more plausible that changing housing tenure preferences among younger adults are themselves a response to deteriorating housing affordability.

The high-rise developments are even moving away from a single apartment building and into bigger complexes which have multiple apartment buildings on the one site, notes Little. He said:
Rather than just having a building there it's now more about the living, the environment and the community. The industry players are certainly looking at ways to attract tenants.

Putting hundreds of apartments in the one spot requires supporting facilities. James said:
All those people moving in the area, they've got to have access to a supermarket, they've got to have access to a hairdresser, to a newsagent, takeaway food. There's gains for those businesses in locating there because automatically they've not just got access to a couple of new houses, they've got access to hundreds of new homes.

Little says supermarket chains, liquor stores, restaurants and other retail outlets often seek to set up close to these new residential areas particularly when they have multiple buildings rather than just the one.
Looking at it from a consumer point of view, they're often quite time poor, they're looking at the convenience of having these retail outlets, supermarkets, restaurants very close by. So it's certainly very beneficial both for the businesses and for the tenants.
Regions
More apartments to be built in Perth
Two apartment towers will be built at Kings Square
ABC
A 39-storey, $80 million apartment building is planned for South Perth
Over 85% of apartments at the Elizabeth Quay project have specific expression of interests
Give to Amnesty International
New West Australian research has revealed that demand for high-density living is soaring.

The report, compiled by the Master Builders Association (MBA) and Y Research, shows the proportion of people living in apartments in Perth is set to increase significantly within the next five years.

It found 20% of new dwellings would be apartments by 2020, double the rate recorded just five years ago. MBA director of housing Geoff Cooper described apartment living as the way of the future. He said:
From an economic, environmental and social perspective - housing density is our destiny.

Approximately 75% of future apartment supply would be located in mid-rise and high-rise buildings, which would bring new retail offerings and suburban employment hubs. Cooper said:
There are a lot more amenities in apartments in Perth - we're seeing movie theatres, dining rooms and the traditional pools and gyms being offered, people are choosing apartment living.
We're seeing an increase in supply in the apartment market, but we think there is a lot of underlying demand for the product in coming years, which will underpin the demand for new apartments."

Cooper said while the Perth apartment market remained relatively young compared to those in other cities across Australia and the world, the next few years would see the city's apartment stock skyrocket.
Perth has a very immature apartment market and it's still a very low percentage of overall dwellings, but we think that's going to grow in the years ahead, so in the next five to 10 years we're going to see something like 20,000 new apartments in the market.
So it's a growth sector and it's being supported by Perth residents at the moment with very low vacancy rates.
The market is evolving, in the past six months there has been an increase in the product, offering suitable downsizing to occupiers, as well as affordable projects suitable for first home buyers.
This important new research shows there is a healthy demand for buildings in existing suburban areas...and we expect this demand will continue to grow.
Products
Hard on weeds, easy on muscles
The Fiskars Weed Puller is an eco-friendly weed remover
Fiskars
The four deep-reaching stainless steel claws grip onto the roots
It has a lightweight aluminium build
Click to visit the HBT website for more information
The Fiskars Weed Puller allows gardeners to work in a neutral standing position, eliminating the need to bend or kneel. This prevents muscle strain and backache that's commonly associated with high repetition work in the garden.

What makes the Weed Puller both easy to use and ergonomically sound are the four deep-reaching stainless steel claws that grip onto the roots, the foot-plate for penetrating the soil, and the handle that allows for easy leverage when working the weed out of the ground.

After the weed has been pulled out, the ejection system helps to release it straight into a waiting wheelbarrow or bin. Thanks to its lightweight aluminium build, the Fiskars Weed Puller weighs 917 grams and makes it easy for anyone to use.

As well as safe-guarding user's bodies with its ergonomic design, the weed puller is also better for the environment as it removes the need to use harsh chemicals in backyards. Chemical free also means that yards stays safe for children and pets to enjoy all year round.
Companies
Sherwin-Williams simplifies colour selection
ColorSnap is designed to help end-users make paint colour selections efficiently
Sherwin-Williams
A central work area is for customers to arrange and review their colour choices
The system includes an updated set of online tools
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Sherwin-Williams' ColorSnap(r) is designed to help consumers and professionals make confident paint colour selections. It has a first-of-its-kind, in-store display that makes colour selection fast and easy. There are also enhanced online and offline tools, and new colours.

Customers can explore colour with the interactive, in-store ColorSnap Studio display, which groups colour by family, such as red, yellow or blue, then displays colour by saturation level from bright to neutral. There is a category just for whites.

Each colour family is set on one of 24 rotating panels. By turning a panel, customers can see a curated selection of nearly 50 paint chips of specific colours within that colour family.

The display, which will be the centre piece of every Sherwin-Williams store, also features new 2-by-3-inch take-home colour chips, rather than strips, so customers can get a bigger idea of how colours will look in their space.

As part of the new display, a central work area will be added for customers to arrange and review their colour choices, use Sherwin-Williams colour tools and interact with store experts. Customers will also be able to browse and take home nine new colour guides and 12 postcards that are designed to inspire, educate and simplify colour selection.

Sherwin-Williams conducted extensive testing to ensure the ColorSnap system would improve the overall customer experience. On average, customers found their paint colour of choice in 60% less time than with the previous display.

ColorSnap will be available in all 4,000 Sherwin-Williams stores across the US and Canada by the end of January 2016.

In addition to ColorSnap Studio, the system includes an updated set of online tools including ColorSnap Visualizer for iPhone, iPad, Android and online (at sherwinwilliams.com). The tools allow users to explore colour before ever picking up a paintbrush.

With the mobile app, customers can scan the new 2-by-3 inch colour chip with their iPhone or Android smart phone for instant access to room scenes featuring that colour, options for coordinating colours, and more. ColorSnap Visualizer also matches a colour in a photo to a specific Sherwin-Williams colour, allowing users to virtually paint a room or simply browse details on the full range of Sherwin-Williams colours. The iPad app features inspirational room scenes that showcase expert colour picks.

The ColorSnap system integrates with Sherwin-Williams' Sher-Color[tm] Advanced Color Matching Technology, which calibrates colour formulas specifically for every product and sheen.

The ColorSnap Design Pro Suite includes a revamped and expanded suite of tools for professionals (including an ergonomic fan deck, portable and desktop kits and more), along with the ColorSnap Visualizer online tools. The suite creates a colour selection system that can differentiate a design practice. It will be available in early 2016.
Editorial
Masters' last hope?
Grant O'Brien's cheery predictions from 2014 did not work out
HNN Sources
Masters' sales, EBIT and store ratios
Masters Rouse Hill - the new store format
Give to Amnesty International
In many ways, it may make sense for Woolworths to simply cut Masters Home Improvement loose at this stage of the game.

Its cumulative losses are likely to exceed one billion dollars in the next 18 months. More than that, there seems to be an inability to really grasp the numbers on the part of Woolworths.

The new format Masters stores - dubbed "Masters 2.0" - are said to lift retail sales by more than 30% (of an average store). Journalists and the financial analyst David Errington of Merrill Lynch have made the point that, while impressive, this 30% gain would not lift Master's operations into profitability.

The new format is set to be rolled out to half the Masters stores over the next 10 months. So Masters' achievement by the end of FY 2015/16 will be that half its stores are losing money more slowly than the other half.

It was less than two years ago when Woolworths stated in its annual report that Masters would be at breakeven in FY 2015/16. Given Masters' loss of nearly a quarter of a billion dollars in FY 2015/16, you would have to be an optimist to think breakeven is possible by FY 2018/19.

However, we all know that ending Masters is an unlikely outcome - anymore than Wesfarmers' Bunnings is likely to slow down its current build-out efforts. That's just not how retailers think.

The current Masters' attitude, which is all about coaxing improvement out of mediocre assets, needs to go. The real question today is whether, with a clearer, profit-driven strategy in place, and obstacles such as intrusive, daily micro-management removed, Masters' current managing director, Matt Tyson, will be able to develop and adopt better strategies.
Core strategies

Designed at its inception as a way to hobble Bunnings, Masters has instead found itself hobbled by that strategy. With business development aimed at damaging a competitor rather than getting the best profits, it's not at all surprising the result has been persistent losses.

Pursuing a Bunnings-focused strategy meant Woolworths management gave Masters the nearly impossible task of carving out a share of markets already dominated by Bunnings.

For a start-up retailer to go up directly against Bunnings in terms of products and locations made little sense. In facing such a dominant player in the market, the strategy should have been to go around Bunnings, to find markets that were under-serviced.

Following this plan today might mean transforming Masters from its focus on building and DIY to a focus on customers who want to transform their living spaces. The appeal of the new retail situation is moved from the "how" of doing interior decoration and renovation, to the "what", the results, the project, the goal.
The store network

The other part of Masters that needs urgent fixing is its store network. In developing the current Masters store network, the potential for full or partial failure was not taken into account. Masters was permitted to build out a lopsided store network that could only really work if it were completed with up to 90 stores. As the company will likely end up with fewer than 65 stores (this year), the resulting network is lopsided.

The network is so concentrated in some areas that, according to Mr Tyson, some degree of store cannibalisation (intra-company, inter-store competition) has resulted. Other, profitable areas, especially in New South Wales, have very few stores. For a loss-making operation with a limited number of stores all this represents very poor planning.

HNN estimates that between four and seven of the Masters stores will continue to under-perform for the next four years at least, due to their poor locations. In the end, between cannibalisation concerns and bad siting, that means that between eight and ten Masters stores should be shut down over the next 12 months.
Online

For a retailer operating under physical store restraints, looking to online sales seems an obvious move. It is also the one area where Masters could be said to be clearly ahead of Bunnings, as it offers full online retail.

Such an online strategy is already common in the UK, with Kingfisher's Screwfix expanding rapidly online, as well as the Home Retail Group's HomeBase and Argos operations. In the US, Home Depot has all but ceased its physical store build-out in favour of boosting online activities.

Equally, this is the area that is Mr Tyson's biggest vulnerability. He lacks experience in, and possibly understanding of, this type of technology. Masters does have a good technical and design team working on its website, but the signs of under-investment are everywhere to be seen.

One solution would be to appoint someone to work alongside Mr Tyson as the dedicated e-commerce CEO for Masters.
Analysis

Will Woolworths be able to make the necessary changes to Masters in time? That will depend on whom the company picks as its CEO, but in general it seems somewhat unlikely. It is unlikely we will know much more until February 2016, and only see more complete planning in May 2016. Meanwhile the losses at Masters will continue to accumulate.

For independent hardware retailers in Australia there is something of a dilemma about the prospects of Masters. Will they be better off if Masters fails and closes, or if Masters succeeds?

If it fails, there will be less competition for the market and, theoretically, more scope for their own operations. However, such a failure would also mean that Bunnings would be able to expand at an even higher rate.

Is it better to look at a future where Bunnings has a 22% share of the market, and Masters a 10% share, or where there is only Bunnings but it has a 27% share?

The case for suppliers is far more individual. For those with a Bunnings contract, a bigger Bunnings might seem best, but it could create an unhealthy over-reliance. For those without a Bunnings contract, it largely depends on their chances to get a Masters contract, or if others will get a Masters contract, and thus open up new markets in independents for them.

All this really is a great pity. Had Masters set out from the start to just be a profitable company, it would likely be close to working by now. The problem with imagining a nemesis is that sometimes you end up accidentally creating one.

Until next time,

Betty

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

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HNN iPad App
Statistics
HNN Index for week ending 28 August 2015
HNN Home Improvement Index for week ending 28 August 2015
HNN Sources
Adelaide Brighton posted a 61.3% increase in net profit after tax
Metcash expects difficult trading conditions in food and grocery to continue
Click to visit the HBT website for more information
The HNN Home Improvement Index for the week ending 28 August 2015 rose by 8.5 points to close at 967.1. The underlying ASX 200 index also rose, by 49 points to close at 5263.6, or up 9 points to 979 on the adjusted scale.

Over the past three weeks the ASX 200 fell at a steeper rate than the HNN Index, bringing them closer to alignment. Both are now trading below the level they were at on 1 July 2014.

In a roller coaster week on the markets, three stocks showed a significant decline, and three showed strong gains. The losers were Super Retail Group, down by 8.9%, Breville Group, down by 6.4%, and Boral, which dropped 13.2%.

The gainers included GWA Group, up 13.2%, CIMIC (formerly Leighton Holdings) up by 6.1%, and Bluescope Steel, which rose by 23.9%.
Adelaide Brighton
Adelaide Brighton posts record half year profit

Adelaide Brighton posted a statutory net profit after tax of $82.6 million for the six months to 30 June 2015. This is an increase of 61.3% over the previous corresponding period, a record result. Revenue for the period was $678.1 million. The improved result was due to higher cement and lime volumes, improved prices, proceeds from property transactions and 2014 acquisitions in South Australia and north Queensland.
Adelaide Brighton posts record half year profit - Manufacturers' Monthly
Boral
Boral lifts profit to $257 million

Boral has lifted its full year profit by just under 50% to $257 million. Excluding significant items, which included a $115 million gain on the sale of Western Landfill business and costs associated with the disposal of East Coast Bricks and a restructure, net profit rose 45% to $249 million in the year to June 30. However revenues dipped 15.2% to $4.4 billion.
Boral lifts profit to $257 million - Yahoo Finance
Charter Hall Group
Charter Hall charts expansion course as profit surges 43%

Charter Hall aims to expand its suite of funds to increase assets under management and deliver higher earnings growth through the property investment business. In the past year, it has undertaken a significant number of acquisitions across office, industrial and retail sectors, which has led it to boost funds under management by $2.1 billion, or 18%, to $13.2 billion.
Charter Hall charts expansion course as profit surges 43% - Fairfax Media
Metcash
Metcash expects tough trading conditions in food and grocery to continue

Metcash chief executive Ian Morrice told shareholders at the annual meeting recently that difficult trading conditions experienced in food and grocery are expected to continue in the new financial year. Morrice said while the grocery wholesaler's balance sheet had been strengthened by capital initiatives like selling the automotive business and key programs such as Price Match, Private Label and Diamond Store refurbishments, this was not enough to offset food and grocery headwinds in 2015.
Metcash expects tough trading conditions to continue - Fairfax Media
Pact Group
Pact Group flags more growth

Pact Group posted a profit of $67.63 million in the year to June 30, a 17.24% increase on $57.69m a year earlier. Revenue in the period rose 8.03% to $1.253 billion. The packaging group, backed by Melbourne billionaire Raphael Geminder, in June made its biggest acquisition since becoming a listed company with the $80m purchase of Barry Smorgon and John Tisdale's packaging company Jalco.
Pact Group flags more growth - The Australian
Westfield
Westfield on track despite NY delay

Westfield Corporation made a net profit for the six months to June 30 of $US466 million. Funds from operations of $US380.3 million were in line with its forecasts. The opening of the $US1.4 billion Westfield World Trade Center, which is being constructed by the New York Port Authority and then leased by Westfield, has been pushed back to the first half of the next financial year.
Westfield on track despite NY delay - Sky News
Bigbox
Woolworths 2014/15 full year results
Woolworths results FY 2015
Yahoo! Finance/Thomson Reuters
Results for Masters/HTHG FY 2015
The Sherwin Williams paint display at Masters
Click to visit the ITW website for move information
Australian retailer Woolworths has reported disappointing results for full FY 2014/15. Sales for its overall business fell by 0.2% as compared to the prior corresponding period (pcp), which is FY 2013/14.

Excluding discontinued petrol operations, sales grew by 2.5%, which is close to the rate of inflation. Net profit after tax (NPAT) before significant items came in at $2,453.3 million, up by 0.1% on the pcp. After significant items NPAT fell 12.5% to $2,146 million.

Sales in general merchandise, which includes Big W, fell by 5.7%, after a 14.4% fall in the most recent quarter.
Woolworths results FY 2015

Masters Home Improvement reported very disappointing results. While sales grew from $752 million in the pcp to $930 million in the current period, a rise of 23.7%, earnings before interest and taxation (EBIT) showed a loss of $245.6 million, nearly 40% up on the loss of $176 million in the pcp. This loss represents over 35% of the over $695 million Masters has lost to date.
Masters/HTHG FY 2015 results

The Home Timber and Hardware Group (HTHG) reported a sales increase of 20.9% over the pcp, largely driven by acquisitions. Its EBIT grew substantially, up from $7 million in the pcp, to $20.9 million in the current year, an increase of 198.6%.
New chairman of the board

In a media briefing prior to the results presentation, Woolworths announced that the chairman of the board, Ralph Waters, had been replaced. His replacement is Gordon Cairns.

In comments during the briefing, Mr Waters indicated that 1 September 2015 had become the target date for his replacement after the board decided to select a chairman from outside of itself.

Issues have emerged regarding the search for a CEO to replace the outgoing Woolworths CEO, Grant O'Brien. Mr Waters indicated that the search process is currently at the "long list" stage.

This has the advantage of permitting Mr Cairns to shape the process more, but also has the disadvantage of delaying the replacement. As Mr Cairns takes over, it is 10 weeks from Mr O'Brien's resignation, and only 12 weeks from the company's annual general meeting (AGM), when the new CEO was supposed to be announced. With a short list to formulate, interviews and negotiations to conclude, it is possible a candidate will not have signed on by the AGM.
Analyst briefing on results

The briefing on the results had something of a curious atmosphere. With Mr O'Brien set to leave his position at the AGM or shortly thereafter, it was difficult to know what value to place on his statements, or how seriously to take any future planning or projections.

The managing director of Masters, Matt Tyson, essentially restated the earlier guidance that had been given for the business:
There is much more to do though. At the end of this financial year we're targeting 50% of the fleet in the new format. That puts significant demands on revamping and upgrading the existing store stable. We're working hard to roll those global leading brands back into our existing stable. Brands like Sherwin Williams which we talked about in May, which is the US leading paint provider -- but also brands like Honda mowers, which for the first time in Australia will be available through a big bulk store, but only through Masters. That product today is only sold through specialists. A more complete range - the back-integration of that range into all the stores. So it's early days but I'm optimistic about the progress that has been made. I'm optimistic we can make a real difference in FY16.

The difficulty with comments such as this is that Woolworths has something a poor record when it comes to predictions about Masters.

From Woolworths' 2012 Annual Report:
Of the 150 sites we plan to secure over five years, there are 112 sites in the pipeline. At the end of the year, there were 12 stores under construction and five completing fitout. We expect at least 30 stores in total to be open by the end of FY13 and approximately 100 stores opened by the end of 2016.

From Woolworths' 2013 Annual Report:
Based on our planned store rollout profile and current forecasts (targeting approximately 90 stores opened by the end of FY16), we expect Masters to break even during FY16. This forecast assumes moderate growth in sales per store for a start up business, improvements in gross margin as the sales mix stabilises, efficiencies in store and increased rationalisation of costs in the distribution and support network as sales levels increase. Given the greenfields nature of the Masters business, short term results will continue to vary. However, we expect the losses for FY14 not to exceed this year's level.

From Woolworths' 2014 Annual Report
Sales were lower than expected and were impacted by a highly competitive market and lower consumer confidence. Losses before interest and tax were higher than anticipated.

The last statement is of particular interest, as it preceded a year where losses grew even more, despite a strongly performing consumer market.
Lifting Masters' profitability

The most interesting comment on Masters was made by David Errington of Merrill Lynch:
My question is on the asset allocation or the allocation of capital to the home improvement business. My comment is coming on the back of watching Bunnings' results, which they reported about a week ago, where their sales growth in total - not sales, their sales growth is AUD1 billion.
So their growth is greater than your entire business, and you're slowing down the number of store roll-outs. Whilst I appreciate a 30% improvement in those new format stores, and Matt's doing a great job. This is not a crack at Matt. Far from it. But 30% uplift is just a drop in the bucket.
Those stores, on my numbers, would still be deeply in losses, because you'd probably need, just doing mathematics on the EBIT of home improvement and the sales of home improvement, you'd need a 100% uplift in sales to store for the stores to break even, let alone to get a decent return on your capital.

The managing director of Masters, Matt Tyson, responded:
Clearly these are new stores, so they are by nature immature businesses. They haven't gone through a full season yet, and balancing, as you know, a significant shortfall is often a kick starter for a new home improvement business. But we're seeing greater than 30%. Actually, David, I think for these new stores as a whole we can see line of sight to profitability without ridiculous uplifts in sales. I think the uplift in sales required is reasonable for these stores. I think you're a bit wide of the mark with 100% uplift. We don't need 100% uplift to get to profitability, to get to - and that's our goal. Our goal is to build a proposition that can deliver profitability and returns.

Mr Errington followed up:
Matt, how are you going to turn around a $245 million EBIT loss? That's the point. This is the point that Woolworths needs to understand. There's $3 billion of capital employed, but you need to get a return on that. Just breaking even is not an acceptable result.
Trends for Masters since inception

Mr Errington's point seems quite a basic one, but something Woolworths cannot quite absorb. Under the current plans, by the end of FY 2015/16, Masters will have succeeded in making one half of its stores lose money more slowly than the other half.

To make the business viable, something more than that is needed, and that most likely means exploring more radical approaches.
Analysis

The primary cause for many of the mistakes made at Masters would seem to be Woolworths' ongoing obsession with Bunnings. Instead of simply seeking to build a viable hardware retailer, Woolworths set out to build a retail operation to disrupt another retail operation. It is hardly surprising, given this, that the end result has been a loss-making enterprise.

Bernie Marcus and Arthur Blank, the founders of the world's largest home improvement retailer, The Home Depot, expressed the need to create an environment that nurtures the customer relationship by stating that "the customer has a bill of rights at The Home Depot."

It is this kind of thinking that has been lacking at Masters. The focus on competing rather than serving the customer has created a business that lacks energy and customer engagement.

It will be interesting to see if, when new top management is in place, Mr Tyson will be able to develop better strategies to grow customer relations, rather than being limited to efforts that engage with the phantom nemesis that Bunnings has become.
Bigbox
Big box update
Bunnings has opened its Springfield store in Queensland
HNN Sources
The Sunshine Coast will get Masters stores
Bunnings is building its largest store in Wellington, New Zealand
Click to visit the ITW website for move information
Bunnings' $40m Springfield Central store in Queensland recently opened for business; the Sunshine Coast will still get Masters stores; Bunnings will be part of New Zealand's Petone retail destination; and Bunnings will also start to build its Arch Hill store in Auckland.
Springfield spoilt for DIY choice

Bunnings has opened its Springfield store almost 18 months after receiving the green light. It is sized at nearly 16,000sqm which makes it one of the largest warehouses in the store network.

The store has opened on the corner next to the Masters Springfield store, giving local customers two hardware stores close to each other. Springfield Lakes resident Matthew Poole told the Queensland Times: "I was following the progress of the store, so I knew when it opened I wanted to be the first one in. By having this new store located so close to Masters will provide more options for people who live here."

Bunnings store manager Elliott Nunn said the 120 staff members worked hard to place more than 45,000 products on the shelves.
Masters plans Sunshine Coast stores

A Masters spokesperson has confirmed it still plans to open stores on Queensland's Sunshine Coast. The spokesperson told the Sunshine Coast Daily: "Masters is committed to bringing lower prices, more products and better competition in the home improvement and hardware market to the Sunshine Coast. Planning for projects at Maroochydore and Noosa is under way, with work on the Maroochydore site anticipated to commence in the first half of 2016."

Woolworths' application to open its first Masters store in Noosaville, just 700 metres from the existing Bunnings store, was rejected by Sunshine Coast Council in March, 2013. Woolworths took the matter to the Planning and Environment Court and won the appeal in May last year.

Then in November last year, Woolworths announced it had bought the Dalton Drive site formerly owned by Queensland Health for another Masters store. It is situated directly opposite the new Bunnings site.
Bunnings part of Petone development

Bunnings will be moving into a retail redevelopment in Petone, a large suburb of Lower Hutt in Wellington, New Zealand. The new Bunnings Warehouse will be the largest in Wellington.

The development is due to be complete in the first half of next year, with Bunnings expected to open in March 2016. Store construction is underway, and it will include a 2000sqm nursery/gardening department.

The hardware retailer was set to take about 80% of the 2.2ha site that had been home to NZ Post for 25 years. The Bunnings store is expected to bring 180 jobs.

Now called 47 The Esplanade, the 22,748sqm site is being revamped by local developer Hodge Group, which bought the site last year. Hodge said zoning changes had made Petone's warehouses hot property for bulk retailers, with Briscoes and Rebel Sport setting up across the road and K-Mart due to build nearby.
Building starts on Arch Hill store

Construction of a Bunnings store in Arch Hill, a suburb of Auckland in New Zealand will begin soon.

Auckland's bitter battle against a big box retailer spanned three years and went to Environment Court mediation. The well-organised, outspoken association spent about NZ$90,000 into the fight against the four-level store.

But Jacqui Coombes, Bunnings NZ general manager, now expresses optimism about the relationship with residents. She told the New Zealand Herald: "We worked well with the neighbours. They have been very constructive...We are really conscious that where we ended up is a happy place. We are going to be here long term and want to be part of the community, so we will make sure we will continue that. I can understand people have opinions but we need to take everyone's opinions into account. I think we ended up in a good place for all of us. We will end up with a beautiful looking store..."

A truck turning table and cafe are included in plans for the new store.
Retailers
Indie store update
Home Timber & Hardware has launched its "Brekky In Shed" video
HNN Sources
Sunlite Mitre 10's Bondi Junction store is winner of a NSW Hardware Association award
Garners Home Hardware has closed. Picture credit: Gloucester Advocate
Click to visit the ITW website for move information
Home Timber & Hardware encourages people to give dad "Brekky in Shed" in a new online video; Sunlite Mitre 10 wins a NSW Hardware Store of the Year award for its Bondi Junction store; and Garners Home Hardware in Gloucester (NSW) has shut its doors.
Online video from HTH

Home Timber & Hardware has launched "Brekky In Shed", an online video that shows people the "harder" way to make brekky for their dads this Father's Day. It is gearing up for Father's Day by encouraging kids to give their dad's brekky in a shed as opposed to brekky in bed.

The two minute film, created by Cummins&Partners, sees one son carefully prepare his dad a breakfast of eggs, bacon, avocado and toast using equipment available at Home Timber & Hardware. You can watch it here:


The campaign launched on Home Timber & Hardware's Facebook page and exists exclusively online. The video is a special occasion addition to Cummins&Partners' first campaign for the retail group.
Mitre 10 Bondi store a winner

Sunlite Mitre 10's Bondi Junction store has been announced as the winner of the 2015 NSW Hardware Association's Hardware Store of the Year (under 2000sqm). The award was given out at the annual NSW Hardware Association luncheon.

The Sunlite Mitre 10 Group also recently opened its fourth store in Oxford Street, Paddington. It unveiled the results of a major refit of the property when it opened its doors in late July.
Retail legacy ends at Home store

Garners Home Hardware in Gloucester (NSW) has closed its doors for the final time. The Garner family have run retail businesses in various forms from its location since 1926.

Prior to Garners Home Hardware, the Garners IGA used to reside in the space. What had begun as a small grocery outlet owned by Henry Harris in 1926 was purchased by Ellen Garner, the grandmother of the current proprietor, Innes Garner. The latter Garner later turned it into an IGA until 2013, when the supermarket closed down. The family expanded its Home and Hardware business into the vacated space and it became a one-stop shop for building supplies.

The business' closure leaves Yates and Twomey as the sole outlet for hardware supplies in Gloucester.
Products
The Leveraxe for splitting wood
The Leveraxe is being imported into Australia
Kickstarter
The inventor of the Leveraxe, Heikki Karna
The Leveraxe in action
Click to visit the HBT website for more information
Finnish pensioner and retired air traffic controller Heikki Karna found himself, in his own words, "becoming pissed with the traditional axe". This happened while he was clearing a rocky site in the deep forest of Sipoo to build a house for himself and his wife.

He found the basic axe to be dangerous, and difficult to use. It caused him back pain, and he accidentally hit himself with the blade several times.

Over time, an idea for how to redesign the axe came to him, and the Leveraxe was born. One of its main features is that it is essentially asymmetric in its construction - the axe blade is actually designed to twist on impact with the wood.

There is also a hook at the back top of the axe blade, so that the axe will not continue on down once it has split a section of wood, but "hang up" instead, thus limiting injuries.


One of the main advantages is that with the Leveraxe there is no need to strike the log at its centre. As the company explains:
With the traditional axe, you are almost always required to strike near the middle of the log. Hitting closer to the edge would be dangerous because it is too easy to miss the log or the axe will bounce wildly from a non-centred strike. In both situations the results can be dangerous.
Unfortunately, as we all know, splitting a whole log when hit in the centre is the most challenging task. When you have been able to split it in two, the rest will go much more easily.
With Leveraxe you won't need to take the whole log head on by striking in the middle. Instead, you can easily and safely start splitting suitably sized logs from the sides by striking closer to edges. No more needing the futile first heavy strikes just to get the log split in two.

Once he had the idea for the axe, Karna made a hundred or so prototypes at a local steel workshop. Now he is ready to produce a sleek new version of the axe for international distribution.

Karna has turned to Kickstarter for backing, and, as of 1 September 2015, has surpassed his original US$150,000 goal, with 1457 backers coming up with US$172,266, with one week remaining for funding.

Backing packages that are still open include a single axe for US$119, or a five pack of axes for US$495.
Retailers
Ace Hardware sees 6.5% revenue growth in Q2
For the first half of 2015, same-store-sales at Ace grew 6.5%
Daily Herald
Ace President and CEO John Venhuizen said the brand is "on fire"
Ace added 31 new domestic stores in the second quarter of 2015
Click to visit the ITW website for move information
Ace Hardware Corp. said second quarter 2015 revenues were up 6.5% from the same period last year.

The company reported US$1.4 billion in revenues for the quarter, up from US$86.2 million during the same period in 2014. Net income was US$57.5 million for the second quarter of 2015, a decrease of US$9 million from last year. However it is the second highest achieved in company history, executives said.

For the first half of 2015, same-store-sales reported by the approximately 3,000 Ace retailers who share daily retail sales data, increased 6.5%. Ace Retail Holdings LLC rose 4.7%, mainly from an increase in customer count and average transaction size. Ace President and CEO John Venhuizen said:
Ace's record second quarter revenues for the second consecutive year were a direct result of the hard and effective work of our great people and world class retailers. While our net income declined from last year, we are still far ahead of our plan and believe the investments we are making are a significant driver of the impressive 4.6% increase in retail same-store-sales for the quarter.

Ace added 31 new domestic stores in the second quarter of 2015 and closed 27 stores, bringing the company's total domestic store count to 4,256 at the end of the second quarter of 2015. This is an increase of 30 stores from the second quarter of 2014.
Products
Next-gen electric power developed in SA
One of the first floating solar installations from Infratech
Infratech Industries
Holtville City Ponds will soon generate power
Solar array installed near Jamestown, South Australia
Click to visit the HBT website for more information
As solar power becomes more accessible and more acceptable, new technologies are emerging to make better use of its potential.

Infratech Industries, a South Australian startup, has developed a unique solar power solution for small communities. Supported by technical advice from Flinders University, the company has developed an array of 112 solar panels that is designed to float on water reservoirs.

While too large for most individual installations, the floating arrays are ideal, the company says, for remote communities that need to boost their power supplies. It sees great opportunities in countries such as Indonesia.

Aside from providing a convenient place to house the solar panels, the use of a floating array has other advantages. The array can be easily moved during the day, enabling the panels to track the movement of the sun, thus producing more electricity.

The water also provides a means by which the panels can be kept cool and clean via a misting system, which greatly increases the efficiency of the panels. The water is filtered prior to being used for cooling. The output of the panels is further boosted through the use of mirrors to deliver a greater solar load to each panel.

An alternative array configuration works with the solar panels partially submerged in the water, delivering a strong gain in energy generated when compared to standard air-exposed panels.

While the current delivery system relies on a cable that hooks the floating array into a standard electricity grid, Infratech is working on developing its own battery as a means to store the power generated.

The company has considered using devices such as Tesla's Powerwall battery, but it concerned about the environmental effects on bodies of water. It is currently developing its own battery solution which uses metals less harmful to the environment.

Among Infratech's customers is the city of Holtville, California, which is located near the border with Mexico close to the Baja Peninsula. Holtville will deploy its panel arrays on its water reservoir.

The energy will be used to drive the systems pumps and distribution systems. The city estimates the installation of the solar energy panels will save it up to US$100,000 a year.
Retailers
True Value looks to women, millennials
The Champion True Value Home in Houston, Texas is a DTV store
Houston Chronicle
The paint shop is prominently displayed in DTV stores
True Value Q2 2015 YTD performance
Click to visit the ITW website for move information
True Value's "Destination True Value" (DTV) store began a few years ago in an effort to woo more women and millennials into a store's aisles by swapping the staid, utilitarian interiors a shopper would expect with a trendier, more inviting feel.

In DVT stores, customers can browse amid bright lighting, colourful signs and expanded selection, all neatly arranged with an eye-popping layout.

True Value executives hope the concept will keep its 3,500 independent hardware retailers relevant and competitive. The goal of a DTV is to position participating hardware stores to tap a lucrative generational change sweeping a consumer landscape that has forever changed.

True Value rolled out the DTV concept in 2007. The design's hallmark features conspire to create a one-stop shop where customers can brainstorm with experts to plan and purchase home improvements.

The idea is to give the store a broader appeal and the same level of service while not abandoning its long-time core customers, explains Tim Mills, True Value's vice president of growth.

For example, Mills said, company research shows the overwhelming majority of paint decisions for homes are made by women. So, the paint centre, complete with colour swatches and other displays, is prominently displayed.

As a cooperative, True Value store owners are members who are free to choose whether to adopt the DTV concept. Costs vary for taking an existing store to the new layout but usually are upward of US$200,000, spokeswoman Jean Niemi said. The company offers loans and incentives to those who want to make the changes.

Each DTV store is customised to the store's market area. Some owners may choose to offer environmentally friendly products to grab the typically more socially conscious young shopper.

Currently about 10% of True Value's member stores have converted to DTV, and the company says there are measurable effects. Comparable store sales for the DTV models historically have grown twice as much as for non-DTV stores.

As of its second-quarter earnings report, DTV same-store sales have risen 5.6% for the year, faster than overall retail comparable store sales that have risen 3.5%.

Mills said the DTV concept shows mom-and-pop stores can adapt to the changing market and survive.
Never enough change

Change isn't just refreshing, it's essential. Consumers and their shopping patterns undeniably have changed, said Kit Yarrow, a consumer psychology professor with Golden Gate University.

Some changes are universal, driven by technology. Shorter attention spans and crunched time mean there's more of a need for visual cues like helpful directional signs and amenities like efficient and convenient checkout. Those changes cross all demographics too. Yarrow said:
Any store that hasn't done a refresh in the last 10 years is old.

Then there's the larger generational shift changing consumer patterns for decades to come. Millennials are expected to soon exceed baby boomers with their spending power. Yarrow said indications are the switchover could occur as soon as 2016 "if we're not there now."

The effects will be profound. Make way for a giant wave of spenders with interesting characteristics: not the same attachment to goods as their parents, socially conscious about what they buy and from whom, doing things as couples or groups and shattering gender stereotypes. It's a large but challenging demographic to reach.

They'll also be driven by demonstrating creativity and independence, as their purchases will reflect, Yarrow said.

That do-it-yourself surge is where DTV can capture them. Mills said:
We see them going in as first-time homeowners. First, there's a bit of an introduction necessary.

Recent company demographics show about a third of customers in DTV stores were in the millennial or Generation X age range. True Value is matching its DTV concept's evolution with a social media push to reach them.
Second quarter results

For the six-month period ending July 4, 2015, True Value reported revenue of US$785.8 million, an increase of 3.3% or US$24.8 million from US$761.0 million for the same period a year ago.
True Value's Q2 YTD performance

DTV comparable store sales were up 5.6% year-to-date. Retail comparable store sales were up 2.3% in the quarter and 3.5% year-to-date with increases in all of the cooperative's nine product categories, led by farm ranch auto & pet, hand & power tools and seasonal.

During the first half of the year, True Value continued to grow its square footage and retailer base. In the six-month period, the company added over 382,000 square feet of retail space.

In addition, the company signed 26 conversions so far in 2015.
Bigbox
Lowe's FY 2015-16 Q2 results
Lowe's results for 2015/16 second quarter
Lowe's Home Improvement
Lowe's 2015/16 H1 sales comparison to EPS
Comparable sales for Lowe's in FY 2015/16 Q2
Click to visit the ITW website for move information
US-based home improvement retailer Lowe's Home Improvement (Lowe's) returned a good result for the second quarter of FY2015/16. Sales came in at US$17,348 million, up 4.51% on the prior corresponding period (pcp), which was the second quarter of 2014/15.

The company did miss its target diluted earnings per share result by US$0.04, delivering $1.20 for the quarter. This has been ascribed to a product mix that delivered a greater sales number, but smaller margin, and increases in promotional spending.

Net earnings also grew, coming in at US$1126 million for the quarter, up 8.37% on the pcp. Comp (like-for-like) sales grew by 4.3%, slightly less than comp sales growth for the pcp. Both the average ticket (transaction) amount and sales-per-square-foot grew by over 3%.
Comparable sales for Lowe's in FY 2015/16 Q2

In his initial prepared remarks at the presentation of the results to investment analysts, Lowe's chief operating officer, Rick Damron, emphasised the role sales of appliances had played in producing the result.

He pointed out that Lowe's provides a comprehensive service for appliance purchases, and called out the company's exclusive channel launch of the Frigidaire Pro appliance line as an advantage. This quarter represented the third consecutive quarter when Lowe's returned over 10% growth in the appliance category, he stated.

Mr Damron also spoke of Lowe's improvement to its kitchen offering, which included the launch of 17 kitchen suites. He explained:
In order to sell the entire kitchen, we display our kitchen products, including cabinets and countertops, immediately adjacent to our appliance offering. This quarter, we drove above average comps in kitchens through a combination of targeted promotions, and our investment in project specialists, who meet customers in their homes.

Sales of appliances, kitchens, outdoor power equipment and seasonal living products all returned good results. Sales of fashion fixtures, home fashions, lawn & garden, lumber and building materials, and paint all returned poor results.

Lowe's chief customer officer, Mike Jones, also called out laminate flooring as producing good sales results, with its sales growing over 10% for this quarter as compared to the pcp.

In paint, Mr Damron reminded that Lowe's has recently launched a range of Sherwin-Williams products. The rollout of these products was completed in late April 2015. He stated that the performance of Lowe's in the paint category was similar to the overall performance in the home improvement industry.
Australia

In response to a specific question by an analyst, the CEO of Lowe's, Robert Niblock, expressed his satisfaction with the joint venture the company has entered into with Australia's Woolworths, Masters Home Improvement. He stated:
The team down there has gone and looked at opportunity to improve. The operations, they have come in with a new format and working on resetting the layout of some of the stores. New stores were opening obviously with the new layout, but resetting some existing stores, increasing the range of product in categories where we didn't have quite enough range down there with the customer, and create much better theater for presentation of the product in areas like flooring, Tool World, those type of things. And very pleased we are seeing great performance over the new format compared to the original layout that we had opened in the stores.
So very pleased with the progress the team is making down there. As we've talked previously on the calls, we have slowed down the rate of expansion to be able to make sure that we get the stores out of the ground operating at a higher annual rate. And then being able to go back and take some of those expanded range, and the new layout to the existing base of stores that we have. So overall, very impressed with the visit I had last week, and the progress that I see the team making down there.
Forecast

According to the chief financial officer for Lowe's, Bob Hull, sales for FY 2015/16 should increase by 4.5% to 5.0% over 2014/15. This will be driven by an overall sales increase of 4.0% to 4.5%, and the addition between 15 and 20 stores. The company's diluted earnings per share target is US$3.29, a 21.4% increase over 2014/15.
Pro market

Lowe's continues to pursue the Pro (trade) market as a major growth opportunity. Mr Damron spoke about the relaunched "Lowe's For Pro's" website:
We officially re-launched lowesforpros.com at the beginning of the second quarter, and have seen an increase in use by our pro customers in line with our expectations; so far, we have been promoting lowesforpros online and through pro's social media. And in the third quarter we will begin the formal launch through our pro appreciation days, as well as other media.
We continue to actively serve the pros through our account executive pro services, or AEPs. AEPs call on regional customers to help them order and replenish products across multiple stores. We currently have approximately 135 AEPs in the field, an increase of 25 over last year. Our AEPs have been very effective in growing our business with larger pro customers, especially maintenance, repair. and operations or MRO customers.

Later in response to an analyst's question, Mr Damron expanded on the importance of location to the Pro market:
When we talk to the pro, one of the largest I think contributing factors is location. Proximity to the store is a definite aspect of the pro environment. If you are not convenient from a location standpoint, then you don't - you are not as relevant. And that's based on what we know from a research standpoint.
Online

Online sales for Lowe's improved around 20% for the quarter as compared to the pcp. The company sees traffic to the site up 19% for the quarter, with a slight increase in the conversion rate for visitors. This translates to a 3% share of overall Lowe's sales for the quarter.

The company has been working to improve the website, and see it as contributing to in-store sales of items such as appliances. According to Mr Damron:
We've increased the number of 360 degree product views. Another 3500 items were added during the quarter in Q2; gives us up to roughly 15,000 items we were able to spin the view of that category. Product videos, we talked about how increasingly the appliance shopper is going to dotcom first to evaluate product categories. We added another 200 videos into that category during the quarter; added 4,000 enhanced images and pictures to the site as well, introduced the search engine capabilities that we're looking at more intuitive search.
Analysis

It is difficult to speak of Lowe's strategies without seeing how these relate to its main competitor, The Home Depot. Where the main strategic drive for Home Depot is working out new ways to sell more to existing customers, Lowe's is more concerned with adding new markets to its stores. Hence its strong push into kitchens, appliances, and services specific to the Pro customer.
Acknowledgement

HNN would like to sincerely thank and acknowledge the contribution of the Seeking Alpha financial analysis website. Seeking Alpha makes the transcripts of conference calls available to reporters and analysts across the internet for limited republication. It is a great contribution to enhancing online media.

If you would like to view the complete transcript of the Lowe's Home Improvement conference call please use the link below:
Lowe's Home Improvement earnings call 2015 Q2

To see a list of the considerable number of earnings call transcripts Seeking Alpha has on offer, please use the link below:
Seeking Alpha transcripts index
Reports
Site review: Dwell
Dwell magazine on a delicate, interesting Paris apartment
HNN Sources
Suburban doesn't have to be boring: a simple small kitchen of great charm
Dwell online: A cute kitchen in Bratislavia
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Dwell magazine is in many ways a typical California lifestyle magazine. Its quality tends to wander around a bit, and while it sometimes has good articles, there are entire issues that lack real substance.

While the website is just as hit-and-miss, the web format makes it easier to sort the less good from the better. Recently it has featured a number of interesting designs that are worth considering.
Petite Paris Apartment

The designing class in France, especially Paris, frequently has an endearing modesty in the dwelling they choose. This is certainly the case for Nicolas Roche, who is creative director at his family's company, the legendary maker of high-end furniture Roche Bobois.
Paris flat featured in Dwell

He lives in a small, 85 square metre apartment in a Paris suburb that features a number of small parks. With his living area spread out over the top two floors - and a guest room in the attic - he has found creative ways to make great use of space and yet retain a playful elegance.

One of the prime examples of this is the coat wardrobe featured in the photograph below. Not wanting something that blocked out the room, he used red bungee cords to define a half-space, which he sometimes decorates with photographs and postcards as well.
The main room of the flat

While one of his first acts on buying the flat was to tear out most of the walls to provide completely open spaces, Mr Roche is able to easily define individual spaces within the flat.
The grouping of furniture and objects defines the space
Small kitchen hacks

While most of us have learned to be a bit cautious about those picture carrousels that promise "10 best ways to buy a table" and so forth, the Dwell equivalent can actually be interesting - not always, but sometimes.

For example, a recent gallery has the somewhat unpromising (for the Internet weary) title of "8 Space-Saving Hacks for Small Kitchens", and turns out to be about, well, space saving ideas for kitchens.

That's not to say that every picture is relevant to the announced topic, but several - if not in fact many - of them are. For example:
A cute kitchen in Bratislavia

At the heart of this kitchen is an actual IKEA sink cabinet, which the architect-owner of this apartment (in Bratislavia) has altered with its bright aqua fascia, and the use of cut outs instead of pulls for the cabinet door and drawers.

More details about this kitchen can be found at:
Dwell Bratislavian kitchen

Another interesting picture in this series uses salvaged Douglas fir beams combined with IKEA drawers to create a unique and very warm-feeling kitchen island:
A brownstone in Brooklyn makes itself eco-conscious and cosy

More details about this kitchen can be found at:
Brooklyn brownstone kitchen in Dwell

Finally, there is this kitchen, which combines two great trends to create a very welcoming space in tight confines. The use of the dark-featured cabinetry extended to the ceiling makes this into something of a nook.

The use of the small table with compact seating instead of a kitchen island adds versatility: it can be used for an informal meal, or as a prep area. The backsplash on the wall behind the stove is actually PVC rubber flooring with specially designed steel "plus" signs embedded.
Suburban doesn't have to be boring: a simple small kitchen of great charm

More details on this kitchen can be found at:
Dwell suburban kitchen
Retailers
Travis Perkins results for 2015/16 H1
Travis Perkins results for the first half of 2015/16
Travis Perkins
Revenue analysis slide from presentation
Housing market in the UK
Click to visit the ITW website for move information
UK-based supplier of building products to building professionals Travis Perkins has posted its results for the first half of 2015/16. The results reflect good execution in a difficult market.

Revenue came in at GBP 2,943 million, up 7.8% from the previous corresponding period (pcp), which is the first half of 2014/15. The company reported that like-for-like (comp) sales grew by 5.7%.

Operating profit grew more modestly, coming in at GBP 185 million, an increase of 5.7%, and reported net profit was GBP 127 million, an increase of 3.3% over the pcp.
Travis Perkins results for the first half of 2015/16

The company also claims it produced a 9% improvement in earnings before interest, taxation, depreciation and amortisation (EBITDA), when its property division was excluded.
Divisional results

Travis Perkins operates 19 businesses and has 18 product brands. The divisions are the following:
General merchandising

Includes Travis Perkins itself, a general builders' merchant, and Benchmark, which supplies kitchens and joinery. During this half its revenue increased by 7.8% over the pcp, with 6.7% as life-for-like. Gross margin improved, but was offset by cost of some change programs. Some 400 branches of Travis Perkins are now served by heavyside range centres. This has lifted availability of these products and helped to increase sales.
Contract Merchanting

This includes three lines of business. BSS is a specialist in heating, tools and pipeline. Recently it has added tool hire to its business. CFF is a distributor of insulation and partitioning. Keyline specialises in heavy building materials and drainage supplies. Revenue increased by 17.9% over the pcp, due mainly to Keyline and CCF. BSS held steady as price competition increased in its markets. Plans are to continue adding branches of CCF to improve customer service and the delivery network.

In response to a question during a presentation to investment analysts, the CEO of Travis Perkins, John Carter, expanded on the role of tool hire at BSS:
In terms of Tool Hire, we continually are developing the Tool Hire business. Over the last four or five years, it's grown at around 20% compound. It is an addition service to many of our merchants. And we've introduced it into both Keyline and to BSS. And we would see that sort of continued growth over the forthcoming period, between 20% and 25% growth. Interestingly, the investments we're making in the range centers enable us to move Tool Hire kit around more effectively. So it's a key area for our focus, but for growth in around 20%, 25%.
Plumbing and heating

This division has seven different companies, combining different forms of plumbing and heating supplies. It also includes Birchwood Price Tools, which is a wholesaler of power and hand tools. Brands it distributes include DeWalt, Makita, Stanley and Irwin. It also sells the Scruffs clothing line. This division saw revenue declien by 0.7%, and like-for-like revenue fall by 2.9%. The company states that life-for-like sales turned positvin in the second quarter, and this is expected to continue. Some 25 branches were closed during the half.
Consumer

This division has three companies. Wickes was originally a consumer-based DIY outlet, which has shifted its market to small builders. Toostation sells tools direct via online and physical stores. Tile Giant sells times and ceramic products. For this division, revenue grew by 8.6%, and like-for-like grew by 6%. A further 18 Toolstation branches were opened during the half, taking the total number to 202 for the UK and Netherlands combined.
Revenue analysis slide from presentation
Analysis

In an interview with UK newspaper the Daily Telegraph in April 2015, Mr Carter suggested one reason why DIY was declining in the UK was the influx of skilled workers from the former Soviet Bloc countries. These workers rationalised professional home repair costs, and provided a disincentive for people to develop DIY skills.
East European builders 'ended DIY'

This is behind the contraction of physical stores by the two major UK big-box brands, B&Q and Homebase, Mr Carter says.

Travis Perkins is essentially trying to pivot its business as htis decline of DIY in the UK continues. Its Wickes brand, for example, began as a DIY supplier, but now sells more to trade by offering bulk discounts and other services.

Underlying these moves is the health of the UK property and construction markets. While property prices continue to increase in most areas, the percentage of home ownership has been in decline since 2003. Housing ownership impacts directly on spending for both maintenance and renovation.

According to statistics from UK Government sources, while seasonally adjusted housing starts accelerated during the first calendar quarter of 2015 for England, they are now only just touching the pre-GFC levels, and housing completions remain below that level.
Housing starts and completions for England

Statistics for housing starts and completions based on a rolling year, with each monthly point representing statistics for the previous 12 months, show a less positive view of the situation.
Trends in starts/completions, rolling year

Further details of these statistics can be found by following this link:
House Building: March Quarter 2015, England

The concern is that the apparent recovery in home building may be far weaker than expected. In this case, the shuttering of B&Q and Homebase stores may be as much due to decreased activity as a turning-away from DIY. In that case expansion by Travis Perkins could be ill-timed, and result in expensive unused capacity.
Acknowledgement

HNN would like to gratefully acknowledge the provision of the transcript of the Travis Perkins analyst presentation by the investment website Seeking Alpha. Should you wish to read the entire transcript, please follow the link below:
Seeking Alpha
Companies
Hitachi Koki results for 2015/16 Q1
Historial and forecast results for Hitachi Koki
Hitachi Koki
Hitachi Koki regional results for FY 2015/16 Q1
Lowe's and Hitachi enter exclusive deal
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Like many Japanese companies, Hitachi Koki, the manufacturer of Hitachi branded power tools, has something of a unique structure. It is both part of the large Japanese conglomerate Hitachi, and yet also is listed individually on the Nissei stock exchange.

This and a range of other factors make a one-to-one comparison of results from Hitachi Koki with other non-Japanese firms difficult to make. However, Hitachi Koki is an emerging force in power tools, is gaining market share in Australia and intends to secure more market share. This makes it worth investigation.

As importantly, Hitachi Koki is showing signs of making major moves to expand its offering through deals with retailers. On 29 July 2015, Hitachi Koki announced it has entered into an exclusive arrangement with US-based big box retailer Lowe's Home Improvement. Lowe's will have exclusive rights to a range of pneumatic tools and fasteners. This builds on other exclusive arrangements between Lowe's and Hitachi Koki.

Hitachi Koki's businesses include not only power tools, but also high speed centrifuges used in the development of, among other things, vaccines. The company's annual report for 2014/15 states that:
[Hitachi Koki] have acquired core technology leadership in ultra-high-speed motors, ultra-high precision machining and electronic control technology.
Results 2015/16 Q1

The company's most recent results show revenue of Yen 34,407 for the most recent quarter, up by 6.8% on the previous corresponding period (pcp), which was the first quarter of 2014/15. Sales of power tools increased by 7.0% over the pcp. Operating income increased substantially, coming in at Yen 2,020 million, up 54.3% on the pcp. Income before taxes likewise rose steeply, reported as Yen 1,998 million, up by 53.8% over the pcp.
Historial and forecast results for Hitachi Koki

The company states it maintained its sales in Japan at the same level as the pcp through aggressive marketing, despite a slowdown in housing investment. Sales in India and the Middle East were also constant.

In Europe, Hitachi Koki calls out sales in the United Kingdom as especially strong, followed by southern Europe. Nonetheless overall sells fell by 6% due to the poor performance of the Russian economy.

Sales in North America grew strongly, largely through the company's distribution arrangement with Lowe's. Sales of power tools in this market increased by 29% over the pcp.

In the annual report for FY 2014/15 sales in Australia are described as "strong".
Hitachi Koki regional results for FY 2015/16 Q1
Forecast

Hitachi Koki is forecasting revenue for FY 2015/16 of Yen 145,000 million, up from Yen 137,509 million for FY 2014/15. Operating income is forecast to come in at Yen 8,400 million, up from Yen 6,523 million in FY 2014/15.
Reports
Houzz Kitchen Renovation Survey
Houzz kitchen survey
Houzz
Houzz survey result: Kitchen budgets
Houzz Kitchen Renovation Survey: actual spending
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The online design and renovation website Houzz has published the results of a May 2015 survey about kitchen renovations in Australia. The sample included 2,854 Australian respondents. The entire survey can be viewed at:
Houzz Kitchen Survey results

While many of its conclusions echo those of experienced kitchen providers, some of the specific results are interesting. For example, the survey indicates that the top two features sought by kitchen renovators are a pantry cupboard (63%) and a "breakfast bar" (54%). In a distant third place is the addition of a kitchen/dining table (23%).

In terms of organisation, pot and pan drawers, favoured by 79%, have all but replaced hanging saucepan racks (5%). Built-in wine bars are fitted by 20%, while 67% have opted for the convenience of pull-out bins.

The survey also indicates that 45% of respondents are satisfied with the current size of their kitchen, or will even be fitting a slightly smaller one. Only 24% of respondents renovated a kitchen less than 10 years old, and 60% renovated a kitchen between 11 and 30 years old.

Flooring remains a popular upgrade, with 72% changing these surfaces. Individually, natural hardwood floors are the lead choice, with 20%. All types of hardwood (natural, stained and painted) account for 41% of floor renovations, while all types of tiles (ceramic and porcelain) account for 26%.
The professional connection

Hiring professionals for kitchen renovation remains popular, with 77% of respondents using a professional for some aspect of the kitchen. For construction and installation, the pro choice was favoured by 68%, and 45% used a pro to help with the kitchen design.
Purchase triggers

The top three requirements for a good kitchen are:
  • Integrates with the rest of the house (62%)
  • Stylish and beautiful (55%)
  • Filled with natural light (49%)

  • These requirement indicate just how far the kitchen has come from its utilitarian origins.
    Budgets

    One of the most interesting results of the survey is for the expected and actual budgets, as represented in this Houzz graphic:
    Houzz survey result: Kitchen budgets

    There are two interesting features of this graph. The first is that many renovators with budgets under $10,000 actually ended up spending less than they had budgeted. This seems likely to be a result of suppliers such as Kaboodle, and the effect on the overall market these suppliers have had.

    The second interesting aspect is the degree to which the $10,000 to $20,000 and $20,000 to $30,000 segments have come to dominate the market. Kitchens uner $10,000 make up 31% in spending terms, while kitchens between $10,000 and $30,000 make up 46% of the market. It is likely that the "sweet spot" for kitchens is around the $15,000 to $25,000 range.
    Houzz Kitchen Renovation Survey: actual spending
    Strong trends

    A number of very strong trends also emerged from the survey:
  • Contemporary designs: 55%
  • Paint as wall finish: 65%
  • Wall colour: white, 58%
  • Sinks: double or one and a half bowls: 78%
  • Benchtops: engineered quartz, 52%
  • Cooking with gas: 49%
  • Kitchen pendant lighting: 58%
  • Analysis

    As HNN has commented in the past, a number of suppliers to the home improvement retail industry have come up with good solutions for great economical kitchens. However, the better margins in the industry have moved higher up the scale. There are signs that some suppliers are expanding their offering to take in budgets of $20,000 and more. However, kitchen display issues remain a barrier at many retailers.
    Companies
    Makita's quality result for FY 2015/16 Q1
    Makita results for 2015/16 Q1
    Makita
    Makita results and forecast
    Timeline of Makita's development 1915 to 2015
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    Japan-based Makita, one of the more trusted brands for Australian tradies and serious DIYers, is celebrating its 100th anniversary in 2015. The overall results for this first quarter of FY2015/16 saw net sales increase, but operating income and income before income taxes both fall, as compared to the previous corresponding period (pcp), the first quarter of FY2014/15. Makita states that robust sales outside Japan and the depreciating value of the Yen lifted sales, but operating costs increased.
    Makita results for 2015/16 Q1
    Regional results

    Japanese sales increased by 2.2% over the pcp, which Makita suggests is due to an increase in sales of power tools powered by lithium-ion batteries, offsetting weak housing starts.

    North American sales benefitted from increased activity in the construction sector, and climbed by 28.0%.

    Net sales in Europe declined by 1.4% due to the poor performance of sales in Russia. Sales in Asia were mixed, but saw an overall increase of 8.0%, partly due to beneficial currency fluctuations. Sales in Central and South America rose very slightly.

    Makita's Oceania region - which includes Australia - recorded net sales of Yen 5,897 million, up from Yen 5,513 million in the pcp, a 7.0% increase.
    Forecast

    Makita has forecast a drop in both net sales and operating income for the current FY2015/16. The company predicts net sales will decline by 3.5%, and operating income will fall by 21.4%.
    Makita results and forecast
    Oceania/Australia

    While Makita does not break out data for Australia in its quarterly reports, its remarks on Australia over the previous two annual reports provide some background to its operations here.
    Annual report for FY2014/15

    From the explanations section of the Makita annual report:
    Although private consumption and home-buying in Australia improved, gross profit margin lowered because U.S. dollar, by which import prices are settled, was appreciated against Australian dollar. SGA expenses increased due to the surge in personnel expenses and advertising expenses. Operating income ratio deteriorated by 0.1 percent point to 5.7% in FY2015 from 5.8% in FY2014. As a result, segment income increased by 11.2%, to 3,800 million yen, in FY2015.
    Annual report for FY2013/14

    From the explanations section of the Makita annual report:
    Although Australia's economy has shown signs of warming across the country thanks to the improved private consumption and home-buying since the last half of the year, gross profit margin lowered because growth in demand was weak during the year as a whole and U.S. dollar, by which import prices are settled, was appreciated against Australian dollar. SGA expenses increased due to the surge in personnel expenses and advertising expenses. Operating income ratio deteriorated by 4.1 percent point to 5.8% in FY2014 from 9.9% in FY2013. As a result, segment income decreased by 32.4%, to 3,417 million yen, in FY2014.
    Product strategies

    In assessing power tool market and Makita's strategy, the company's top managers had this to say in its 2014/15 annual report:
    I see market growth continuing, and in particular, I expect demand for cordless tools to steadily increase. Although I believe that Makita ranks among the industry leaders in this market sector, in product development capabilities and product lines, as competitors are also focusing efforts on cordless tools, I want to add further new products to build and drive the market. In fiscal 2015, we expanded our cordless tool lineup by actively introducing new products, mainly compact, high-output tools equipped with 4.0Ah and 5.0Ah high-capacity lithium-ion batteries and brushless motors.
    Furthermore, I expect demand for cordless equipment to expand not only in the power tools sector, but in the outdoor power equipment (OPE) sector as well. Although Makita is a latecomer to the OPE market, I believe that we can go on the offensive in the market by providing OPE products powered by the same batteries as our power tools. I want to achieve steady growth while continuing to make solid investments over time.
    Analysis

    What is the source of Makita's predicted dip in sales revenue and operational revenue for the current financial year?

    One explanation might be that the market for lithium-ion battery products, even with the recent boost provided by brushless motors, has reached partial saturation. There are still sales to be made, but these will require more promotional activities, and perhaps more price cuts as well.

    The reason for this early saturation is that Makita relies on professional and industrial sales. These are relatively early adopters of power tool technologies, but they represent a limited demand source.

    Another possible source of the dip in earnings could be that Makita has plans to invest more in research and development this year. Makita has flagged a decent expansion in R&D expenditure, from Yen 9,117 million in FY 2014/15 to Yen 10,700 million in FY 2015/16 - a 17.4% increase.

    Putting these together, is it possible that Makita might be developing a line of "prosumer" style tools to penetrate the market immediately below its current segment? Will it enter into competition with the lower-end of DeWalt, Bosch green and even Techtronic Industries AEG-branded tools?
    Reports
    RSR survey: Convergence of commerce
    The role of digital presence
    Retail Systems Research
    RSR: Top 3 Organisational Inhibitors
    Mobile offers advantages instore
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    Do you think that home improvement retailers need to make the online and offline customer experience seamless? In a survey from the US-based Retail Systems Research (RSR) conducted in May 2015, 95% of a sample weighted towards retail managers in North America selected this as a desirable goal.

    Some 46% of respondents were from the USA, 36% from the UK and Europe, and 12% from the Asia Pacific. About 40% of the companies represented had revenues of over US$1 billion, and 35% had revenues between US$250 million and US$1 billion. Senior management (vice-president and above) made up 37% of the sample, and middle management made up 42%.

    The retailers who responded came from a wide range of areas, including everything from fashion to durable goods.

    The survey, entitled "Commerce Convergence: closing the gap between online and in-store" is available for download at the link below:
    RSR Commerce Convergence

    The survey is free, but does require free registration.
    Survey results

    The overall result set indicates that while there is a broad acceptance of the role of technology in retail, and even a degree of eagerness at adopting it, most retailers are put-off by the potential complexity and expense of making the needed changes.

    To summarise some of the results:
  • Building brand awareness is the most popular reason for building a digital presence.
  • There is strong agreement that the offline and online shopping experience should be made seamless,and that retailers need to do more to accommodate younger, more "tech-savvy" customers.
  • 44% of retailers believe online influences over 25% of offline sales today, and 71% believe this will be the case by 2018.
  • For retailers reporting strong sales in 2011, the three major challenges are providing more ways to connect to their brand, improving customer service without blowing out payroll expense, and providing mobile channels for customers.
  • For retailers reporting weak sales in 2011, the major challenges are improving customer service without blowing out payroll, providing a seamless experience between store, desktop and mobile access, and keeping up with changing access demands of customers.
  • The top three operational challenged are rolling out new technologies into stores, implementing cross-channel processes in stores, creating a seamless brand experience, and enabling broad inventory visibility.
  • In terms of the opportunities offered by digital, the top three are bringing digital capabilities into the stores, creating better customer involvement through personalised offers, and providing more personalised attention from employees.
  • Inhibitors to change

    Some of the most interesting results from the survey are those that relate to the implementation of technology. The following graph charts responses to the "Top 3 Organisational Inhibitors In Creating A Seamless Customer Experience":
    RSR: Top 3 Organisational Inhibitors

    The following graph drills down a bit into this response, defining the inhibitors more clearly, and breaking these out by retailer size:
    Inhibitors by company size

    Finally, the survey reports on the most popular methods companies use to overcome these inhibitors:
    Ways to overcome company inhibitors

    RSR offers a neat summation of the problems retailers are facing in this area:
    Fundamentally, retailers are grappling with the fact that technology-driven change isn t being driven from within the corporation. It s being driven from the outside - by consumers. So while the internal business challenges are daunting (no clear-cut ROI, rigid legacy technologies, lack of staff, or concern about the stores' ability to absorb rapid fire technology-driven changes), consumers expect retailers to be able to be at least as technology-enabled as they are.
    The role of POS

    The survey goes on to detail what it sees as the potential enablers of technology. Perhaps the most interesting statement is this analysis of the changing role of POS for retailers:
    Retailers want as little duplication of data as they can get, they want maximum visibility across inventory, orders, customers, and products, and they want to deliver robust capabilities like assisted selling and in-store fulfillment all in the simplest way possible. And they don't want to face having the pain of replacing their existing point of sale without at least some kind of upside benefit that justifies the investment. In short, they want a platform for customer engagement in the store.
    A long time ago, the POS was supposed to be that platform, the central hub of transactions in the store. But that presumed that the transaction was the only important part of the customer engagement that needed to be captured. With so much of the shopping path to purchase being influenced by digital, POS as it exists today is no longer enough. In fact, the transaction is rapidly becoming the least important part of what happens in the store.

    To put that in other terms, while retailers tend to seek ways of evolving existing systems to meet new needs, today they face the task of evolving new systems. The various evolutions of POS, from early inventory management, to modern-day barcode assisted self-checkout, have brought great benefits. The next change to come will be as comprehensive as the introduction of POS systems themselves, but with a focus on customer relations, rather than transactions.
    Statistics
    HNN Index for week ending 31 July 2015
    The HNN Home Improvement Index rose by 23 points from the previous week
    HNN Sources
    Betta Home Living beats out JB Hi-Fi in customer satisfaction
    A new 600-room, 35-storey tower being built by Lend Lease is Sydney's largest
    Click to visit the HBT website for more information
    The HNN Home Improvement Index for the week ending 31 July 2015 came in at 1021.11, a rise of 23 points over the previous week's index. The underlying ASX 200 rose by 33 points to close the week at 5699.2 or 1060.3 on the adjusted index.

    With this rise, the index is back to indicating a gain over its level on 1 July 2014.

    There were a number of significant movers in the index this week. The only strong negative movement came from UGL, which declined by 8%.

    Metcash took an upswing in its recent rollercoaster pricing, climbing by 9.5%, closely followed by Bluescope Steel, which rose by 9.3%. GUD Holdings rose by 8.7%. Westfield, Myer Holdings, Breville and GWA Group all grew by over 6%. CSR managed a 5.4% gain.
    CIMIC Group
    Hochtief improves profits

    Hochtief has reports a substantial improvement in profits, margins and cash flow in the first half of 2015, and said it was showing a strong new order intake in the second quarter. It pointed to its Australian contracting arm CIMIC - formerly Leighton - saying it contributed to the positive trend in group orders in the second quarter of 2015.
    Hochtief improves profits - KHL Magazine
    Goodman Group
    Goodman Group focuses on development-led growth in US

    Goodman Group will to stick to its plan of development-led growth in the US and will not chase large portfolios of industrial assets being snapped up by its rivals. Chief executive Greg Goodman told a recent investor briefing: "We want to be the biggest owner in southern California and we want to be the biggest developer in southern California. We want to be the biggest developer in New Jersey...We don't really care about the balance."
    Goodman Group focuses on development-led growth in US - The Australian
    GUD Holdings
    Sunbeam blenders fuel GUD Holdings profit surge, will pay $0.22 final dividend

    Sunbeam blenders have helped GUD Holdings achieve an 88% surge in net profit. GUD managing director Jonathan Ling attributed the uplift to more-efficient freight and logistics, as well as its joint venture with United States consumer products giant Jarden that led to the launch of the Oster Blender in Australia.
    Sunbeam blenders fuel GUD Holdings profit surge - Fairfax Media
    JB Hi Fi
    Betta Electrical scores customer satisfaction hat trick

    The Roy Morgan Research Customer Satisfaction Awards for May shows that Betta Electrical (recently rebranded as Betta Home Living) won the Furniture/Electrical Store category for the third consecutive month. With a 95% satisfaction rating, Betta maintains a comfortable lead over second-place getter, JB Hi-Fi (91%).
    Betta Electrical scores customer satisfaction hat trick - Roy Morgan Research
    Lend Lease Group
    New hotel in Darling Harbour convention centre to be Sydney's largest

    Eccentric cosmetic surgery-cum-hotel developer Jerry Schwartz has laid the foundation stone of a new $350 million hotel development. The project will be Sydney's first newly built five-star hotel in nearly two decades and is part of the broader $3.5 billion redevelopment of the Darling Harbour convention centre precinct. The 600-room, 35-storey tower is being billed as Sydney's largest.
    New hotel in Darling Harbour convention centre to be Sydney's largest - Fairfax Media
    Metcash
    Grocery retailing in Australia - as seen from the UK

    UK based-IGD is an organisation dedicated to helping the food and consumer goods industry deliver the needs of the public. It says of Metcash: "Metcash is about to start initiating its new strategy, focusing the IGA store network on taking advantage of its position as local neighbourhood supermarket and convenience stores that are privately owned."
    Grocery retailing in Australia - as seen from the UK - WhaTech
    Woolworths
    More bad news ahead for Woolworths

    Shoppers rank Woolies last among the nation's leading grocery chains when it comes to high-quality, fresh food offerings, according to a UBS survey. As part of the survey, UBS interviewed Aldi, Coles, Woolworths and IGA shoppers and asked them their views across a range of store attributes for their main shop. Coles was ranked first by Coles shoppers across areas such as fresh, efficiency, prices and reward card benefits while Aldi was ranked second and Woolworths third.
    More bad news ahead for Woolworths - Fairfax Media
    Companies
    PPG Industries second quarter 2015 results
    Results for PPG Industries second quarter 2015
    PPG Industries
    Volume trends by quarter for PPG products
    Mike McGarry will become PPG CEO in September 2015
    Subscribe to HNN weekly e-newsletter
    Coatings and glass business PPG Industries has released its results for the second quarter of its current financial year, 2015. The company reported net sales of US$4.1 billion excluding the effects of currency fluctuations, an increase of 8% over the previous corresponding period (pcp), which is the second quarter of 2014.

    When currency exchange rates are considered, sales increased by a more modest 1%.

    Adjusted to exclude non-recurring items, net income rose to US$458 million, an increase of 15% over the pcp. Unadjusted profit numbers were less promising at US$337 million, down from US$386 million in the pcp, a decline of 12.7%.

    Non-recurring items include costs of a restructuring program. The current CEO of PPG, Charles (Chuck) Bunch, told analysts during the earnings conference call that the restructuring plan is expected to create US$15 million to US$20 million in gains for 2015, and US$100 million to US$105 million in gains in 2017.
    Results for PPG Industries second quarter 2015

    Mr Bunch stated in a press release that:
    Despite modest economic growth, we anticipate increased benefits from a lower cost structure and higher earnings leverage on incremental volume growth. Also, based on current foreign exchange rates and the seasonality of our businesses, we expect negative foreign currency translation impacts to remain sizeable but to moderate in the second half of the year.

    In comments offered during a presentation of the results to investment analysts, Mr Bunch suggested the currency exchange rates would have a negative impact of US$1 billion for the fully year, which translates to a pre-tax earnings impact of US$100 million. This represents a slight improvement over previous forecasts.

    Mr Bunch affirmed that the company's recent acquisition of Mexican paint company Comex continues to return results above expectations. He indicated further synergies between the companies were being explored, included a wider distribution of PPG products, and expansion of the channel. He stated that:
    During the quarter, we increased our initial Comex cost synergy targets and now expect to achieve [US]$45 million to [US]$50 million in annual run rate savings by the end of 2016. In addition, we announced new acquisition related revenue synergy targets, which include capitalizing on the extensive Comex Mexican distribution platform for legacy PPG Industrial and Performance Coatings products and further leveraging the Comex and PPG participation in Central America; simply stated both strategically and commercially Comex remains well ahead of our original expectation.
    Geographic performance

    In the earnings press release, Mr Bunch stated that:
    Sales volumes grew 1% year-over-year, similar to the first quarter, reflecting modest global economic growth. Regionally, in comparison with last quarter, our growth rates improved in Europe and the US, moderated in Asia and remained unfavourable in South America.

    Information provided during the investment analysts' conference call provided more detail. PPG expects modest growth in North American markets, led by growth in automotive products and packaging.

    For Europe, the Middle East and Africa, growth is expected, though this varies widely. In the developing regions of Asia and Latin America, lower growth is expected.
    PPG geographical trends
    Business divisions

    The results from its business divisions largely reflected the effects of the company's past seven years of transformation. During this time it has shifted more of its business into the coatings segment, and moved to include more high-growth geographic regions, particularly in the Asia Pacific region.
    Business shift for PPG
    Performance coatings (includes architectural)

    Net sales grew by close to 3% to reach US$2.41 billion. Income increased by 10% to US$411 million.

    The big news for this area has been the acquisition of the Mexican-based Commex paint company, which contributed (with other acquisitions) US$235 million in sales. Architectural paint sales in Europe, the Middle East and Africa remained flat. Marine and protective coatings sales volume improved in both North America and Europe.

    In response to an analyst's question, PPG chief operating officer Michael McGarry (who is slated to become CEO in September 2015) did provide some additional detail about sales of architectural paints in Europe:
    [In Europe] France is our largest market, so our retail business in France has now positive comps. However, our larger trade business has negative comps, but much less, so it's getting back almost near flat now. Strong performance in the UK and Ireland, and although the Benelux was flat in Q2, we did see a noticeable pickups earning in late May. So I would say that's good. Central Europe was also had solid growth.

    Asked about the impact of US-based retailer Lowe's Home Improvement introducing Sherwin Williams paints into its product mix, Mr McGarry responded:
    It's difficult for us to comment about a specific customer like that. We did call out that we had positive low-single digit comps in the DIY segment. We have very strong relationships with all our DIY customers, and I would say there were no surprises in the second quarter.

    An analyst also asked if there was substance to rumours that a recently commissioned titanium oxide plant in Henan Province, China, built by Henan Billions Chemicals to use PPG-developed chloride technology was under-producing. Mr McGarry responded:
    I'm not sure where that's originating. I'll just tell what we know. The plant is mechanically complete. All phases of the plant have been operational. We have samples from the plant, and both in China as well as in the US. We are fully working with them. We think the plant will be producing regular commercial grades sometime late in the second half of the year, and I would tell you we're on target with everything we've projected so far.
    Henan Billions Chemicals commissions TiO2 plant in China

    For the upcoming third quarter of 2015 architectural coatings are expected to grow in North America, with a moderate increase in Europe, the Middle East and Africa. The normal seasonal dip in sales is expected for the quarter. Currency exchange rate fluctuations should exert less influence on results.
    Industrial coatings

    Overall volumes declined slightly. Net sales declined by 3% to reach US$1411 million, while income grew by 1% to US$260 million. Automotive OEM coatings performed adequately in most regions, with Europe showing some strength, but Asian demand moderating.

    In response to an analyst's question, Mr Bunch further described automotive OEM in China:
    Well, China, it's the largest automotive OEM market in the world. The builds are still expected to be over 20 million this year and have growth. We've seen over -- certainly the first quarter we were talking about 7%-plus kind of growth rates for the full year, and we saw that in the first quarter. We saw those growth rates moderate a little bit here, as we went through the second quarter.

    He went on to offer more detail about automotive OEM in other regions:
    We've seen a very solid performance here in North America, continued strength. And we are also seeing, especially in Western Europe as part of our EMEA region, we've seen a return to growth here in the first half. And we expect that trend to continue in the second half of this year. So we remain optimistic and quite positive on the global OEM automotive market, even if we have pockets out there like Brazil or Russia, where we've seen lower builds here in 2015.

    For the upcoming third quarter, automotive OEM is expected to remain consistent, with the usual seasonal decline.
    Glass

    Net sales fell by 3% to reach US$279 million, while income grew substantially, from US$11 million in the pcp to US$37 million in the current quarter. This was largely driven by improved pricing as a consequence of higher market demand. Other contributors to better income include lower costs and better product mix.

    Business seasonality is expected to lift demand during the upcoming third quarter. However, scheduled maintenance costs will increase by around US$5 million.
    Acknowledgement

    HNN would like to sincerely thank and acknowledge the contribution of the Seeking Alpha financial analysis website. Seeking Alpha makes the transcripts of conference calls available to reporters and analysts across the internet. It is a great contribution to enhancing online media.

    If you would like to view the complete transcript of the PPG Industries conference call please use the link below:
    Seeking Alpha PPG conference call

    To see a list of the considerable number of earnings call transcripts Seeking Alpha has on offer, please use the link below:
    Seeking Alpha transcripts index
    Companies
    Stanley Black & Decker Q2 2015 results
    Stanley Black & Decker results for Q2 2015
    Stanley Black & Decker
    Stanley B&D regional growth in Q2 2015
    Organic growth by region
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    Power tool, hardware and security conglomerate Stanley Black & Decker (SBD) has reported flat results for the second quarter of 2015. While the company managed internal growth of 8%, exchange rate fluctuations cancelled out these gains.

    Total revenues for the quarter were US$2.9 billion, while the operating margin rate was reported as 14.4%, up 0.7% on the previous corresponding period (pcp), which is the second quarter of 2014.
    Stanley Black & Decker results for 2015 Q2

    SBD operations in Australia produced an 11% organic (non-acquisition) growth rate for the current quarter as contrasted with the pcp. This is equal to the rate for the US market, and also equal best in the world. The Australian growth rate for the first half of 2015 is 9%, placing it equal second with Japan, behind the top growth rate for the half of 12% in the US.

    These results have encouraged SBD to raise its full-year forecasts for earnings per share (EPS). According to the press release accompanying the results announcement, Donald Allan Jr., SBD chief financial officer stated:
    We are raising the range of our 2015 EPS outlook to [US]$5.70 to [US]$5.90 from [US]$5.65 to [US]$5.85 on a GAAP basis.
    Tools and storage

    This division saw sales of US$1840 million, an increase of 3.8% on the pcp. Profit was US$302 million, an 8.9% increase on the pcp. Volume of sales increased by 10%, and price contributed an additional 1%. However, currency exchange fluctuations created a negative 7% drag on revenues.
    Regional sales

    North America posted a 14% increase. This gain was due to favourable seasonal conditions, ongoing strong tool demand, and additional share from new products and brand extensions.
    Stanley Black & Decker brands

    Europe grew by 7%, largely driven by new products and expanded retail distribution. Emerging markets rose by 5%, largely through a refined approach to pricing strategies in the mid-range segment. According to a statement by SBD's chief operating officer, Jim Lorree, at the analysts' earnings presentation:
    Growth within tools in emerging markets accelerated in the quarter, as a double-digit performance in Latin America, and solid growth in India, Turkey, the Middle East and Africa was enough to overcome a steep market related decline in Russia, and a weak performance in China.
    The mid-price point product rollout led by our Stanley Power tool line continues to proceed successfully, and this important initiative provided support for emerging market growth amidst volatile underlying market conditions.
    Organic growth by region

    In further statements at the analysts' earnings presentation, Mr Lorree estimated that the underlying market growth in the US was 5% to 7%, with most of the European market steady in constant currency terms, and emerging markets growing at a modest 2% to 3%. These numbers indicate that SBD is gaining market share globally.
    Category sales

    In terms of categories, professional power tools grew revenues by 14%, consumer power tools grew by 15%, and accessories rose by 12%. Hand tools and storage grew by a more modest 5%.

    SBD credited innovation as a major driving force for increased sales. One of the company's major product releases was the DeWalt line of outdoor power tools, which incorporates a 40-line set of tools, designed to suit the needs of professionals in lawn care and other landscaping categories.

    SBD stated that it saw advances in brushless motors and lithium-ion batteries opening up new areas that had previously consisted only of petrol-powered equipment.
    Markets

    In response to a question posed by an analyst, SBD CEO John Lundgren outlined how he sees the US market for power tools developing:
    The trends in the US are good, as demonstrated by the numbers that Jim walked you through. We are seeing more end-users, we're seeing both online purchases, purchases through the two-step channel, professional purchases through the big box, all good. You see our large customers numbers the same time we do. They're up nicely 5% to 7%, and we're, of course, we're above double that rate so we're gaining share.

    In response to another analyst's question, Mr Lundgren also detailed how sales of the company's line of Mac tools, for the automotive repair market, were doing:
    In terms of Mac tools end markets, as you looked at some of the numbers that come out, they've been very good. The statistics very recently published, in the last 10 years in the US, which is overwhelmingly where Mac tools is, of course, car ownership, the average age of cars on the road, has gone from slightly under 9 to slightly over 11 years, which means cars are being built better. But it also means they're on the road longer, so, there is a generally healthy environment for automotive repair and automotive after market.
    That's clearly helping Mac. But what's also helping Mac is just the benefit of it being part of our Global Tools & Storage business, with a great product development, product introduction, good sales rhythms, good forecasting. A lot of the newer cars, of course, require a lot of diagnostics. It's something where we're relatively underdeveloped, compared to some of the competition.
    Other divisions

    The company's security division reported sales of US$533.3 million, down by 6.7% on the pcp. Profit for security was US$55.2 million, down 20.5% on profit for the pcp. According to Mr Loree speaking at the analyst's presentation:
    The biggest challenge of the quarter was in our North American electronics business, where continued gains in vertical markets were achieved at the expense of core growth, as the team struggled with the efficient installation of some of the larger, more complex, vertical market jobs.
    These challenges are well understood, and being addressed by our new and capable management team. The softness in Asia also cut into Security 2Q organic growth and profitability. So overall, we made some very good operational progress in the quarter, with some isolated and manageable issues. We continue to be confident in a positive trajectory for Security, and remain committed to our assessment of its strategic fit by the second half of 2016.

    The company's industrial division reported sales revenue of US$494.1 million for the quarter, a drop of 4.4% on the pcp. Profit came in at US$94.3 million, an increase of 3.1% on the pcp. The company stated that it achieved an overall 4% in organic growth, based on a 3% increase in volume and a 1% price advantage. However, this was offset by an 8% drag created by currency exchange rates.
    Forecasting

    As mentioned above, the company has increased its EPS estimates. This is largely based on a change from an estimated 5% in organic growth for 2015 to 6%. Commenting on this at the analysts' presentation, the company's chief financial officer, Don Allan, said:
    This change recognises a strong organic growth momentum that continues within our Tools & Storage business. Additionally, we are increasing our expectation modestly within engineered fastening, due to the solid first half trends within that business. These improved growth expectations, combined with all of our other businesses tracking to their planned organic growth rates result in an overall improved performance for 2015.

    Across the categories, revenue growth for the coming quarters is expected be between 6% and 9% for tools and storage, under 4% for security, and 4% to 6% for the industrial division.
    Products
    LawnBoss made for local conditions
    The LawnBoss has an ergonomically designed seating position
    Cox Mowers
    The LawnBoss can be supplied with either a 32-inch or 38-inch cutting deck
    The LawnBoss is the result of Cox's tried and true manufacturing methods
    Click to visit the HBT website for more information
    The LawnBoss has an ergonomically designed seating position that facilitates lengthy operating times. A Tuff Torq hydrostatic transmission paired with a 15.5HP Briggs and Stratton electric start engine results in a smooth and enjoyable ride, and can provide the grunt required to maintain an acreage efficiently.

    The chassis of the LawnBoss has been constructed from Australian made fabricated sheet steel. The body panels are industrial grade polypropylene, which will not rust and will resist minor dings and scratches.

    The LawnBoss can be supplied with either a 32-inch or 38-inch cutting deck depending on the operator's requirements. Designed by veterans of the mower industry, Cox, the LawnBoss is both durable and reliable. Formed and welded, heavy gauge steel cutting decks, laser cut and keyed unitary chassis, are all made locally.

    Ideal for small acreage blocks in the Australian landscape, the LawnBoss is the result of Cox's tried and true manufacturing methods.
    News
    Hot links
    Many people shop for supplies at Home Depot on the way to the Burning Man festival
    HNN Sources
    Wickes has outfitted its staff with headsets for better communication
    Sears is planning a new push for its Craftsman brand
    Click to visit the HBT website for more information
    An additional roundup of home improvement stories. Home Depot is cashing in on the annual Burning Man festival in Nevada; DIY retailer Wickes uses in-store headsets; Sears looks to boost Kenmore and Craftsman brands; San Fransisco-based DIY startup lands partnership with craft retail giant. More stories below.

    For further information, simply click on the images provided.
    Hipsters shop at Home Depot

    The Burning Man festival in the Nevada desert attracts 65,000 hipsters and influencers from the tech industry for a gathering of music, art, drugs and togetherness each year. Since attendees have to build their own camps from scratch, many flock to Home Depot on the way to the desert to pick up generators, dust masks, tarps as well as rubber bands.
    Home Depot benefits from the Burning Man festival
    Wickes' staff utilises in-store headsets

    UK-based Wickes has reported an improvement in staff efficiency and customer service following the deployment of a wireless headset system across its stores. The tool is used by staff to respond to requests ranging from pricing and stock checks to product knowledge sharing and general customer enquiries. The instant communication between staff also allows the retailer to combat theft.
    Wickes has deployed a wireless headset system across its stores
    Sears plans boost for tool brands

    Sears has named a former Johnson & Johnson executive to a new position as president of "hardlines" as it tries to stem the declining market positions of the Kenmore, Diehard and Craftsman brands. Lynn Pendergrass will focus on increasing sales of the three brands while working with the appliances, lawn and garden, tools and auto centre units. She will report to CEO Edward Lampert.
    Sears has a new push for its Kenmore, Diehard and Craftsman brands
    Real Milk Paint gets a new look

    The Real Milk Paint company has had a makeover, getting a revamp to both its website and packaging. Made from 100% organic material, Milk Paint is a non-toxic, environmentally safe product that is gaining popularity. Eco-conscious consumers appreciate the superior quality paint without the dangerous chemicals used in other paint products.
    A makeover for Real Milk Paint
    DIY startup joins forces with craft retailer

    Online DIY marketplace Darby Smart is teaming up with Michaels, the Texas-based arts and crafts retailer. Michaels will link to Darby Smart from its website, providing the retailer's shoppers with a built-in online DIY community and instructions from Darby Smart content. Meanwhile, Darby Smart will provide Michael's shoppers with a digital shopping list to help them complete their DIY ideas.
    DIY startup Darby Smart inks deal with craft retailer Michaels
    Female sheds jump by 50% in the UK

    Following on from the concept of the man-cave, sales of she-sheds - which cover everything from summer houses to log cabins - have soared by 50% in the UK. Alexei Cowan, Homebase's head of trends, said: "More and more women are working from home and running their own businesses and the she-shed is an ideal space to create a pop-up office."
    Sales of she-sheds have increased by 50% in the UK
    Products
    Pros choosing Sikkens finishes
    Sikkens Cetol BLX-Pro is a quick-drying water based timber finish
    Sikkens
    Its transparency captures the natural character and colour of the wood
    Its water based formula is ideal for indoor applications such as ceiling cladding
    Click to visit the HBT website for more information
    Sikkens' products are best known for their premium quality and uncompromising longevity on projects. The most popular characteristic of these products is the transparency which captures the natural character and colour of the wood. Other products can leave a paint-like finish.

    From stand alone mantel pieces, wall and ceiling cladding to shelves, window and door frames, the use of timber often adds a touch of nature and brings warmth to modern interiors.

    As exposure to sunlight, indoor heating and cooling systems and knocks and spills can affect the look of timber, applying a protective coating is important for long lasting protection.

    Sikkens Cetol BLX-Pro is a quick-drying water based timber finish that provides good durability and flexibility. Its water based formula is ideal for indoor applications with minimal odour, and re-coating is possible within two hours. Its transparent finish accentuates the natural look and colour of the timber.

    Sikkens Cetol BLX-Pro comes in five ready mixed shades: Pine, Light Oak, Dark Oak, Teak and Walnut.
    Products
    A "smarter, prettier" router for home Wi-Fi
    Google's OnHub resembles a jumbo-sized drinking cup
    Reuters
    It's designed to become part of any living room decor
    The router can be hooked up with Google's On app
    Click to visit the HBT website for more information
    Google says it has a solution to the glitchy home Wi-Fi that often stops working when users try to stream a movie or upload photos. Its Wi-Fi router is the latest move in the company's efforts to prepare for the connected home and draw more users to its services.

    The cylinder-shaped router, named OnHub, resembles a jumbo-sized drinking cup with a ring of light around the top. It's a significant departure from the box-with-blinking-lights-and-antenna look of traditional routers, but not that different from some newer D-Link routers that are also cylindrical and come in different colours - for many of the same reasons.

    It's designed to improve the range and reliability of home Wi-Fi networks while becoming part of any living room decor.

    The goal is to encourage people to put it on a bookshelf to maximise the range of the Wi-Fi signals, instead of hiding the device on the floor behind the TV, as many people do now. It's a cylinder so people won't impair the signal by tipping it on its side or stack other objects on top of it.

    The router comes with in-built antennas that will scan the airwaves to spot the fastest connection, according to Google in a blog post. Ideal for data-heavy activities such as downloading content or streaming a movie.

    The router can be hooked up with Google's On app, available on Android and iOS, to run network checks and keep track of bandwidth use among other things.

    Google said OnHub automatically updates with new features and the latest security upgrades, just like the company's Android OS and Chrome browser. The router is being manufactured by network company TP-LINK.

    The product launch comes after Google restructured itself by creating Alphabet Inc., a holding company to pool its many subsidiaries and separate the core web advertising business from newer ventures like driverless cars and developing smart home products.

    Google last year bought Nest, a smart thermostat maker, for US$3.2 billion, aiming to lead the way on how household devices link to each other and to electricity grids.

    The global market for "Internet of Things", the concept of connecting household devices to the Internet, will nearly triple to US$1.7 trillion by 2020, research firm International Data Corp said in June.

    Technology firms including Intel Corp, Cisco Systems, Samsung Electronics and telecom giants Vodafone and Verizon are betting heavily on Internet device-connected homes for future revenue and profit.
    Companies
    HPE bolsters supply with The Home Depot
    HPE's EB2000i model will be sold at The Home Depot
    Honda Power Equipment
    The EU3000i Handi will also be sold through The Home Depot
    The Home Depot is building on its partnership with HPE
    Subscribe to HNN weekly e-newsletter
    Honda Power Equipment (HPE) has expanded its partnership with The Home Depot. Beginning in September, a number of Honda generator models will be sold at the retailer's top 300 US PRO Desk locations, a specialised area of the store dedicated to the product and service needs of the professional contractor.

    The Home Depot PRO Desk is designed to make it faster and easier for contractors (tradies) to shop for construction and building materials, helping them save time and money.

    According to the terms of the new agreement, HPE will supply The Home Depot with five of its generator models. They include three Industrial Series models, the EB2000i, EB3000c and EB5000, and two Super Quiet Series models, the EU2000i and EU3000is.

    In addition, The Home Depot also will make these five models, plus two additional Honda generator models - the Super Quiet Series EU1000i and EU3000i Handi - available for purchase via its website at www.homedepot.com.

    By broadening its relationship with the big box retailer, HPE can strengthen its multi-channel sales approach, creating growth and awareness among professional contractors. This awareness is anticipated to drive sales growth in the commercial segment, through increased purchase considerations, product reviews and additional online visibility.

    Contractors will have the flexibility to choose where they prefer to have products serviced - at one of The Home Depot service outlets, or through an independent servicing dealer. Mike Rudolph, HPE vice president said:
    The Home Depot has earned a reputation for an entrepreneurial spirit and excellence in customer service, and Honda Power Equipment's new agreement with this leading retailer illustrates an important, mutual ability to anticipate emerging customer needs and buying trends...

    Jim Hovis, garden merchandising vice president, The Home Depot said:
    The Home Depot is thrilled to build upon our long-standing, successful partnership with Honda by launching Honda Generators for sale in-store and online. Honda generators offer the power, innovation, and durability to meet our Pro customers' needs, and as such, represent a great growth opportunity for us both in this category.
    Products
    Buckaroo displays pink for breast cancer
    Buckaroo is supporting the National Breast Cancer Foundation
    Buckaroo Leatherworks
    It is helping the cause with a new run of Tradesman belts, donating a portion of each sale towards research
    Buckaroo managing director, Tanya van der Water
    Click to visit the HBT website for more information
    For a limited time, tradies, electricians, famers, and other workers can buy a pink version of Buckaroo's tool belt: the Tradesman. Crafted using the high performance leathers and materials, the Tradesman is the belt that put Buckaroo on the map, thanks to its built in back support and ability for the wearer to kit up their own belt.

    Buckaroo is partnering with the National Breast Cancer Foundation (NBCF) in order to raise funds to help find a cure for breast cancer by 2030. The Australian manufacturer is producing a new run of belts, and donating a portion of each sale towards research. Managing director, Tanya van der Water said:
    We are really proud to be a partner of the NBCF. Breast cancer is still a major issue for not only for the Australian women who suffer, but for the men and families of those diagnosed. This is just one way that tradespeople around the country can show their support and add some colour to the work site!

    The partnership is a part of the NBCF's "Real Men Wear Pink" campaign, which is challenging men around the country to wear pink and fundraise in recognition of the women in their lives.

    The Tradesman product is made with 6mm leather point and German rivets that can guarantee the belt is as tough as nails. Add to that the Australian made copolymer and 100% natural wool felt inner. This belt is also customisable to suit most jobs.

    The new pink edition features a copolymer webbing upper belt strapping, which has superseded leather in many industries due to its nontoxic nature. It is also resistant to stretches, cracks, tears and hardening when exposed to moisture.
    Reports
    Bedroom next frontier for renovation
    Today, bedrooms can serve multiple purposes
    HNN Sources
    The Virgin Hotel room in Chicago
    Houzz: Bedroom in Castle Peak Road, Hong Kong
    Subscribe to HNN weekly e-newsletter
    We've seen radical changes to spaces such as bathrooms and kitchens, and the invention of the so-called "outdoor room". Now that same intensity of design is moving to its next frontier: the bedroom.

    The motivation is clear. As inner-urban dwellings shrink in size, and space utilisation becomes more important, each room is expected to pull a little more of its weight. Bedrooms might be the place where a very important nine or ten hours of the day is spent, but can they also do just a little bit more?

    That "little bit more" might include a decent place in which to do some work - made even more possible by the popularity and affordability of laptop computers. For children, that can mean a good place to study, and for adults it can mean somewhere to knock off a few emails before going to bed, or a private space in which to do some personal accounting.

    Additionally, of course, with more children staying home through their tertiary education and longer, there is the matter of organising a bedroom for a young adult. It needs to be highly functional, but also suitable for some limited socialising.
    Commercial inspiration

    Modern kitchen design borrowed many ideas from restaurants and commercial kitchens, and modern bathroom design still uses themes first popularised at resorts and spas. So it is no surprise that in redefining the modern bedroom designers are turning to another commercial source for inspiration: hotel rooms.

    Those of us who travel on business frequently know that a hotel room can almost make or break a business trip. We spend hours when booking a room trying to peer into the corner of web pictures, to see past the colourful bedspread, and determine if that chair in front of the thin sliver of a desk is actually height-adjustable.

    One of the better hotel designs to borrow from is that of the Virgin Hotels which have recently opened in locations in the US. One of the design goals of these hotels was to make them better places to stay for business-women, and the result is a more "life-friendly" take on a hotel. The article on Fast Co Design is well worth reading:
    Virgin Hotel room in Chicago
    Beyond dowdy

    "Multi-functional" doesn't have to mean utilitarian or dull. For example this bedroom for a young adult male is functional, but also quite zesty:
    Houzz: Young man's bedroom, Sydney

    This is more feminine and more social:
    Houzz: Young adults's bedroom, Dublin, Ireland
    The future of bedrooms

    If we have modular built-in prefabricated designs for spaces such as kitchens and bathrooms, why not extend this to bedrooms as well?

    Built-ins remain one of the best ways to get the maximum use out of a small space. Bedrooms have the added advantage of being largely private spaces, so the level of fit and finish can safely vary.

    This idea is quite common, especially in Europe, for children's bedrooms. For example:
    Houzz: Bedroom set for children, Italian design, New York

    Of course, custom building a solution results in a more sophisticated appeal:
    Houzz: Bedroom Castle Peak Road, Hong Kong
    Editorial
    Right sizing tools for a new generation
    The Cairo in the Melbourne suburb of Carlton
    HNN Sources
    An apartment in the Cairo Building in Carlton, Melbourne
    The Makita 85mm cordless saw
    Give to Amnesty International
    It is interesting listening to some of the voices that are getting raised as various Australian cities debate the issue of ultra-small CBD apartments.

    If you speak to people who have lived extensively overseas, especially when they were students, it's not uncommon that they will have a tale or two about living in very small spaces.

    For most of them, it doesn't seem to have been an issue, mainly because the apartment space was not used for much more than sleeping, reading, and the occasional meal when they couldn't be bothered going out. They had the whole city literally at their doorstop, after all.

    Some tiny apartments, like this one in the Cairo Building in Carlton (Melbourne), seem really sweet and liveable. Of course it has benefitted from the care and attention of Architecture Architecture director Michael Roper, the apartment's owner.
    Apartment in Cairo Building in Carlton, Melbourne

    There is a short essay about these apartments on the website Assemble Papers as well:
    Cairo Building in Assemble Papers

    Reading through these pieces and a few others got me to thinking about this movement that has taken over part of the Australian community to live small rather than live big. I suppose that indirectly I am a part of that movement, though it has been more accidental than anything else.

    My place is not particularly small, but it's not big either. It is small enough that if I want to buy anything larger than a shoebox, I need to work out what I can do without to find a place for it. To give a concrete example for those who never have lived small, I don't dare buy super-discount 12-roll packs of toilet paper, because there simply isn't any place to put them - unless it is in the hallway.

    One thing that you get used to quite quickly when you live small is that much of the time you need to "make do" - that is, repurpose things either meant for bigger places, or not meant for dwellings at all. About the only real exception to that constant repurposing is items I buy from IKEA.
    The role of power tools

    A good example of this kind of repurposing would be power tools. Again, it's probably hard to explain to anyone with a vast garage to store things in, but the available storage for tools comes down to three-quarters of one shelf in a broom closet, plus a toolbox that is kept in a wooden storage box on the balcony.

    Relatively recently we've seen the development of more and better 12v rechargeable tools, and my partner and I have been looking these over to see what would suit us and our fairly limited DIY needs.

    One of the curious things you discover quite quickly is that many of these tools are actually designed for professionals rather then DIY. It's been an interesting exercise mapping these pro tools onto more simple needs.

    TTI's Milwaukee brand, for example, has a very wide range of 12V tools, with some really exotic variants, such as a one-hand band saw, for cutting metal pipes, as well as the usual drill/driver. There is also the TTI AEG drill/driver set that Bunnings sells, which we've used in the past - it has one of the best handgrips we've found.

    In the end, though, we found ourselves purchasing a set of Makita 12v tools - not because they were actually all the very best, but because Makita offered one tool we found we really wanted. That's the Makita 10.8V cordless 85mm circular saw. While it's not big enough to cut through, say, a dressed 2x4, it's perfect for both the 19mm pine we use on some projects, as well as cutting plywood and MDF.
    The Makita 85mm cordless saw

    One of the best things was that we could fit the drill/driver set, the circular saw and a small (corded) palm sander into the same space previously taken up by just a drill and an orbital sander.

    It will be interesting to see whether, as living small becomes a more understood trend, hardware retailers and tool manufacturers find ways to cater directly to this market.

    Until next time,

    Betty

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

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    HNN iPad App
    Bigbox
    Bunnings full year results 2014-15
    Bunnings results for FY 2014/15
    Wesfarmers
    Bunnings' EBIT margin
    Download PDF report
    Click to visit the ITW website for move information
    Both Bunnings and its parent Wesfarmers have produced good results for the 2014/15 financial year. Bunnings grew earnings before interest and taxation (EBIT) by 8.5% (excluding property) over the previous corresponding period (pcp), which is FY 2013/14. Top-line revenue came in at $9,534 million, up 11.6% on the pcp.

    For Bunnings the trading EBIT margin was down slightly, as was the percentage of total sales growth for all the stores, but the comp (like-for-like) store growth improved from 8.4% in the pcp to 8.8% in the reported year. Return on capital (RoC) is reported by Bunnings as reaching 33%, up from 29.3% in the pcp.
    Bunnings results for FY 2014/15

    Wesfarmers grew overall revenue by 3.8%, and EBIT for continuing operations by 5.4% over the pcp. Net profit grew by a more substantial 8.3% contrasted with FY 2013/14.
    Wesfarmers results for 2014/15

    The numbers for the fourth quarter of 2014/15 show a slight slackening in results for Bunnings, with both comp sales growth and total sales growth falling by a little more than 1% compared to fourth quarter FY 2013/14.
    Bunnings results for FY 2014/15 Q4

    As with past Bunnings results, HNN has provided a PDF with more details of these results. This article will only summarise the most important elements of the year-end reporting. To download the PDF, please follow the link below:
    Download PDF report
    Results in context - retail environment

    Overall, the results indicate the maturing of the current strategies at Bunnings. Past investments are yielding returns, lifting the overall RoC, but more recent investments may not be providing a very rapid lift to earnings.

    This is, HNN believes, all to plan, with Bunnings concentrating not on delivering the best possible EBIT yield over the next 12 to 24 months, but rather on setting the company up for future gains over the coming three to four years.

    This was the undercurrent to several of the remarks that the managing director of Bunnings, John Gillam, made during the presentation of Wesfarmers' results on 20 August 2015.

    HNN has estimated the background growth in the retail areas of Bunnings using retail statistics from the Australian Bureau of Statistics (ABS) on a state-by-state basis, and contrasted this with the growth reported by Bunnings (details in the PDF). We determined a background growth rate of 9.7% for the year, and of 9.1% for the fourth quarter of 2014/15. Given the rough nature of these calculations, it is likely that Bunnings' annual result is tracking the background growth, but it is equally likely it fell behind during the fourth quarter.

    Retail statistics from the Australian Bureau of Statistics indicate this recent fourth quarter did see significant slowing in the state of Victoria (VIC) for hardware retail, and slightly subdued growth in New South Wales (NSW) as well.

    This combination of the maturing of the Bunnings' strategy, and the patterns of background retail growth, no doubt contributed to the ongoing slight, but significant decline in Bunnings' EBIT margin.
    Bunnings EBIT margin

    While a slip of 0.7% in EBIT margin might seem insignificant, in this case that would make a difference of over $66 million in the final EBIT number.
    Results in context - company environment

    This year the presentations were even briefer than usual, and this was reflected in the slide counts, with Coles providing eight slides instead of the previous 10, for example.

    Bunnings had five pages, while OfficeWorks, with EBIT at 11% of Bunnings, had four. The overall slide count was 65, down from 75, though three pages of that are accounted for by the absent insurance business.

    More than one financial analyst commented on how Wesfarmers has reduced the amount of information it shares still further this year. The question and answer session was quite subdued. This may have been because the analysts considered it unproductive to try to probe deeper into the numbers presented.

    This has been a gradual evolution over time. To cite one example, up until 2013 Bunnings provided split figures for growth in its consumer and trade business, but has not for the past two years.

    There are, HNN believes, some very deep currents behind this shift in approach, and we delve a little more into them in the editorial for 26 August 2015.

    There is an admirable aspect to this change. It shows a great deal of discipline at work. Other companies which find their major competitor in a period of "trading sideways" behaviour - as Woolworths is arguably at the moment - might revel in that circumstance. Wesfarmers, and Bunnings in particular, have remained focused on being as competitive as possible.

    HNN goes a little more deeply into what we think this further development of competitive response will be in the PDF. In brief, we believe that Bunnings during this expansion phase has been defining the territory on which it will build a number of future developments.

    Thus it is less focused on immediate returns from expansion, and more focused on what this expansion will enable the company to achieve in three to five years time.

    Which is not to say that there is not a price to be paid for restricting the flow of information. Without data the progress of a company cannot be judged. This quickly gets reflected in share prices that are lower and/or more likely to be sold when less than sterling results are produced.

    It is a delicate balance to maintain, between keeping the market informed, and preserving competitive advantage by concealing the inner workings of a company. It seems somewhat unlikely that Wesfarmers (and Bunnings) at the moment has found that ideal balance.
    Statistics
    HNN Index for week ending 21 August 2015
    HNN Home Improvement Index for week ending 21 August 2015
    HNN Sources
    Boral could be close to a deal to divest its bricks business in the US
    Breville revealed that 2015 full-year net profit fell 4.3% to $46.68 million
    Click to visit the HBT website for more information
    The HNN Home Improvement Index for 21 August 2015 fell by 17 points to 958.68 points. The ASX 200 fell by 142 points, or 26 points on the adjusted scale to 970.2. These numbers mean the indices have fallen below the level they were at on 1 July 2014. The ASX 200 was worse affected than the HNN Index.

    Surprisingly, some stocks still did rise. GWA Group managed a 6.6% gain, and UGL Ltd rose by close to 8%. Losers included CSR and Charter Hall Group. Myer Holdings and JB Hi Fi fell by over 7%.
    Boral
    Boral closer to deal on bricks arm

    Boral could be edging closer to striking a deal with an offshore party to sell or partly divest its bricks business in the US. Adviser Macquarie Capital is said to be in talks with various prospective investors surrounding the assets within the US division. Analysts' valuation estimates range from $US750 million (AUD$1 billion) to $US1.23 billion.
    Boral closer to deal on bricks arm - Business Spectator
    Breville
    Breville investors shrug off poor Australia/NZ results

    Investors have shrugged off Breville Group's poor performance in Australia and New Zealand and are hopeful that the turnaround in the small appliance maker's key US market will continue. Breville revealed that 2015 full-year net profit fell 4.3% to $46.68 million and revenue declined 2.7% as it rolled out a new business management software system and discount retailers pushed their home-branded products in Australia/New Zealand.
    Breville suffers full year profit sales decline - Sydney Morning Herald
    Charter Hall Group
    Investors rush to Charter Hall auto fund

    Investors have been quick to back Charter Hall's Direct Automotive Trust, with the fund manager raising $43 million in the first four days of the fund's existence. Charter Hall head of direct property, Richard Stacker, said the new trust was a "good fit" for the business, which has been forecast to provide income at 7.5% in the first year.
    Investors rush to Charter Hall auto fund - Money Management
    Fletcher Building
    Fletcher Building full-year profit falls to $NZ270m

    Fletcher Building said its full-year net profit after tax fell 20% to $NZ270 million (AUD$300 million) from $NZ339 million a year ago. Operating earnings in the year ended June 30 fell 15% to $NZ503 million from $NZ592 million, the company said, while revenue edged 3% higher to $NZ8.66 billion from $NZ8.4 billion.
    Fletcher Building full-year profit falls to $NZ270m - Sydney Morning Herald
    Stockland
    Stockland FY underlying profit up 9.4%, meets forecast

    Stockland Corp Ltd posted a 9.4% rise in underlying annual profit, helped by strong demand for housing, while its retirement living and logistics businesses were also buoyant. Underlying profit rose to $608 million compared to $555 million a year ago and in line with a $607 million estimate of 10 analysts polled by Thomson Reuters. Funds from operations, a measure of underlying and recurring earnings, increased about 15% to $657 million.
    Stockland FY underlying profit up 9.4%, meets forecast - Reuters
    Bigbox
    Big box update
    Masters Northmead is the first two-storey Masters in NSW
    HNN Sources
    Construction is under way at two Masters sites in Sydney and Melbourne
    Bunnings has increased its annual New Zealand sales by 10.5%
    Click to visit the ITW website for move information
    Masters opens its 61st store in Northmead (NSW); Masters is pushing on with plans to open new stores despite its losses; and Bunnings recorded a 10% increase in its New Zealand business.
    Two-story Masters store in Northmead

    The newly-opened 12,500sqm Masters Home Improvement store in Northmead is the 61st across Australia and the first two-storey Masters in NSW. Store manager John Ifield has worked on the opening since he was appointed in January. He told the Parramatta Sun: "We started recruiting immediately and have been on site since mid-May stocking the store. We have 160 staff and a good mix of ages, 16 to 71."

    With 36,000 products, the store has a large paint department, tool shop, flooring department, large garden section, home delivery, online click-and-collect service and an extensive tradies drive-through section.
    Masters' openings continue

    Construction is under way at two Masters sites in Sydney and Melbourne, which will bring the national tally to 63 stores. News Corp reports that the outlet scheduled to open in October at Penrith in Sydney's western suburbs has been identified as a "strategic and high potential location". Another new store is scheduled to open in Cranbourne North, on Melbourne's south-eastern fringe, in November.

    Construction of the new Penrith Masters store is under way at the old Sinclair Ford and Westbus Depot on Mulgoa Road. In addition to its outlet in Northmead, Masters stores have opened in Coffs Harbour and Albion Park, on the north and south coasts of NSW, in recent weeks. Western Australia's Lansdale also got a Masters store last month, and outlets were opened in Queensland's Everton Park and Bundall, plus Sydney's Marsden Park, in May and June.
    NZ sales jump 10% for Bunnings

    Bunnings has increased its annual New Zealand sales by 10.5% to a record NZ$899 million. The business employs over 3700 people in New Zealand.

    The company has been operating in New Zealand for 13 years and in that time, sales have more than quadrupled from the NZ$210 million or so they were at the end of 2002. Jacqui Coombes, Bunnings NZ general manager told the New Zealand Herald in a statement: "A highlight for the 2015 year was the opening of our first multi-level store in the Auckland suburb of New Lynn. There remains significant opportunity for growth across the country and we look forward to bringing the Bunnings 'lowest price, widest range, best service' offer to more and more people throughout the country".

    Bunnings has 25 warehouses, 19 smaller format stores and six trade centres in New Zealand.
    Reports
    Connected home market worth $3.2b by 2019
    Australian market for connected home devices will be worth $3.2b in 2019: Telsyte
    Australian Financial Review
    The "Internet of Things" in Australia is tipped to grow by almost 11 times
    Sales of Google's smart thermostat, Nest are set to grow
    Subscribe to HNN weekly e-newsletter
    The Australian market for the so-called "Internet of Things", or connected home devices, is tipped to grow by almost 11 times in the next four years. It is expected to be worth $3.2 billion in 2019, according to new research from Telsyte.

    It predicted that by 2019, the average household will contain 24 internet-connected devices, compared to an average of nine in 2015. This will be boosted by the widespread adoption of long-anticipated ideas such as internet-connected fridges, smart home security systems and sensor-driven smart energy systems in homes.

    In its report Telsyte said a commitment by Samsung to connect 90% of its new products to the internet by 2017 and all of them by 2020, is an indication that even non-tech savvy consumers would become more connected by default.

    It said companies not traditionally in the technology market, from Ikea to Breville, are starting to unveil their internet of things plans.

    Teslyte analyst Steven Noble told the Australian Financial Review that Australian consumers were likely to be early adopters of connected home products, and that it was becoming easier for everyday users to connect their homes. He said:
    Until recently, a smart home automation system could be quite complex to design, install and use. However, the new generation of devices and services have emphasised simplicity.
    For example, Google's smart thermostat, Nest is simply a dial. It doesn't get simpler than that. Of course consumers will still have things to learn, but you can expect the smart devices in their home to actively teach them about home automation too. For example, you should expect devices like the Apple TV to detect new smart appliances that are brought into the home, and to offer to help set them up.
    Companies
    Techtronic Industries first half 2015-16 results
    TTI FY 2015/16 first half results
    Techtronic Industries
    An interview with TTI CEO Joe Galli
    Horst Pudwill is chairman of Techtronic Industries
    Subscribe to HNN weekly e-newsletter
    Techtronic Industries (TTI) has reported a good first half for its 2015/16 financial year. This is despite some drag on profits due to currency exchange fluctuations, and an admitted mistake in adapting to new regulations in the European sector of its floor care business.

    Sales for the half were US$2,474 million, up by around 10% on the previous corresponding period (pcp), which was the first half of 2014/15.

    Gross profits increased by around 12% to US$881 million over the pcp, indicating an increase of 0.6% in gross margin, to 35.6%. Net profit increased by around 16.5% over the pcp, to reach US$159 million.
    TTI FY 2015/16 first half

    In local currency terms, excluding the effects of currency exchange rate fluctuations, sales increased by 14.4%. The company also reports a general increase in its productivity, which it measures directly in terms of the number of employees. Despite the improvement in sales, staff increased from 20,355 to 20,964, a 3% lift.

    The company's CEO, Joe Galli, particularly emphasised the importance of the increase in gross margin during his comments at the event to release results to investment analysts in Hong Kong:
    Our gross margin was up yet again. Five years in a row 60 basis points from 35% to 35.6%. So we are growing like crazy but not by cutting price. Our competitors continue to react to TTI. They come up with promotions, they lower pricing to hold on to market share to try to grow their business. We're growing without cutting price, we're growing while our gross margin increases.
    ...
    We are capturing market share and growing while improving margin. Which means we're not lowering price to capture the market share. That is a key part of the TTI strategy.

    The company reports a robust market response to its products, and plans to continue to launch what it considers to be ground-breaking new products through 2015.

    Chief amongst these is its most well-known product, a M18 Fuel hammer drill, which has been revised to be smaller and lighter, yet produce 60% more torque. Other new products include a range of construction-oriented tools. The company also plans the European launch of a new, market-leading cordless drill/driver under its Ryobi brand.

    Mr Galli also emphasised that TTI is growing its commercially-based business in both power tools and floor care. In power tools, it has developed and brought to market tools for use in high-end construction and nuclear reactor maintenance. In floor care, the company has developed products uniquely suited to commercial use as well.
    Transcript

    If you would like to read the entire transcript of Mr Galli's remarks, HNN has made this available as an annotated PDF at the following link:
    TTI CEO Joe Galli transcript

    The audio recording of the investment analyst presentation is available at:
    Webcast of TTI investment analyst presentation
    Power equipment division

    The power equipment division of TTI accounted for 79% of its sales revenue, and grew by 16.7% during the half as compared to the pcp. In local currency terms, excluding adverse currency exchange fluctuations, it grew by 21.5%.

    In Australia, where TTI's Ryobi brand is distributed exclusively by big box home improvement retailer Bunnings, sales improved by 8.5%, and 19.4% in local currency terms.

    Mr Galli explained that when TTI first entered the Australian market in 2009, it was ranked at number five, but it has succeeded, he says, in becoming the top power tool company in this market.
    Milwaukee power tools

    World-wide Milwaukee brand sales grew by 24%, and in local currency terms it grew by 29% during the half as compared to the pcp. Mr Galli puts much of the success of Milwaukee down to products such as the Milwaukee Fuel power drill.
    So three years ago we launched the most important new product in the history of power tools. We called it Milwaukee Fuel. This was a cordless drill with a uniquely engineered brushless motor and advanced electronics package on board with the finest batteries ever created for power tools.
    This tool dramatically outperformed any cordless drills ever sold worldwide. We launched it three years ago, the sales of this product have been amazingly hard to keep up with.

    To drive future growth, the company is now releasing a new, revised version of that drill during the coming half:
    We're launching the next version, V2, of the Milwaukee Fuel cordless drill. The new Milwaukee brushless motor cordless drill is 10% smaller, it's lighter and it's 60% more powerful. It has 60% more torque than the one we launched three years ago. Plus it's 10% faster than the old unit.

    Mr Galli also covered some of the recently released Milwaukee products that he sees as driving market expansion. Many of these are high-end professional/industrial tools. For example, Milwaukee M18 FUEL Cordless Mag Drill 2787-22, is a uniquely designed drill for making large holes in steel beams.
    Milwaukee M18 FUEL Cordless Mag Drill 2787-22

    This is the first true cordless design for this kind of drill. Corded versions rely on an electromagnet to attach the drill press to a beam.

    The cordless Milwaukee version relies on the clever arrangement of a pair of permanent magnets in its base. One magnet is fixed, and the other is a round magnet that rotates. To attach the unit to a beam, the round magnet is rotated to align its polarity with the other magnet. To release, it is rotated to produce opposite polarity, and thus nearly cancel the magnet effect.

    Further details and a partial review of this product are available at the following link:
    Milwaukee M18 FUEL Cordless Mag Drill 2787-22

    Other products Mr Galli called out included the "Hole Hog" and "Super Hot" cordless tools for making the sort of large holes plumbers and electricians require. He also mentioned Milwaukee's already released Force Logic tools, which provided crimping and cutting facilities for commercial grade cables and plumbing, replacing what he termed "barbaric" hand tools.

    One of the more innovative directions Milwaukee is taking, according to Mr Galli, is with the integration of smartphone-based technology into the tools, in a programme labelled "ONE-KEY".

    ONE-KEY enables owners of fleets of Milwaukee tools to adjust the settings of those tools via a smartphone app. The same app enables them to monitor the settings and use patterns of those tools.
    If you're a commercial plumber and you have a thousand plumbers in your company you can take one iPhone and you can set the torque, the RPMs, the exact setting for every drill in the entire fleet all over the country all over the world, all over a job site.
    ...
    I can record the actual results of the of the users' performance that day. I can record precisely: did he crimp the wire to the exact tension level that is required for a fibre optic cable or for a complex and sophisticated installation?

    The company has a promotional video for the product:

    Ryobi power tools

    Mr Galli claims that Ryobi has become dominant in a number of markets around the world:
    Not only is Rybobi number one in the US and Canada, but in Australia and New Zealand it's now achieved the number one position, and in Western Europe this is the fastest growing brand by far in the DIY market for power tools.

    He outlined a number of new product launches planned for the second half of 2015/16. These include:
  • Finishing sander
  • Drain auger
  • Air compressor for tyres
  • Hand vacuum
  • Multi-tool
  • Outdoor weed-sprayer
  • Cordless drill-driver
  • Hand tools

    Mr Galli called the company's hand tools business "a fabulous success". He mentioned that the acquisition of the US level company Empire had gone well. The company will be launching new level products in 2016, which he says will advance the tool which has been left unchanged for over a decade.

    The Hart hand tool brand, which is of lesser quality than the Milwaukee brand, continues to do well.
    Floor care division

    The difficulties that TTI ran into with its floor care division during this half related to meeting new EU regulations for the power consumption of vacuum cleaners. An EU directive that came into effect in 2015 has mandated that the maximum power of vacuums should be 1600 watts.

    This is explained by the EU personnel involved as being designed to protect consumers. They claim that the degree of suction a vacuum cleaner produces is unrelated to the power of its electric motor. Others who profess some actual knowledge of the field, such as Frank Dyson of the eponymous UK company, would disagree.

    The result of the directive was that a large number of 1800 watt vacuum cleaners were ordered in 2014, resulting in a slump for 2015. Mr Galli also mentioned that the engineering development required to meet the new regulations proved more expensive than expected. As he explained, this was an episodic blip the company has already passed through.

    The end effect was that sales in floor care fell by 9.7% for the half over the pcp, or 6.6% excluding currency exchange fluctuations.

    The company now plans to release four new products in its VAX line for the European market, and four other products under the Hoover brand in the US. One product it has developed for both markets is the "lift off" cordless vacuum cleaner. The following is the UK ad for this product:


    TTI is also developing products for the commercial area of cleaning. Its new line of Hoover Commercial products includes the HushTone. The HushTone vacuum cleaners operate below set noise levels, making them more acceptable for applications such as hospitals and schools.
    Analysis

    In considering what shape successful power tool companies might take in the future, the TTI model would have to be on the list.

    TTI is an unusual blend of a company with a German founder and chairman, listed in Hong Kong, with major factories in the Pearl River Delta of China, run by an energetic, enthusiastic Italian-American.

    It is a dynamic hybrid combination which is achieving results right across the board: new, very innovative products with a reputation for strength and reliability; Silicon Valley-like constant new product development cycle; integration of high-tech with high-end mechanical design; constant cost reduction; and an approach to world-wide sales and distribution that is savvy enough to take on tough market challenges, but also avoid geo-political risk (eg., Russia).
    Careers
    International appointments
    Hillman Group has appointed a new CEO
    HNN Sources
    Do it Best will gain a new president and CEO
    Spectrum Brands has a new leader for its hardware & home improvement division
    Visit the Mecca Website
    Fastener distributor Hillman Group has a new CEO; long-time CEO of US-based Do it Best Corp has announced plans to retire; and Spectrum Brands appoints a new head for its hardware & home improvement division.
    New CEO at Hillman

    Gregory Gluchowski Jr. will become president and CEO of Hillman Group, effective September 8. Gluchowski succeeds James Waters, who announced his plans to retire after a 16-year career with the distributor of fasteners, key duplication systems, engraved tags and related hardware items in April. Waters has been CEO spot since July 2013, after taking over from Mick Hillman.

    Gluchowski was previously president of hardware and home improvement of Spectrum Brands Holdings, a former division of Stanley Black & Decker. During his time leading HHI, Gluchowski grew sales by 50% and more than doubled EBITDA. He has an MBA from Indiana University and an undergraduate degree from Purdue University.

    Hillman chairman Doug Cahill said in a statement: "Greg Gluchowski is a world-class executive with a proven history of serving customers and driving growth in the hardware and home improvement industry. He has the ability to fuel sustainable, profitable growth through innovation, operational excellence, acquisitions, change management, and inspiring leadership."
    Gregory Gluchowski Jr. is the new president and CEO of Hillman Group
    Do it Best CEO to retire

    Hardware, timber and building materials co-op, Do it Best Corp. CEO Bob Taylor will retire in January. The co-op said current executive vice president and COO Dan Starr will succeed Taylor as president and CEO. The company said: "Taylor has served the past 13 as president and CEO of Do it Best Corp. He joined the co-op in 2001 and led the launch or expansion of numerous key member-focused programs during his tenure, while also strengthening the co-op's financial standing and overseeing an unprecedented period of consistently high member rebates."

    Starr will become only the fifth president and CEO in the co-op's 70-year history. He joined Do it Best Corp. in 2005 as the director of human resources and general counsel and was named vice president of human resources the following year.
    Do it Best Corp. CEO Bob Taylor is retiring
    Spectrum Brands' installs new HHI leader

    Spectrum Brands Holdings announced that Phil Szuba will head up its hardware & home improvement (HHI) division. A 24-year industry veteran, Szuba joined HHI in May 2008 as vice president - engineering and was promoted senior vice president - global technology and operations in January 2014.

    Prior to joining HHI, he served as director and general manager of Avdel North America for Avdel Fastening Systems, a unit of Acument Global Technologies. Spectrum Brands CEO, Andreas Rouve said: "Phil has demonstrated outstanding operating and technical leadership during his seven years with HHI, and he will play a key role in expanding and streamlining HHI's global manufacturing and supply chain footprint, accelerating the division's robust new product development program and driving organic growth.

    "His deep engineering background and experience is especially important given the increasingly more complex technology and manufacturing advances in the global hardware industry."

    Szuba earned a Bachelor of Science degree and Master's degree in mechanical engineering and a Ph.D. in systems engineering from Oakland University. He holds 12 US and numerous foreign patents and is a registered professional engineer.
    Products
    Transportation tray for tradies
    The Rhino-Rack Pioneer Tradie Tray carries tools and equipment for tradies
    Rhino-Rack
    It is crafted with reinforced nylon and aluminium for extreme durability
    The Tradie Tray is compatible with a large range of accessories
    Click to visit the HBT website for more information
    The Rhino-Rack Pioneer Tradie Tray is an ideal way for tradies to carry a wide variety of gear on the roof of a vehicle.

    The open front and back end means they can easily load ladders, planks, pipes and other long objects that require extension beyond the tray. It can also easily fit other work tools.

    Built as tough-as-nails, the Tradie Tray is crafted with reinforced nylon and aluminium for extreme durability. Featuring fully-welded side rails to make loading and unloading easier, the tray is also non-corrosive so it won't rust or fade.

    Rhino-Rack have also ensured that the Tradie Tray is compatible with a large range of its accessories. They include the Rhino-Rack Rear Roller which makes loading ladders and planks onto the tray a breeze. A major feature is the C-Channels built into the planks, which are suitable for mounting eye-bolts and offer flexibility for carrying different types of loads.
    Bigbox
    The Home Depot results FY 2015 Q2
    The Home Depot results for second quarter FY2015
    The Home Depot
    Sales versus earnings per share (diluted)
    Hot product for 2015: DeWalt MAX cordless mitre saw
    Click to visit the ITW website for move information
    US-based big-box home improvement chain The Home Depot (HD) has produced a good result for the second quarter of its FY 2015. This is despite the moderate pace of the recovery in the US housing market.

    Sales were US$24,829 million for the quarter, a 4.3% improvement over sales for the previous corresponding period (pcp), which is the second quarter of FY 2014.

    Net earnings also improved, up 9% on the pcp, coming in at US$2,234 million. This was driven by the highest number of sales recorded for a quarter by HD, 420.4 million, and an increase in the average per-ticket amount to US$59.42, a 1.7% rise over the pcp.
    Home Depot results 2015Q2

    The first half of 2015 showed a general improvement as well. In comparison with the first half of FY 2014, sales were up 5.1%, and net earnings were up 11.2%. Expenses related to the 2014 data breach of HD's payment systems cost US$92 million for the quarter pre-tax. A pre-tax gain of US$144 million was recorded for the sale of its remaining stake in HD Supply Holdings.

    The comp (like-for-like) sales for both HD overall and its US operations grew less during the quarter than during the pcp. Comp sales for US stores grew by 3.5% in May, 5.1% in June, and 8.2% in July, and provided an overall comp sale growth rate of 5.7%. US stores comp sales growth was 6.4% in the pcp.

    Online sales continued to grow. These increased by 25% over the pcp, and now represent 5% of HD's total sales.
    Forecast results

    HD has lifted its estimate for sales in FY 2015. This is based on its current performance exceeding expectations, and its acquisition of Interline Brands, which is due to be completed in the next quarter.

    HD's chief financial officer, Carol Tome, indicated that Interline is expected to generate around US$750 million in sales during the remainder of FY 2015. HD now forecasts that overall sales will grow between 5.2% and 6.0%, while comp sales will grow between 4.1% and 4.9%.

    Ms Tome mentioned that the ongoing recovery in the housing market was helping to boost sales. She said that spending patterns were shifting from seeing houses as an expense to regarding them as an investment. She also highlighted the ongoing increase in household formation in the US market.
    Category performance

    During its results presentation to analysts, HD provided more detail on how individual categories had performed. Tickets (sales transactions) above US$900 grew by 6.3% over the pcp. The cause of this was increased sales of appliances, water heaters, windows and riding mowers, according to Edward (Ted) Decker, HD's executive vice president of merchandising.

    Mr Decker called out the Cub Cadet tractor as a particularly as an item with good performance during the quarter.

    In response to an analyst's question during the results presentation, Mr Decker mentioned that it was consumer rather than pro sales that contributed more to the increase in big ticket items:
    The consumer business performed very well in Q2 and really was the driver of our ticket performance. So appliances was very strong again and that was driven by our Red, White and Blue event around the Fourth of July. The stores really get behind this and drive the business, and I think that's a distinction for Home Depot. Our kitchen and countertop business likewise was very strong in the quarter.
    I mentioned flooring. We saw strong sales across the flooring category, but particularly in hard surface. And then we even saw things like special order window coverings as we leverage the Blinds.com acquisition. We are seeing nice sales out of Blinds.com platform and the work they've done for our business in The Home Depot is driving that business.

    Mr Decker outlined the following categories as outperforming:
  • Appliances
  • Tools
  • Plumbing
  • Decor
  • Lighting
  • Kitchen & bath
  • Hardware
  • Flooring

  • Additionally, he pointed to the heavy end of the pro categories as delivering a strong performance, including power tools, commercial lighting, flooring tools, and power tool accessories.

    Mr Decker mentioned millwork, building materials, indoor garden, electrical, timber and paint as all performing less well during the quarter.

    In response to an analyst's question, HD's CEO, Craig Menear, said that the competitive situation had changed little, though he did also call out paint as being a very competitive area at the moment.

    As is his habit, Mr Decker took the opportunity of the results announcement to highlight his expectations for forthcoming new products. He is enthusiastic about the prospects of the 20-volt MAX cordless sliding mitre saw made by DeWalt, citing its light weight as an advantage for the pro customer.

    He also mentioned a new LED Smart Downlight which integrates with HD's Wink home automation system, and offers colour tuning through its associated mobile app.
    Online

    During his introductory remarks to the presentation of the results to analysts, Mr Menear outlined how HD's development of interconnected commerce was developing:
    We remain on a journey to build out interconnected capabilities to meet the customers' changing needs. We had another quarter of strong growth in our digital assets with dotcom sales growing approximately 25%, led by online orders picked up in the store through Buy Online, Pick Up In Store (BOPUS); and Buy Online, Ship to Store (BOSS).
    At the same time, our operations team remains focused on improving the interconnected customer experience in the store. And as a result, we saw another quarter of year-over-year improvement in customer satisfaction scores for our BOPUS and BOSS offerings in the second quarter.

    HD has now completed the development of the third of its distribution centres dedicated to online delivery logistics. In response to a question from a Citigroup analyst, Mark Holdfield, the executive vice president for supply chain & product development, explained some of the reach and complexity of these logistics:
    The thing to keep in mind about The Home Depot is, in addition to the three direct fulfillment centers, we have 2,000 stores that are conveniently located, and we're working on delivery capability from the stores. So we look at the stores to really be the expedited capability to put product in the hands of customers. We think that these three will do us fine as we look to get the second day delivery of parcels.
    Home automation

    In response to an analyst's question, Mr Menear and Mr Decker described HD's approach to home automation. It is a focus based on products, and those products are about delivering specific advantages to customers. Mr Decker mentioned examples such as being able to remotely reduce water heater temperature remotely and adjusting the colour temperature on LED lighting.

    Mr Menear suggested that in the future more standard products will integrate automated features. He also confirmed that the customers for home automation products were the standard HD customers expanding their purchasing range, and not a new customer base.
    Interline Brands

    HD provided further detail about its reasons for acquiring Interline Brands, and how its operations will connect with the rest of HD. Interline is what is known as an "MRO" company, with the acronym standing for "maintenance, repair and operations".

    The company has expertise in servicing the hospitality, multifamily (medium- and high-density dwellings), and institutional markets. Mr Menear said that its acquisition would see HD acquire a new set of customers, and also expand the range of products that can be sold to its existing customers, through offering single-home MRO services.

    In response to an analyst's question, Mr Menear expanded further on this:
    So from a strategic standpoint, we think about Interline and the capability to really take an end-to-end approach with our customers. In today's environment, we have the ability in many of these faces to handle the remodel portion of the business. But don't do as well on the maintenance and repair portion.
    If you think about Interline, they actually do that side and don't have the capability to do the remodel. So we can take an end-to-end look at how we service the customers and grow our share of wallet with them overall.
    Analysis

    While Home Depot continues to perform very well, there is also a growing sense of unease about its strategic objectives. The one slightly chilling statement in the analysts' call was Mr Menear's confident and satisfied reply when asked by an analyst if the company's home automation products were attracting a new market or being bought by the existing market:
    Same customers finding this new product to be very convenient.

    The drive for Home Depot over the past five years has been to get back to the position it was in before the GFC, and its language indicates it sees the market itself in those terms.

    It is perhaps worth remembering that important events such as the smartphone revolution took place after the GFC. It's just not the same world anymore, and in seeking true growth, Home Depot should perhaps be spending more time on developing new markets.
    Acknowledgement

    HNN would like to sincerely thank and acknowledge the contribution of the Seeking Alpha financial analysis website. Seeking Alpha makes the transcripts of conference calls available to reporters and analysts across the internet for limited republication. It is a great contribution to enhancing online media.

    If you would like to view the complete transcript of the Home Depot conference call please use the link below:
    Home Depot 2015 Q2 conference call

    To see a list of the considerable number of earnings call transcripts Seeking Alpha has on offer, please use the link below:
    Seeking Alpha transcripts index
    Products
    Go anywhere, do anything multi-tool
    The MP600 from Gerber is considered the do-it-all tool
    Gerber
    It is available in black or untreated stainless steel
    The multi-tool is ideal for a worker in need of speed and precision
    Click to visit the HBT website for more information
    Designed for the unique needs of industrial facilities, hospitals, IT workers, miners and even the military, the MP600 is the do-it-all tool that provides safety and strength in the workplace. Able to handle almost any task big or small, this multi-tool is ideal for a worker in need of speed and precision.

    Constructed with tough stainless steel, the MP600's array of heavy duty tools gives users the capacity to work through a number of tasks easily. Along with the needle-nose pliers there are 14 tools to help them get through their workload with ease, including knives, screwdrivers and Tugsten carbide cutters.

    Even with its solid industrial design, Gerber has ensured that all of its tools will work in the harshest of environments: the great outdoors. Components include:
  • Needle-nose pliers
  • Tungsten carbide insert cutters
  • Wire crimper
  • Fine edge knife
  • Serrated knife
  • Cross point screwdriver
  • Small, medium and large flat blade screwdriver
  • Lanyard ring
  • Can opener & bottle opener
  • File
  • Ruler
  • Tungsten carbide insert cutters
  • Ballistic nylon sheath
  • Patented Sat.T.Plus locking system

  • The MP600 is available in black or untreated stainless steel.
    News
    Hot links
    Nick Scali's new WA stores contributed it its latest profit result
    HNN Sources
    Restoration Hardware's latest range focuses on the teen demographic
    Makeup fridges could be the latest trend in whitegoods
    Click to visit the HBT website for more information
    An additional roundup of home improvement stories. Furniture retailer, Nick Scali's, net profit increased 20% for the full year ended June 30; Restoration Hardware targets teen with new range; a shopping hub in the US indicates the future of retail; and makeup fridges are the latest whitegoods "must have".

    For further information, simply click on the images provided.
    Local News
    Nick Scali gains from WA locations

    Net profit for local furniture retailer Nick Scali rose 20% to $17.1 million for the full year ended June 30, up from $14.2 million in the previous corresponding period. Sales revenue increased 10.1% from $141.4 million to $155.7 million, fuelled by same store sales growth of 3.4%. During the period, the company launched in Western Australia, opening a distribution centre and three new stores at Joondalup, O'Connor and Osborne Park.
    Nick Scali achieves a 20% profit increase
    International News
    Fancy furniture for teenagers

    US-based Restoration Hardware has a new retail concept called RH Teen that promises "tasteful, high-quality furniture" and home goods for teens. Items include furniture, lighting, linens and decor. They will be available online and at Restoration Hardware's new "design galleries", giant flagship stores that the company is opening in major North American markets.
    Restoration Hardware is launching a range for teens
    Neighbourhood reveals future retail trends

    A project in the Washington suburb of Shaw is shaping up to be a microcosm of some of the key trends embraced by retailers and developers who are eager to satisfy the preferences and spending patterns of millennials. This idea of turning shopping into a distinctive experience instead of a ho-hum errand is how many retailers have decided that brick-and-mortar shopping will remain relevant even as e-commerce offers vast choice and convenience.
    Future of retail developing in Shaw, a Washington suburb
    Makeup fridges: a cool new innovation?

    Fridges, long the preserve of the kitchen, are popping up in the bathroom. Designed in bijoux sizes of four-to-nine litres, and with temperatures ranging from 8C-12C (warmer than the recommended 4C temperature for food), the cosmetics fridge is the beauty world's equivalent of the jewellery box. Makeup fridges are also the latest luxury amenity that part of a high end property development in central London.
    Make-up fridges are a growing popular trend in whitegoods
    Products
    Showerhead claims to reduce water use by 70%
    The Nebia design evolved over five years
    Kickstarter
    The Nebia shower in action
    The Nebia compared to other standards
    Click to visit the HBT website for more information
    Technology is helping improve many aspects of everyday life, even in the bathroom. US company Nebia has launched a campaign on Kickstarter to fund the development of a new showerhead which, it claims, can reduce shower water consumption by 70%.

    As an added benefit, through using less hot water, the showerhead also helps to conserve energy.

    The product has won strong support, with funding on Kickstarter close to US$2 million on 18 August 2015. This far exceeds the original US$100,000 funding goal. Additionally, several well-known figures in the US technology industry have signed on to provide additional funding, including Apple CEO Tim Cook.

    The core technology behind the showerhead is what Nebia calls its H2Micro nozzle. Unlike standard shower nozzles (known as plain orifice nozzles), the Nebia version is designed to atomise the water into hundreds of small droplets. In doing so it draws on technologies developed for use in injecting fuel and providing efficient agricultural irrigation.

    Nebia has also used the same software developed for jet engine development, CFX by ANSYS, to model the product through computational fluid dynamics.

    The result, according to Nebia, is a showerhead that features a wider and more efficient dispersal of water. This can help create a more comfortable shower by providing the sensation of an encompassing surround of water, while using less actual water.
    Showerhead design

    To help cope with the common problem with efficient showerheads, the Nebia showerhead consists of an area of different types of nozzles. It comes with a range of settings, including "strength" mode, which yields higher velocity, larger droplets. This means that the configuration can be changed to cope with situations such as washing long hair.
    Nebia showerhead

    The showerhead and mounting have been designed by industrial design company Box Clever. This company has a wide range of tech industry clients including Swiss firm Logitech and Clip, which has developed an inexpensive swipe payment system for smartphones targeted at developing markets.

    The Nebia showerhead is a duplex device, providing a standard showerhead, and a shower wand. The main showerhead has an aluminium mounting channel which enables the head height to be adjusted by 67cm.

    The actual showerhead itself is made from high density polymer with thermoplastic polyurethane (TPU), and can be rotated from level to inclined by 45 degrees. The shower requires a minimum water pressure of 35 PSI to operate.
    Nebia wand

    The wand attaches at the base of the standard showerhead, and provides the means to direct additional spray while washing. The entire unit can be self-installed in very little time, according to Nebia, as it fits onto existing plumbing.
    Nebia installation video
    Funding

    Backers can pledge US$299 to receive a single Nebia (better options have already been fully subscribed). The product is expected to ship in May 2016.
    Nebia shower on Kickstarter
    Reports
    Social media usage by retailers
    How US home improvement guru Bob Vila uses Pinterest
    Retail Week
    Twitter followers of major Australian retail brands
    Home Depot makes creative use of Instagram
    Subscribe to HNN weekly e-newsletter
    UK retail specialist publication Retail Week recently teamed up with BirdSong Analytics to profile the way in which the UK's top retailers make use of social media. The companies profiled included fashion brands such as H&M, online retailer Amazon, supermarkets including Tesco, Aldi and Lidl, and home improvement retailer Homebase.

    The study can be viewed at the following link:
    Retail Week social media survey
    The survey

    Retail Week estimates that the value of global social commerce will be around US$30 billion in calendar 2015. The star performer for use of social media was fast-fashion retailer H&M. However, grocers Tesco, Aldi and Asda showed high performance as well. Automotive and outdoor retailer Halfords also performed well in terms of making its social media count.
    Twitter

    The overall conclusion from the survey is that while UK retailers are making considerable use of social media, they are missing opportunities.

    The following chart illustrates the number of followers major UK retail brands have:
    Twitter followers of major UK retail brands

    HNN has compiled a similar chart for a few of Australia's major retailers:
    Twitter followers of major Australian retail brands

    It's worth noting that the Woolworths' Twitter account shows no tweets. Big W last tweeted in August 2011, Bunnings last tweeted in February 2012 (the account's only tweet), and Masters Home Improvement last tweeted on 10 July 2015. All the other accounts show tweets during August 2015.

    Analysis by Retail Week indicates that most of the tweeting activity by the UK retailers is used as a customer response mechanism. Some 59% of the tweets are replies, 37% are retweets, which means only 4% are "proactive" tweets.

    Retail Week also notes that most of the tweets are made on weekdays during office hours. The survey makes the point that interacting with users when they are actually shopping, after-hours and on weekends, might be a more effective strategy.
    Facebook

    In terms of engagement rates, Homebase rates surprisingly high in its group, which is for brands with between 100,000 and 500,000 fans (Homebase has 236,000 fans). The survey indicates it has an engagement rate of 3.71%, beating companies such as Selfridges. In terms of pure engagement across all fan size categories, only Very.co.uk (online fashion site) and Poundland have a higher rate.

    As with Twitter, the survey suggests that most Facebook posts are made at times when they will have diminished effect.

    The survey also indicates that, in terms of likes and shares, videos attract the largest audiences:
    Facebook interactions based on post type
    Pinterest and home improvement

    The Retail Week survey did not cover Pinterest. Pinterest recently published an interesting account of how the US home improvement "guru", Bob Vila, has made use of Pinterest to help drive traffic to his website, BobVila.com.

    Pinterest is a site where users create "boards" to which they "pin" images. While it helps to have a home board, the strategy that works best for brands is to pin images to commonly-shared boards.

    According to the Pinterest article, BobVila.com used a range of analytics tools provided by Pinterest to help boost its referral rates from the social media site. The website quickly discovered that simply posting pictures of completed DIY projects did not work. What did work was publishing "how-to" tips, complete with picture and image.

    The Pinterest article provides as an example two images, one with helpful text, and one without:
    The test image without text
    The test image with text

    The image with the text delivered 150 times the results of the image without text.

    The company uses a testing system to develop its Pinterest content. It begins by posting the newest and most relevant content, then checks to see what is garnering the best response, and uses that information to help build more content.

    Pinterest also provides a scheduling tool named "Tailwind" to help make sure that posts are made at the best possible times.

    The following link is to an example of one of the pinboards developed by Bob Vila:
    Bob Vila pinboard on Pinterest
    Reports
    SiteReview: The design of small spaces
    The 1.8 metre wide house in Japan featured in Dezeen
    HNN Sources
    Milan apartment featured in Dezeen
    Stockholm apartment featured in Living in a Shoebox
    Subscribe to HNN weekly e-newsletter
    The design of small spaces is gaining more currency in Australia as escalating property prices cause more people to consider cutting down on the number of square metres they need to live in.

    There is a long European tradition of fitting more into less, but it is one which in recent years has received an additional boost from new technologies, new materials, and an interior design sensibility that makes it "OK" to mix and match different modernist styles.

    It is also a fertile ground for blogs and design sites. Here are a few that cover this area in interesting ways.
    Dezeen

    The website of the magazine of the same name, Dezeen follows a slightly quirky, future-centric vision of architecture and design. It is one of the rare publications in the interior/exterior design area that does not confuse big budget with good design, and frequently features clever, inexpensive means of bringing great design to small spaces.
    Milan dental studio converted into compact two-storey apartment

    This item covers the conversion of a dental office into a 60sqm apartment. This is a very interesting article, as it illustrates many of the techniques that can be used to make a small apartment more liveable and intimate rather than restricted.
    Milan apartment featured in Dezeen

    The kitchen is a virtual playbook of the kinds of architectural moves that can be made to made a small, multi-functional kitchen that is both stylish and functional.
    Kitchen in Milan apartment

    The compact, L-shaped design makes good use of the space, and notice the offset of the sink to the left to leave the window space more open. The cabinetry is designed to combined closed and open shelves for different uses. The simple table can serve both as dining area and additional food prep space if required.
    Tokyo house by YUUA Architects

    At the extreme end of small spaces is this building in Japan, where all the rooms are limited to just 1.8 metres in width.
    Skinny house in Japan

    The building makes extensive use of split-levels, eliminating the need to define formal rooms, and giving a sense of less bound space.
    Multiple views through different spaces
    Cate St Hill

    Ms St Hill is a London-based blogger who works as a journalist in the design field. Her choices are a little less frenetic than Dezeen's, but offer a quirky insight into urban design.
    Malmo shop/apartment

    Using something of the same design choices as in the Milan apartment, this converted Scandinavian shop manages to produce quite a different feel.
    Malmo converted apartment

    The kitchen uses the same L-shaped counter design, with a dining table instead of an island, but its style is quite distinctive.
    Kitchen in Malmo dwelling

    There is more space, of course. The square table is complemented with mismatched chairs, the storage is entirely concealed in one pantry area, and floor to ceiling windows provide light, a pleasant vista, and a seating/lounging area.
    Malmo dwelling window lounge area
    Living in a shoebox

    Dedicated to all things about "living small", this blog offers everything from product reviews to an eclectic collection of forms of recreational small living such as micro-caravans.
    Stockholm studio apartment

    The trick to one-room living is finding ways to integrate different multi-function areas. This apartment manages to do this without having the functional entirely overwhelm the aesthetic.
    Stockholm studio apartment

    One way to do this is to clearly define the purpose of each area inside the apartment.
    Spaces in Stockholm apartment

    It is very clear in this image where the sleeping, study/working and lounging areas are located. Note the clever wall mounting of the television, and the way the vertical and horizontal white struts tie together the chairs, the radiator and the ladder leading to the bed.
    Statistics
    ABS retail turnover for June 2015
    ABS data for hardware and building supplies retail turnover for June 2015
    ABS
    NAB online sales index for June 2015
    NAB Online Retail Sales seasonally adjusted
    Click to visit the HBT website for more information
    According to statistics from the Australian Bureau of Statistics (ABS), overall retail trade figures for June 2015 rose more than was expected by most economists. Retail turnover rose by 0.7% in seasonally adjusted terms, while economists had mostly predicted an increase of 0.4%, which had been the increase for May 2015.

    For household goods, retail sales rose by 2.2%, and for hardware and building supplies grew by 2.8%, in seasonally adjusted terms.

    Comparing the current turnover numbers for hardware and building supplies with those for the previous corresponding period (pcp), which was June 2014, overall Australian figures grew by 12.34% to $1.382 billion.

    South Australia produced the strongest growth in percentage terms, increasing to $77 million from $53 million, a rise of 45.54%. This follows six years of steadily declining June sales, starting in June 2009.

    New South Wales increased the most in dollar terms, to $391 million from $350 million, an increase of $41 million or 11.60%. Queensland grew by $37 million to $298 million, an increase of 14.38%.

    Only Tasmania showed a sales decline compared to the pcp. The state lost $3 million, falling to $31 million, an 8% decline.
    Online sales

    The National Australia Bank (NAB) Online Retail Sales Index reported good growth in online sales during June 2015. NAB reports a 2.4% increase for the month in seasonally adjusted terms. It estimates that online retail sales today are 10% higher than they were a year ago.

    NAB estimates that the total spent online in the 12 months to June 2015 was $17.3 billion. This equates to 7.1% of amounts spent at equivalent physical retailers during the same time period.

    Growth in online sales during June 2015 was particularly high in homewares and appliances, which grew at 25.9% on the pcp. "Daily deals" declined sharply, down 23.1% on the pcp.
    Bigbox
    Big box update
    Bunnings in Swan Hill has been sold for $10.95 million
    HNN Sources
    Bunnings is selling its yet-to-be-built Eastgardens store in NSW
    Ikea's North Lakes store in Queensland will open by Christmas 2016
    Click to visit the ITW website for move information
    Retired Adelaide doctor Prabhash Goel paid $10.95 million for the Bunnings store in Swan Hill (VIC); Bunnings to sell a new DIY warehouse which will soon commence construction in Sydney's eastern suburbs; and Queensland gets another IKEA store.
    SOLD: Bunnings in Swan Hill

    Private investor Prabhash Goel has purchased Bunnings Swan Hill for $10.95 million on a record low yield of 5.1%.

    Dr Goel, a retired doctor, also bought the Bunnings Ballina store in NSW last year for $21.3 million. He said he was very happy with his investment despite the low yield which set a "new marker" for the asset class. He told the Financial Review: "Wesfarmers is one of the best leases around for commercial property. The yield is low, But If you look around, good long term leased property is being sold on low yields."

    An experienced investor in commercial properties, Dr Goel said the Bunnings purchase had been "very highly contested" at the Burgess Rawson portfolio auction in Melbourne. The reason for its appeal, he said, was a combination of reputable brand, strong business model, a 12-year lease and the relative ease of managing a passive investment with low overheads

    The tenant will pay Dr Goel's family $558,450 a year in rent (ie. yield of 5.1%) which although historically low is significantly higher than residential rents.
    Bunnings sales hope for new warehouse

    The Financial Review reports that Bunnings expects to reap $50 million from the sale-and-leaseback of its Eastgardens store in NSW which has not been built yet. The sales campaign for Bunnings Eastgardens, a 14,760sqm warehouse development in Hillsdale, is expected to attract interest from local and offshore individuals as well as sovereign funds and institutional investors, according to exclusive selling agents Knight Frank.

    A sub-6% yield is tipped for the new warehouse, which will see Bunnings pay rental income of about $2.9 million over 12 years.

    Bunnings paid more than $18 million to acquire neighbouring properties and create the 2.3 hectare site on the corner of Denison and Smith Street, close to the Westfield Eastgardens Shopping Centre. Construction is due to commence in the next few months with completion in early 2017.
    Ikea opens second QLD store

    Ikea says its North Lakes store in Queensland is set to open in late 2016. Ikea Australia country manager David Hood told the Courier Mail the 29,000sqm Swedish furniture and homeware store was "on schedule to open by Christmas 2016". The North Lakes Times revealed in May that work had started at the site.

    Situated next to the Bruce Highway, behind Westfield North Lakes, Hood said commuters would start to see what resembled the "big blue box" of Ikea by the end of this year.
    Editorial
    John Dahlsen speaks out on Bunnings
    Retail turnover increases, but retailer numbers fall
    BRW
    The exits and entries from hardware retail
    The company John Dahlsen built
    Give to Amnesty International
    The well-respected hardware retailer John Dalhsen has chosen to air some of his opinions about the current state of the Australian home improvement market to Fairfax Media. Mr Dahlsen is the owner of one of Australia's largest independent hardware retailers, JC Dahlsen, and is a former chairman of Woolworths, and a former director of the ANZ Bank.
    Former Woolies chair John Dahlsen's attack on Bunnings is personal

    Mr Dahlsen has been quite outspoken about his concerns over concentration in a number of Australian markets, including banks and supermarkets. Crikey has an informative summary of his opinions on banks:
    Big banks in collusion, says former big bank director - Crikey

    His comments on the home improvement industry appeared in an article published on 13 August 2015. It's unlikely the timing of this is entirely accidental. The company results for FY 2014/15 will be released by both Wesfarmers (owner of Bunnings) and Woolworths (owner of Masters Home Improvement) before the end of August 2015.

    It is a little difficult to determine in the Fairfax article written by Sue Mitchell what are Mr Dahlsen's expressed opinions, and what has been added and adduced by the journalist. Overall, the article contains some apparent self-contradictions, as well as some unclear calculations.

    At the heart of what Mr Dahlsen has to say, however, is a genuine and heartfelt concern that is felt by many independent hardware retailers in Australia. It is one that bears real consideration.
    The point-by-point

    To just look at the individual points expressed in the article (some of which belong to Mr Dahlsen):
  • Bunnings overstates the size of the home improvement market so as to hide the degree of its market power from the Australian Competition and Consumer Commission (ACCC)
  • The "core" hardware market is $29 billion, of which Bunnings has a $9.5 billion share, meaning it controls 33% of the market
  • An example is that Bunnings controls 40% of the paint market
  • This market situation causes independent hardware retailers to exit the industry, or to sell out to Bunnings, Masters or Mitre 10
  • This has increased in recent times as Bunnings is entering smaller markets
  • Australia desperately needs another major hardware retailer to counter the influence of Bunnings
  • Masters could have provided that alternative, but, while the opportunity was there, failed to execute strategically

  • The apparent contradiction in these statements is that Mr Dahlsen is reported as being concerned about the demise of small retailers due to market concentration, but equally distressed that Masters did not succeed. It would seem quite likely that if Masters did succeed, and did gain larger market share, that small retailers would have suffered even more.

    The reason why the contradiction is more apparent than actual is that Mr Dahlsen's real point is about the concentration of market power held by Bunnings. His concern (as we interpret it) is that in some cases this enables Bunnings to act in a way that approaches the control of a monopoly.

    That is his own, personal experience, as he states he felt forced to sell a number of his consumer-focused retail stores, or face an impossible competitive situation with Bunnings.

    We will come back to this important point, but first let's go through some of the points above.
    The size of the hardware market

    One of the better sources for determining the size of the hardware market is the statistics produced by the Australian Bureau of Statistics (ABS). HNN would suggest that the category that best reflects the overall potential of the home improvement market is labelled by the ABS: "household goods retailer". This is what is included in that category:
  • Furniture retailing (4211)
  • Floor coverings retailing (4212)
  • Houseware retailing (4213)
  • Manchester and other textile goods retailing (4214)
  • Electrical, electronic and gas appliance retailing (4221)
  • Computer and computer peripheral retailing (4222)
  • Other electrical and electronic goods retailing (4229)
  • Hardware and building supplies retailing (4231)
  • Garden supplies retailing (4232)

  • Of these categories, the only two where Bunnings does not have some kind of significant presence would be manchester (ANZSIC 4214), and computers (ANZSIC 4222).

    IBISWorld suggests the revenue from manchester is worth $2 billion. IBISWorld suggests revenue from combined sales of computers and software is worth $5 billion. To be generous, let's say the (computer) hardware sales (to which 4222 refers) are worth $4 billion. Thus the two categories combined would be worth $6 billion.

    For FY 2014/15 total retail turnover in household goods was $49.65 billion. That would leave $43.65 billion as the market share of Bunnings. Just to be extra sure, let's deduct a further 5% from that number, to cover other categories that Bunnings will not participate in.

    That gives us a potential market size of $41.47 billion. Given Bunnings' projected revenue of $9.5 billion, that would give the company an overall market share of 23%.

    While that is a considerable market share, it's far less than the over 30% number quoted in the article, and is more likely to reflect the reality.
    The paint market

    It is difficult to discuss the degree of market concentration in the paint market, as these numbers are hard to find. However, we can start by saying that the figure of 40% provided by Mr Dahlsen would likely refer only to the consumer end of the paint market.

    As the CEO of DuluxGroup, Patrick Houlihan, has been at pains to point out in his last several results announcements, sales of trade paints through Bunnings accounts for less than 2% of top-line revenues.
    DuluxGroup produces strong 2014 results

    It is worth noting that whatever grip Bunnings has on the paint market has just as much to do with the performance of the Australian Dulux paint brand, with which the company has a close business relationship. As Mr Houlihan has also pointed out, this is the result of a careful development of that brand over the past 20 years.
    Misleading the ACCC

    This is actually a quite intricate area to look at. It is doubtful that anyone really thinks Bunnings' actions are intended to directly deceive the ACCC - after all, that organisation has access to lots of data the public never sees.

    What is really meant is that by proposing a large potential market figure, the public will be persuaded that Bunnings does not have such a large market share, and thus not place pressure on the ACCC to investigate the competitiveness of the industry.

    There may be a small degree of validity to that claim. However, the real reason why the managing director of Bunnings, John Gillam, is quick to highlight the size of the market - the length of the "runway", as he sometimes calls it - has to do with the financial analysis of Bunnings' performance.

    One of the ongoing concerns of analysts is that Bunnings will simply run out of market room. That "market room" doesn't refer directly to the overall size of each market, but rather to the proportion of the market that it is economical for Bunnings to capture.

    It is increasingly vital for Bunnings to expand into adjacent markets because it is more cost effective for the company to capture revenue from these newer markets than it is for Bunnings to capture more of existing markets.
    Bunnings and monopoly power

    Monopoly power in any market really relies on two separate factors. The first, obviously, is the size and reach of the major participant in that market. The second, less obviously, is the degree of consolidation in the market outside of the major participant.

    It seems fairly clear that independent hardware retailers in Australia have not really formulated effective representation for themselves, not even on a state level, let alone a national one. It is difficult to really know what to say about this. The retailers (and the suppliers) are a lovely rowdy bunch when they are together, not shy to express an opinion, but they seem to have difficulty forming an effective, united front.

    For example, it's hard to imagine independent retailers being able to get together to formulate and support a national campaign to promote their style of business.

    It would seem, then, that much of the apparent monopoly power Bunnings might possess in some circumstances has not so much been gained by that company, but rather ceded to it by its natural competitors.
    The decline of the independents

    That said, it is also evident that independent hardware retailers are coming under increasing pressure. The real rate of the decline of the independents is difficult to assess.

    Based on ABS numbers, for example, the rate of decline in the number of businesses with under $2 million per annum in revenue who identify themselves as primarily hardware and building supplies retailers from July 2012 to June 2014 is 5.8% for Australia overall.

    That's not a low number, but it is equally not all that high. To gain perspective on what it might mean, you need to look at how that number plays out against the performance of the hardware retail industry as represented by the retail turnover, on a state-by-state basis.

    In the graph below, the percentage increase in retail turnover for the period July 2012 to June 2014 is graphed against the percentage decline in the number of hardware retailers with under $2 million in revenue.
    Retailer numbers versus retailer revenue

    For most states, even as revenue increases, so does the percentage of retailers dropping out. This would seem to be a very clear indication of the degree of consolidation taking place for independent hardware retailers. (Note that the turnover has not been adjusted for inflation.)

    HNN has also explored this is in a previous editorial.
    Hardware business numbers falling, but not so fast
    Why it might not matter

    From the perspective of retailers competing with Bunnings as a retailer, the company can appear close to invulnerable. However, it is important to remember that it operates as part of the publicly-owned Wesfarmers.

    As part of a public entity, the pressure on Bunnings is not just to produce profits, but to produce annual growth on those profits - annual growth that meets forecast expectations.

    While Bunnings' expanded size is working well for it in current market conditions, any increase in fixed costs makes a company more vulnerable during a downturn in the overall economy or its own specific market.

    Working against Bunnings as well is that it and its parent Wesfarmers could not be described as an organisation entirely comfortable with technology. Bunnings is one of the few major retailers in Australia to not yet offer e-commerce. Other Wesfarmers divisions do, particularly Coles and Target, but there would seem to be few indications of integration of these operations.

    This is one area where Woolworths, with recent acquisitions and partnerships, is doing better than Wesfarmers. For the moment, it is not much of an advantage, but it could prove to be on in two or three years time.

    It is important to remember that while the version of Masters conceived by departing Woolworths managing director Grant O'Brien has failed, that doesn't mean this particular enterprise will not continue.

    Perhaps most importantly, the consumer end of the home improvement market has begun to change in some radical ways. Up until recently, what was at the core of it was the "tradie ideal" - a fascination with the process and technique of home improvement.

    For the coming generation, this makes less sense. There is more interest in simply completing projects as quickly and effectively as possible, with a minimum of fuss.

    To put that in some kind of perspective, think about what happens when JB Hi-Fi, in its HOME operations, starts selling Bosch or AEG power tools. To past generations, buying a drill from an electronics store would be anathema, but to today's generations this makes a lot of sense.

    Equally, of course, Bunnings is a very well-run company - even John Dahlsen describes it in the interview article as "a brilliant business, probably the best of its kind in the world". It may be equal to most of these challenges. But it will not be easy.

    Until next time,

    Betty

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

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    HNN iPad App
    Retailers
    Indie store update
    Kemp & Denning is exiting Mitre 10
    HNN Sources
    Mitre 10 NZ CEO Neil Cowie helped to induct members into the Hall of Fame
    Cooperative Business New Zealand recognises Mitre 10 New Zealand
    Click to visit the ITW website for move information
    Tasmania's Kemp & Denning has advised Mitre 10 that it will be exiting the group; Mitre 10 New Zealand inducts inaugural members into its Hall of Fame; and Cooperative Business New Zealand has singled out Mitre 10 NZ for its long-standing success as a co-op.
    K&D ends Mitre 10 relationship

    Kemp & Denning Limited informed its shareholders recently that it will "cease to operate under the Mitre 10 banner". In a letter to its shareholders that is posted on its website, the company says the decision was made following "a meticulous tactical and strategic review" of the business.

    This included "external research which clearly indicated that the K&D brand on its own resonates strongly" in the market to its customers. This decision will enable the business to continue to develop as a truly local independent brand within Tasmania. As a result it will trade on as K&D Warehouse in the Tasmanian market.

    K&D says the 25 year relationship with Mitre 10 has generally provided mutual benefits for both companies. The trade component of the business which operates under the banner of K&D Trade is unaffected by this decision.

    To read the full letter, please go to the following link:
    Kemp & Denning letter to shareholders

    HNN would like to thank an eagle-eyed reader who bought this story to our attention.
    Mitre 10 NZ Hall of Fame

    One past CEO and two veteran Mitre 10 owners have been inducted into a newly established Mitre 10 New Zealand Hall of Fame at the retailer's annual awards dinner, held recently at the Langham Hotel in Auckland.

    They include Mitre 10's first CEO Jim Mason, who established Mitre 10 in New Zealand, Reg and Helen Smith, who entered the Christchurch home improvement business in 1964, and Derek and Audrey Ricketts, who joined Mitre 10 NZ in 1975 and today own four stores along with their sons.

    The inductees were presented by CEO Neil Cowie to the 700 store owners, staff and suppliers in attendance. Cowie said establishing the Mitre 10 Hall of Fame was an important milestone for the co-operative. He said: "We believe it is timely as we head into our forty-first year of business to reflect and recognise the contributions these inspirational New Zealanders have made to create the Mitre 10 story.

    "We see induction into the Hall of Fame as recognition of continuous commitment to outstanding home improvement retailing in New Zealand, and for that we consider it the pinnacle of our Mitre 10 Awards."
    Co-operative award for Mitre 10 NZ

    Cooperative Business New Zealand has celebrated the success of some of the country's oldest co-operatives including Mitre 10. It has been acknowledged for its success and longevity.

    As chain of home improvement stores established in 1974, Mitre 10 has become New Zealand's largest home improvement and garden retailer. It employs 3,000 worker owners.

    Last year the United Nations named New Zealand as the world's most co-operative economy in a survey covering 145 countries. Chief executive, Ian Macintosh said: "Cooperative Business speaks for the many co-ops, large and small, which contribute so much to this nation's economy and attract international respect. Co-ops continue to prove they are modern businesses, efficient and competitive in a fast-paced market across many sectors.

    "Just as Mitre 10 is a symbol of our DIY culture, co-operatives are at the heart of our nation's DNA. We are better together, active in our local communities and driving our national economy."
    Statistics
    HNN Index for week ending 14 August 2015
    HNN Home Improvement Index for the week ending 14 August 2015
    HNN Sources
    Sunbeam owner GUD's net profit soared by 88% to $33.2m in the 12 months to June 30
    Westfield Group may be selling major stakes in two Chicago-based malls
    Click to visit the HBT website for more information
    The HNN Home Improvement Index for the week ending 14 August 2015 fell by 18 points to 975.62. The underlying ASX 200 index fell still further, down by 118 points to close the week at 5356.5.

    On the scale indexed to the HNN Index, it fell by 22 points to 996.6. This indicates that both indices are now below the level they were at on 1 July 2014.

    All was not bad news, however. Super Retail Group climbed by 5.9%, and JB Hi-Fi managed to gain an even 6.0%. Metcash lost most of its previous gains over the past weeks, falling by 9.0%, while Downer EDI also fell by 6.8%.
    Charter Hall Group
    Charter Hall pays $180m on project to house Aurizon

    Charter Hall Group will fund the $180 million development of a new office tower on the fringe of Brisbane's central business district. It is expected Charter Hall will forward-fund and then own the office complex that Consolidated Properties plans to develop at 900 Ann Street to accommodate the 20,000sqm of space that listed freight company Aurizon intends to pre-lease.
    Charter Hall pays $180m on project to house Aurizon - The Australian
    CIMIC Group
    Cimic Group's Leighton unit wins $267m Auckland contract

    Cimic Group's Leighton Contractors unit has won the NZ$267 million contract to upgrade Auckland's Southern Corridor to improve traffic flows on State Highway 1 between Manukau and Papakura. The project involves building about 11 kilometres of additional lanes, upgrading 16 bridges and constructing six new bridges.
    Cimic Group's Leighton unit wins $267m Auckland contract - Scoop NZ
    Goodman Group
    Demand for houses puts Goodman Group in box seat for land sales

    The booming housing market has delivered $1.1 billion in sales for the Goodman Group as it sells down non-core industrial land to residential developers. Goodman chief executive Greg Goodman said the group had sold only a fraction of its land for urban renewal and had enough to keep selling for the next 10 years.
    Demand for houses puts Goodman Group in box seat for land sales - Fairfax Media
    GUD Holdings
    GUD Holdings in good shape

    GUD Holdings management foreshadowed a "substantial uplift" in its profit for the upcoming year at its full year results in late July. GUD's net profit soared by 88% to $33.2 million in the 12 months to June 30, a result managing director Jonathan Ling attributed to freight and logistics efficiencies as well its joint venture with United States consumer giant Jarden Corporation.
    GUD Holdings in good shape - Fairfax Media
    Pact Group
    LiquiGlide partners up with paint packaging manufacturer Pact Group

    LiquiGlide Inc. has an exclusive agreement with Australian sustainable packaging manufacturer Pact Group Holdings. By implementing the patented slippery coating technology, Pact Group, will explore innovative new paint packaging solutions that will allow consumers to use more of the paint they purchase while reducing the environmental impact associated with residual paint.
    LiquiGlide partners with Australian-based Pact Group - Plastics Today
    Westfield
    Westfield sells stakes in two Chicago-area malls

    A group of investors is teaming up to acquire major interests in two local shopping malls owned by Westfield Group which has been paring back its US real estate holdings. Sources in the real estate department at Westfield, who asked not to be identified, say the company is selling a 79% stake in Westfield Hawthorn in Vernon Hills and a 49% stake in Westfield Fox Valley in Aurora.
    Westfield sells stakes in two Chicago-area malls - Chicago Business
    Products
    Beyond the IKEA-hack: Architect design
    Basis is the original design offered by Reform
    Reform
    The Henning Larsen Architects design for Reform
    The Norm Architects design for Reform
    Click to visit the HBT website for more information
    Danish retail company Reform has upscaled its system for making standard IKEA kitchens look more like custom-designed kitchens. It has done this by partnering with three Danish architectural firms. The new kitchen designs will launch on 1 September 2015.

    Reform will continue to supply its own Basis design, but this has been supplemented with designs from the Bjarke Ingels Group (BIG), Henning Larsen Architects (HLA) and Norm Architects (NA).

    Reform, which has a retail presence in Copenhagen, has been providing ways for Danes to upgrade standard IKEA products - kitchens, wardrobes, sideboards and bathroom furniture - since its founding in 2014. The principle is to take the structural elements of the IKEA design - the "carcasses" - and to provide different exterior surfaces.

    This change goes beyond just altering the colours and textures of the visible elements. In addition to transforming the visual presence of the kitchen components, alterations in the way components open and close add a unique functional aspect to each design.

    Here is a quick overview of the four styles Reform now offers:
    BIG design

    One of the main features of the BIG design is the use of car seatbelt material as the pull handle for drawers and doors.
    The BIG design for Reform
    HLA design

    A slightly differently coloured strip on each drawer and door indicates where they should be pushed to open.
    The HLA design for Reform
    NA design

    This design makes use of unusual materials for kitchens: fibre-concrete, bronzed tombac, sawn oak and smoked oak.
    The NA design for Reform
    &shufl

    Another Danish company that offers a similar service with a slightly different approach is &shufl (and shufl).
    The &shufl kitchen
    Companies
    Gardening supplier services female market
    Briers designs and distributes fashionable gardening gear
    Management Today
    Briers says it is the number one brand of gardening gloves in the UK
    Briers designs a kids range for the Gruffalo brand
    Subscribe to HNN weekly e-newsletter
    British entrepreneur Jackie Eades' gardening product business, Briers, is expanding at a fast rate. In 2013, the company had a GBP 5 million turnover. In the year to June, turnover already reached GBP 8.5 million. Briers designs and distributes gloves, wellington boots and other accessories.

    Eades has worked as a Body Shop store manager. Her decision to launch the business came after spotting a gap in the market for women's gardening gear back in 1999.

    In the early days, Eades took on various "consultancy jobs" to pay the bills and used a GBP 300 leads database from the Horticultural Trades Association to get things up and running. She told Management Today:
    From half nine til one o'clock I was absolutely flat out on the phone, then one til two doing admin, then back on the phone until five. Anything else that wasn't related to sales was done in the evening.

    Though Eades says Briers is now the number one brand of gardening gloves in the UK, the journey hasn't been entirely straightforward. She explains:
    We were growing incredibly fast and we went through a sticky cashflow period because one of our customers went into admin and we had another big bad debt at the time.

    As a result, the business had to be merged into another company (which Eades isn't allowed to name for legal reasons) until its financial position could be sorted out. But in 2009 Eades and her husband bought the company back and since then, it has grown substantially. She said:
    Once we had unmerged it we had learned a lot. Like most entrepreneurs you start out not knowing everything and we were very fortunate that our sticky patch led to very good things and put us in the strong position we are in today.

    Today's success is partly the result of a tie-up with the owners of the Gruffalo children's books brand. She said:
    When the people who did the licence talked to me at a trade fair, I was so keen because it was such a good book and it fits perfectly with the demographics of garden centres.

    Briers designed a range of kids outdoor clothes and gardening equipment to tie-in with the brand. Eades said:
    Sometimes things like that are important not just because of the revenues but for the fact that they draw attention to the range and give a point of difference.

    Though she's found success in the gardening trade, it's back in retail that Eades found one of her greatest inspirations, Body Shop founder Anita Roddick.
    Although she passed away a few years ago, she remains a tremendous influence in my life and what I do at the moment. She showed that you could - that you didn't need a high-achieving education, just a flare and passion for what you were doing and a good work ethic. And she constantly challenged the way the business world believed that she could do things, and didn't accept businesses practices that she didn't think were ethical.
    Companies
    Carter Holt Harvey pares back IPO plan
    Carter Holt Harvey downscales its plan for a share float
    Reuters
    CHH has a New Zealand retail building supplies chain called Carters
    CHH owner Graeme Hart has been named New Zealand's richest man in 2015
    Subscribe to HNN weekly e-newsletter
    New Zealand-based Carter Holt Harvey (CHH), owned by the country's richest man, Graeme Hart, announced it has revived a plan for a share float. But it has trimmed its scope and excluded Australian assets.

    CHH put an offer estimated to be worth up to NZ$1 billion on hold in June because of uncertainty about the earnings outlook of its Australian timber business.

    It said the latest plan was to float the New Zealand building supplies chain of 50 stores and nine building frame sites on the New Zealand and Australian bourses. There were no details on the size, value or timetable for the initial public offering. The company said in a statement:
    This well-established national network puts Carters in a strong position to capitalise on the continuing strong demand for new housing.

    A spokesman confirmed to Reuters the New Zealand wood processing operations and the company's Australian business have been excluded from the IPO, which is being managed by Credit Suisse Australia Ltd, First New Zealand Capital, Deutsche Craigs and Forsyth Barr.

    CHH has a New Zealand retail building supplies chain called Carters and manufactures wood-based building products in both that country and Australia. It is controlled by Hart's Rank Group, and said it would retain a significant stake in the floated company.

    Rank Group acquired CHH in 2006, when it primarily comprised significant forestry plantations used for timber and building products, pulp, paper and packaging. These have since been sold.
    Companies
    QLD pair create chalk paint range
    Mezzie and Frank chalk paint has its origins in Caloundra (QLD)
    Queensland Country Life
    The Mezzie and Frank range features unique Australian colours
    The owners want to sell the paint through small independent retail businesses
    Subscribe to HNN weekly e-newsletter
    Sunshine Coast duo Pam Burchill and Merran Tedman are behind Mezzie and Frank - a colourful range of chalk paint born in their Caloundra workshop, Shrine Furniture and Homewares.

    Both women were using existing brands of chalk paint in their upcycling business but became frustrated when they couldn't find the colours to suit the Australian environment and way of living. Tedman told Queensland Country Life:
    We were upcycling furniture of our own using chalk paint and we found we just didn't like the colours. We started to do some research and eventually found a small paint company in Sydney that is producing the paint for us.

    The Mezzie and Frank range features colours named after Australian icons including Pavlova, Uluru, Coral Trout, Rosella, Wattle, Daintree, Bondi, Noosa and Coal Mine.

    Burchill is no stranger to the business of retail, having run her own agency for many years. She's now using her network of contacts to find stockists for the Mezzie and Frank range, including Roma-based retailer Gifts at Teacup in Queensland. Burchill said:
    Our aim is to sell the paint through small independent retail businesses like Gifts at Teacup where the range can be a point of difference. We have been travelling around doing workshops with our suppliers and their customers, teaching people how to use the paints.

    The attraction of chalk paint, according to Tedman, is its simplicity. The only sanding required is a light sand between coats and every piece is finished with a light wax to create a chalky matte finish. She said:
    It's instant gratification. It's never a four day project. You don't spend hours sanding - you just start painting straight away. You can use the paint over almost every surface - wood, metal, laminate, and cane. It's just perfect for people who want to give something a fresh, new look without having to buy a heap of new furniture.

    Tahnee Holland, from Gifts at Teacup in Roma, has co-hosted three paint workshops with Mezzie and Frank in recent months and said the range had been popular. She said:
    It wasn't something that I had used before but I loved the fact that it was so simple to use and the colours are amazing. People are having a lot of fun with it.
    Companies
    James Hardie results FY 2015-16 Q1
    James Hardie results for the first quarter 2015/16
    James Hardie
    Raw EBIT and adjusted EBIT Margin for James Hardie
    Visit Seeking Alpha for a complete transcript
    Subscribe to HNN weekly e-newsletter
    Results for the first quarter of James Hardie's 2015/16 financial year showed growth in its US operations and a slight decline in the numbers for its Asia-Pacific operations, partly due to the decline in exchange rates for Australian dollars to US dollars.

    According to statements by James Hardie, market performance was in general somewhat subdued during this quarter. Most of the company's improved performance came from cost efficiencies in manufacturing.

    Overall the company commented that it believed it has managed to track the available market, but not grow market share during the quarter. The company estimates that its sales are driven 60% by the renovation and remodelling (R&R) market, and 40% by the new construction market.

    Total net sales were US$428.3 million, up 2.76% from the previous corresponding period (pcp), which is the first quarter of 2014/15. US and Europe net sales of fibre cement were US$337.0, up 4.82% on the pcp, while Asia-Pacific fibre cement sales were US$91.3, down 4.20% on the pcp.
    James Hardie results 2015/16 first quarter

    A fall in asbestos adjustments from US$21.5 million to US$4.5 million in the pcp helped lift the company's earnings before interest and taxation (EBIT). Total EBIT came in at US$84.5 million, up from US$50.4 million in the pcp. Adjusted for legacy costs including asbestos and other elements, EBIT was US$89.7 million, up from the pcp adjusted EBIT of US$71.2 million.
    Australian market

    In his opening remarks at the presentation of the results to investment analysts, the company's CEO, Louis Gries, described the activity in the Australian market:
    Asia Pac business obviously operate in a good market, all of the increases in housing meeting in the medium density that you've seen in Australia doesn't necessarily play to our strengths but we're still on a good market in Asia Pac. That goes for the Philippines and New Zealand as well in local currency - I'd say 15% volume of plant 5% price.
    Of course in US dollars EBIT doesn't look good but Australian dollars it does, a point I think it fills the top line that there is no leverage against top-line and the only thing I want to point out is they don't get the same input cost benefits the US does because they buy pulp in US dollars.... So it's been a very positive result for the Australian business.
    Impact of exchange rates for the quarter

    The continued development of James Hardie's manufacturing facility at Carole Park in Queensland is expected to have a big impact on sales in the future. In response to an analyst's question about margins in Australia, Mr Gries responded:
    I mean in Australia what I do think they have is an opportunity with a lot more capacity now to really grow the business quicker than we have over the last five-six years which having them back that's why we built the new capacity is because we've grown the business against the market index. Now many guys know your markets been on fire down there so part of it is the market being pretty hot but I think Australia is way forward next five years to grow market share against alternate products.
    Raw EBIT and adjusted EBIT Margin for James Hardie

    Mr Gries expanded further on his views of the Australian market in response to another analyst's question:
    The market in Australia has been very good obviously for the last several years and it's been very hot. A lot of the growth has come from high density and multifamily type as well as single family residential and so we don't -- obviously our market index is a bit different just given that we're more weighted towards low rise as well as weighted towards single family. So we don't experience the same kind of market index the headline numbers do. I think the other factor is a little bit of regional mix and where we're stronger in certain states versus other states.

    He went on to clarify that James Hardie sees itself as being stronger in Queensland and New South Wales than in other states and territories.
    Acknowledgement

    HNN would like to sincerely thank the investment website Seeking Alpha for enabling HNN and other websites to make use of its earnings call transcripts. It is a generous way to help improve the quality of company reporting online.

    To read the complete transcript of this earnings call on the Seeking Alpha website, please follow the link below:
    James Hardie Industries' CEO Louis Gries on Q1 2016 Results - Seeking Alpha

    Seeking Alpha makes available a list of its most recent earnings call transcripts at the following link:
    Recent earnings transcripts - Seeking Alpha
    Retailers
    JB Hi-Fi 2014-15 annual results
    JB Hi-Fi results for FY 2014/15
    JB Hi-Fi
    JB Hi-Fi EBIT and store composition
    Revenue and growth factors for JB Hi-Fi
    Click to visit the ITW website for move information
    The FY 2014/15 results from entertainment, electronics and appliance retailer JB Hi-Fi were warmly received by analysts and the sharemarket.

    Revenues came in at $3652.1 million, up 4.83% on the previous corresponding period (pcp), which was FY 2013/14. Earnings before interest and taxation were $200.9 million, up 5.1% on the pcp. The company has forecast revenues of $3850 million for the coming financial year, 2015/16, a prospective lift of 5.42%.
    JB Hi-Fi results FY 2014/15

    The tale of what has happened at JB Hi-Fi can be told in three relatively simple graphs. What the company has aimed to achieve under the leadership of its current CEO, Richard Murray, is to perform a gradual pivot.

    Since 2012, it has worked to replace its former profitable lines of what the company calls "software" - music CDs, movie DVDs and video game media - with sales of appliances.

    The reason why this was so critical to achieve can be seen in the following graph:
    Software revenue share for JB Hi-Fi

    As this shows, the share of revenue held by software fell from close to 28% in 2010 to less than 17% in 2015. It would likely not be an overstatement to suggest that 11% drop would translate into around 20% effect on profits, due to the high margins on this kind of software.

    The next graph shows how JB Hi-Fi responded to this situation, and the effect this had on its profitability:
    http://hnn.bz/jbhifiEbitRetail.png

    The EBIT takes a dive in 2012, but as the JB HOME stores are added to the mix, EBIT begins to recover. Effectively, JB Hi-Fi extended its sales of entertainment electronic equipment to home appliances, which carried a better margin.

    For FY 2015/16 JB has announced a further extension of its HOME branding. The annual report informs us that the HOME stores require an additional 400 square metres of floorspace, bringing the average store size to 1750 square metres.

    In the coming financial year, JB will be converting 16 stores into HOME stores, and adding a further five new HOME stores as well. JB estimates that each HOME store will, on average, produce $3 million in revenue in its first year of operation, then move up to $5 million a year as it matures.

    JB has also announced it will continue its program of introducing small appliance sales into existing JB Hi-Fi stores. This has been trialled with four stores, and will be expanded to a further 14 stores by November 2015.

    The final graph is the more complex than the other two:
    Revenue and growth factors

    This graph illustrates the reasons why investors and analysts are interested in JB Hi-Fi. The brown line, representing the rate of growth in revenue, kicks upward based on forecast sales for 2016, indicating that the slowing rate of growth has been reversed.

    The white line illustrates same store sales, showing that the base has firmed over the past two years. The light blue line illustrates the rate of growth in store numbers. It, too, has steadied over the past two years. It is a classic situation for a company that will likely experience good growth in the immediate future.

    That said, there are a few interesting uncertainties about JB Hi-Fi. For example, the company's streaming service, which began with music then extended to eBooks and other content, may need to be shut down in the near future.

    While JB does not break out its revenue numbers, one suspects it is not doing very well. In the 2014 annual report it is mentioned as a component of the company's digital strategy. In the 2015 annual report there is only a single, brief listing of its existence.
    Analysis

    Both JB Hi-Fi and Dick Smith Electronics are heading into territory that belongs to the expansion area for home improvement. In the case of Dick Smith, this encompasses connected home electronics. JB Hi-Fi has been competing for some time in the large appliance area, but is now stepping up its game in smaller appliances as well.

    One of the prime advantages that JB Hi-Fi has is that its base products have long required a fairly knowledgeable staff. It has the processes and procedures in place to sell more complex products, and it has floor staff trained to offer discounts and deals to clients.
    Products
    Creating an architectural style fence
    SlimWall is a composite panel product made from strong fibre cement sheeting
    SlimWall
    SlimWall incorporates AcoustiMax panels which have proven noise barrier qualities
    Modular Wall Systems is the manufacturer of SlimWall
    Click to visit the HBT website for more information
    Most important when it comes to pool fencing is making sure that the fence complies with the strict council laws that govern the installation of pool fences. At a minimum, the fence must be 1.8 metres high from the pool coping or 1.2 metres high around the freestanding pool perimeter.

    Choosing a product like SlimWall[tm] means that the fence will not only exceed the minimum height requirement imposed by councils, but will also have a smooth non-climbable surface with no "good" and "bad" side.

    This is an important consideration as, by law, the "good" non-climbable side of a timber fence must face the neighbouring property, leaving pool owners with an unappealing look around their swimming and entertaining area. With SlimWall, this is not an issue.

    Pool fences can also be susceptible to excessive moisture. The impact of a beautifully landscaped pool can be quickly diminished by rotting timber or buckling metal.

    SlimWall is a composite panel product made from strong fibre cement sheeting that will withstand the test of time and comes with the added benefit of acoustic qualities.

    The poolside noise often generated by young families or visiting friends can impact on the neighbours. SlimWall incorporates AcoustiMax panels which have proven noise barrier qualities that deliver a 20dB+ or four fold audible reduction in noise levels.

    Modular Wall Systems, manufacturer of SlimWall, has been partnering with pool builders and residential home owners for more than twenty years and understands the value of a safe and stylish fence for pool zones.
    Bigbox
    Lowe's remakes website for pro customers
    LowesForPros.com has been re-designed with feedback from Lowe's pro customers
    Charlotte Observer
    The upgraded website allows orders to be delivered to businesses or job sites
    LowesForPros.com aims to attract and retain professional customers
    Click to visit the ITW website for move information
    Lowe's has revamped its LowesForPros.com site in an effort to attract and retain professional customers.

    The home improvement retailer said it used feedback from professional customers to test and launch the improved site.

    It developed LowesForPros.com to offer more efficient functionality, allowing pros to develop requisition lists, access purchase history reports and create custom catalogues. These catalogues enable customers, such as property management companies, to maintain their brand and design standards across multiple buyers and locations while saving time creating new orders.

    The website also allows pro customers to manage their spend by setting purchase approvals and providing the ability to process tax-exempt transactions.

    Conrex Residential Property Group, a Lowe's pro customer and involved in the single family rental aggregation space with more than 2,500 homes and growing by 200 homes per month, provided valuable insight along with other pro businesses during the testing phase of LowesForPros.com. Tyson Schuetze, director of renovations said:
    As a business, we needed more control over purchasing and reporting from field operations. We love the idea of placing orders conveniently online without having to go to the store...The catalogues help to standardise the look of our homes throughout our footprint. Email order confirmation helps our renovation managers in the field to manage budgets and stay organised.
    By being part of the testing phase of this new site, we were able to give suggestions and direct feedback, which made us feel that Lowe's really cares about the customer's needs.

    Lowe's has been stepping up its marketing to professionals for several quarters now. Although pros make up a relatively small portion of Lowe's shopper base, they generate a larger percentage of total revenue because they reliably and frequently place big orders. And the pro business is growing faster than the general home improvement market, according to Lowe's.

    The upgraded website lets shoppers to search for over 500,000 items, pick up online orders in-store or have them delivered to their business or job site, integrate their Lowe's account receivables information, and save 5% on purchases using a Lowe's Business Credit card. Mike Horn, Lowe's vice president of ProServices said:
    LowesForPros.com was designed by the pro, for the pro.

    Many young Americans are renting instead of buying a house. Lowe's management recently said the retailer is marketing to the professional customer because it sees an opportunity for growth in the current apartment-building boom.
    Products
    Cub Cadet makes steering easier
    The Cub Cadet RZT S42 features the Zero-Turn, 360-degree turning technology
    Cub Cadet
    The Cub Comfort deluxe high-back seat will provide additional comfort
    A 3-year/120-hour limited warranty is included in all Cub Cadet products
    Click to visit the HBT website for more information
    Ideal for acre blocks, the Cub Cadet RZT S42 features the innovative zero-turn, 360-degree turning technology, which allows the user to turn in a perfect circle, leaving no tall, thick or wet grass uncut. Combined with the easy-to-use steering wheel and four wheel-steering control, users will experience stability while mowing around obstacles on steeper and more diverse terrain.

    The RZT S42's super tough 42" twin-blade is designed for premium cutting and has the strength and rigidity to keep the high-lift blades from deflecting and flexing under heavy loads, severe conditions or high speeds.

    Built with a powerful 725cc, professional-grade Kohler electric start engine, the RZT S42 has a top speed of 11km/h, which allows a whole yard to be mowed quickly.

    Cub Cadet's Cub Comfort deluxe high-back seat will provide additional comfort. And the RZT S42's 10 litre fuel capacity means users will rarely have to jump off the chair until the job is done.

    A 3-year/120-hour limited warranty is included in all Cub Cadet products.
    Editorial
    Jigsaws II: the Ozito strikes back
    Introduction to Black & Decker's beginner's jigsaw
    HNN Sources
    The Ozito JSW-6100 jigsaw
    The Worx WX-472 jigsaw
    Give to Amnesty International
    The story so far: last week HNN took a look at the potential influence discount retailer Aldi might have on the home improvement market through its marketing of heavily discounted power tools. The tool we chose to highlight was Aldi's Workzone jigsaw, on sale for $30.

    We compared that jigsaw to a low-end Ozito model offered by Bunnings, which had been discounted, apparently to compete with Aldi, down to $28 from its regular price of $45 (where it has returned).

    As we mentioned in that article, it was our intention this week to expand the comparison and include two more jigsaws, one from the Worx range sold by Masters Home Improvement, and one sold by IKEA.

    On reviewing what we had written last week, however, we decided to add another jigsaw to the mix as well. HNN's concern was that last week's article could be read as being negative about this Ozito product, or even Ozito products in general.

    That is very far from what we think. Ozito is a very competent manufacturer of products designed for very specific market slots. What we were really describing was how different market segments were evolving.

    To make it easier to explore these points, we included the Ozito JSW-6100 jigsaw in our review selection. This is a very full-featured jigsaw that retails for $65. As such it is at least 30% higher priced than the other jigsaws in the group, but it also offers more features than any of them as well.
    Notes on testing

    We tested the jigsaws on three different wood sizes, using three different blade configurations. The first test was on 185mm by 19mm pine, using the wood blade supplied with each jigsaw. We then tested the saws on the same wood size, but using a Bosch manufactured blade specially designed for fast cutting.

    We tested the jigsaws using that same blade cutting through a dressed 2x4 (35mm by 70mm). Finally we tested the jigsaws cutting through a 235mm by 19mm pine board using a slower blade from Vermont American designed to produce a better cut.

    HNN did try out a few additional tests. Cutting through MDF proved so easy with all the saws, that it didn't seem worth including in the tests. Cutting circles and curves in plywood seemed very difficult to test conclusively.

    HNN will be supplying the full results of these tests, along with videos, later in the week. As we are more interested in looking at what these results reveal in a strategic and market segmentation view in this article, we'll be referring to the results qualitatively here.
    Ozito JSW-4000

    This is the 400 watt $28/$45 model HNN tested last week. Our new tests using third-party jigsaw blades did see this unit improve its performance, though it still remained disappointing when it came to cutting through the thicker 2x4 wood.
    IKEA Fixa

    This is an all but worthless tool. It retails for $40, which is not good value at all. It does come with a simple plastic case, but it is not especially well-designed.

    The Fixa is 400 watt like the Ozito JSW-4000, but has a single speed and an all-plastic body. Also like the Ozito, it does not provide any pendulum action to improve cutting speed. And like the small Ozito, it requires an Allen key to change blades.

    However, IKEA have managed to actually make this design nearly unworkable. The clear plastic guard over the cutting area cannot be removed, with the blade screws accessed through two narrow slots in that guard. When we unscrewed the screws too far, they became jammed behind the clear plastic.
    Worx WX-472

    This is an interesting jigsaw, using 550 watt. It retails for $49, but HNN managed, as many Masters customers do, to get it discounted down to $45. It features tool-less blade change, and a three-step pendulum action.

    Worx has made the interesting decision to not include a dust extraction port - which all the other jigsaws tested do have - and to instead provide a small chamber for blade storage.

    The Worx didn't quite keep up with either the Workzone or the larger Ozito jigsaw, but it did do a decent job of cutting quickly. Our one concern was that the cuts tended to be rougher than those of the Workzone and the larger Ozito.
    Aldi Workzone AUS8400JS

    The Workzone continued to perform well. In terms of sheer power it did seem to hold a slight edge over the larger Ozito on some tests.
    Ozito JSW-6100

    This is a very impressive jigsaw for the price. While we expected this saw to outperform the other saws we were testing, we didn't expect it to prove a real competitor in the $90+ class as well - which it certainly is.

    Priced at $65, the Ozito offers a wide range of features. To begin with, it comes in a sturdy plastic box. Like the Workzone and the Worx, it has three pendulum settings. Its variable speed is controlled by a well-positioned dial. The skid plate is plastic coated to help reduce marking of the surface of the wood.

    The parallel guide, also available on the Workzone and Worx jigsaws is far sturdier than the others. In addition to the dust extraction port, it also offers a dust blower facility. One of its best features is a lever-actuated tilt mechanism used to produce bevelled cuts.

    Beyond all that, this is simply a very smooth performer. Even where the Workzone jigsaw had a slight edge in power, the JSW-6100 had less vibration and was consequently easier to guide.
    Final comparison

    If we were asked to say which of the five jigsaws we tested provided the best value, we would, without hesitation, say the larger Ozito JSW-6100 is the winner. While it is more expensive, it offers significant features for the extra expense.

    In fact, we find ourselves encountering a paradox we have run into before: less experienced users tend to benefit more from the slightly more expensive tools. We saw that previously with mitre saws, where experienced users found the cheap, under $70 models offered by Bunnings and Masters very handy for building decks, as they could be easily carried around the work area.

    Less experienced users, however, benefitted from the more expensive models that offered laser cutting guides and other features.

    All that said, the Aldi Workzone AUS8400JS is outstanding value. While it lacks some of the finesse of the larger Ozito, it is for the most part equally capable.

    Outside of Aldi discounts, there is little doubt that in the less expensive range the Worx WX-472 is a better deal than the smaller Ozito JSW-4000. The pendulum action, better speed control and tool-less blade change lift it above the Ozito.
    Segmentation and strategy

    Stepping back from the actual tools themselves to look at the overall strategy at play here, what really is going on?

    The managing director of Bunnings, John Gillam, has said on more than one occasion that the Bunnings strategy is really not based on segmentation. One of the side-effects of non-segmentation strategies is that they have peculiar results when it comes to both ends of the broad markets to which they appeal.

    This can be seen very clearly in the case of these jigsaws. At the very lowest price point, Bunnings has what is essentially a pretty unappealing offering. Yet just one notch higher up, it has a very good offering.

    The reason for this is that in a non-segmentation strategy "good" products (ones that get support) must have a form of multiple appeal. The larger Ozito JSW-6100 has just that. It's a good beginner's tool, great for general light DIY, and might appeal also to the prosumer who is not that interested in jigsaws but needs one occasionally.

    Move one notch down, to the area of the Ozito JSW-4000, and the multiple appeal goes away. It is for someone looking for a cheap jigsaw, and that's about it.
    The change in the lower end of the market

    The difficulty with this aspect of the non-segmentation strategy is that the lower-end of the market is changing - and this is something that Aldi might have spotted before Bunnings, Masters, or the other home improvement retailers.

    That change relates to two areas: first, the lower end of the market has itself now become multiple, and second, it is now less an area of one-time purchases, and more an area of introductory purchases.

    In terms of the multiplicity of the lower end, there are now three groups at work there. The first is the newly emerging hobbyist market. Hobbyists are typically working on largely decorative, non-structural projects.

    Ten years ago, they would not have considered owning power tools for this work. Today with prices dropping and reliability improving, buying tools has become more common.

    The other two groups in this area are both forms of "light DIY". The first is the one that is most familiar to home improvement retailers. These are people who fairly constantly throughout the year perform maintenance work and small fixing up tasks on their homes. Their tool usage is fairly constant, but also un-taxing.

    The second group are quite different. They do very little DIY in general, but will perform quite complex tasks episodically. For example, they might do one serious project a year, usually over the summer holiday time. Or they may instead be very project focused, and every two years perform an intense bout of DIY, such as installing a new kitchen, or redoing a bathroom.

    As general DIY skills continue to diminish, the importance of the lower end of the market will climb. Offers such as those by Aldi are very appealing to this narrow segment, as it enables them to experiment, and to further develop their skills and capacities.
    The Black & Decker example

    This state of affairs is already well-acknowledged by some power tool manufacturers in the US. Black & Decker is one good example, and they have a jigsaw that clearly illustrates the approach needed.

    Ranked at number 15 in the best selling power tools on Amazon is the Black & Decker JS660 Jig Saw with Smart Select Dial, which retails at US$39. (It has been superseded by the BLACK+DECKER BDEJS600C 5.0-Amp Jig Saw which retails at US$35 on Amazon.)


    One of the major features of this saw is the "Smart Select" dial. Rather than displaying the number for the pendulum setting, the dial lets the user choose the kind of work he/she is doing - curves, straight, cutting through PVC pipe, and so forth. It offers not just the same features as the Ozito JSW-6100, but a better version of these features, as well as the blade storage of the Worx jigsaw. And it is aimed squarely at all the diverse segments of the low-end market.

    Effectively what it is, and the category it leads to, is the tool as appliance.

    Until next time,

    Betty

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

    To receive a daily dose of HNN, download the free HNNBrowser app from the Apple store:
    HNN iPad App
    Retailers
    Dick Smith's ConnectedHome expansion
    CEO of Dick Smith, Nick Abboud
    Fairfax Media
    Bita Lowry has extensive experience in electrical buying
    JB Hi Fi will expand its HOME concept
    Click to visit the ITW website for move information
    The home improvement industry is starting to show signs of convergence, as electronics retailer Dick Smith introduces its ConnectedHome concept.

    ConnectedHome will be a "sub-brand" featured in 85 Dick Smith stores in Australia, and 15 stores in New Zealand. The CEO of Dick Smith, Nick Abboud, said that if the concept proved successful the company might eventually open stores primarily dedicated to ConnectedHome.

    Initially the new concept will be added to two stores in Sydney during August 2015, with a more widespread launch in October 2015. The first stores will be in the Sydney CBD and Penrith.

    Most stores will dedicate 50 square metres of floor space to the new concept, while the 14 larger stores in the company's fleet will feature spaces of up to 200 square metres.

    By capturing part of this emerging market - sometimes referred to as the "Internet of Things" - Dick Smith hopes to find an area where sales margins will be more generous than those that apply to home entertainment devices.

    The sub-brand will be aimed at small appliances and other products that offer consumers the convenience of interaction through their smartphones. In an interview with Fairfax Media, Mr Abboud said this was the most radical shift for the company since it was spun off by Woolworths. Fairfax Media quotes Mr Abboud as saying:
    Just after Christmas a lot of suppliers will bring in products with apps - you won't have to press buttons on those products, you'll operate them through your phone or tablet or even get them on your smart TV...as we evolve that's where electronics will end up.

    As reported by Appliance Retailer, one of the key elements of the Dick Smith strategy has been the recruitment of Myer small appliance buyer Bita Lowry. Ms Lowry's career spans 20 years, beginning with her work as an electrical product specialist at Myer.

    She moved from there to a position as category buyer for home office and mobile, then spent brief periods as a buyer for cosmetics followed by photography and portable audio. She then became the category for appliances at Myer from May 2010 to January 2013. Her last role with Myer was as merchandise manager for Myer Online.

    Ms Lowry is highly respected in her field, and joined Dick Smith in July 2015. She has reportedly already had an impact by providing wide-scale training to 800 Dick Smith staff members at the company's recent conference and supplier expo.

    Mr Abboud himself spent 19 years working at Myer prior to joining Dick Smith.
    JB Hi-Fi in the game

    In making this play, Dick Smith is following the lead of companies such as JB Hi-Fi, which have recently expanded into appliances such as clothes washers and kitchen stoves. However, the company's approach plays to its strengths as having more of a technology rather than entertainment focus.

    JB Hi-Fi has also announced that it will be expanding its presence in small home appliances. The CEO of JB Hi-Fi, Richard Murray, has said JB Hi-Fi will add a small appliance section to 14 of its stores, and will add a further 21 JB Hi Fi HOME stores to its fleet, which will specialise in both large and small home appliances. Bosch will be one of the main brands featured.
    Home improvement competition

    Dick Smith's move also comes shortly after Australia's main big-box home improvement retailer, Bunnings, has announced it will carry the Belkin WeMo range of home automation products.

    For almost the first time, home improvement retailers and electronics retailers will be competing for a share of the same market.
    Analysis

    While these moves by both Dick Smith and JB Hi Fi indicate the start of market convergence around smart home devices, this market remains relatively unformed. JB Hi Fi is effectively going down a notch in its home appliance offering, while Dick Smith is expanding sideways from technology into home technology.

    Both of these companies are effectively performing corporate pivots. JB Hi Fi still relies on sales of products such as music CDs and video DVDs for some of its profits, areas that will be subject to further technological disruption over the next two years.

    Dick Smith suffers from increasingly thin margins on the tech products it sells. Online competition is intense in this area, and much of the spending on tech is shifting to mobile devices where competition is more widespread than in areas such as laptop computers.

    HNN believes that it will not be until near Christmas 2017 that general home improvement stores begin to more intensively feature smart home products.
    Editorial
    Has Aldi out-Bunningsed Bunnings?
    The Aldi catalogue page
    HNN Sources
    Bunnings strikes back - the Ozito discount
    Video comparing performance of two jigsaws
    Give to Amnesty International
    On Saturday 1 August 2015 Aldi put on sale a range of cheap power tools. These included a bench grinder, an angle grinder, an orbital sander and - significantly - a jigsaw. All were priced at $29.99. This special offer was promoted heavily by Aldi through medium-rotation TV commercials and a catalogue.

    Based on our research (and some speculation) it would seem that Bunnings responded rapidly to this promotion by Aldi. The retailer reduced its price on three equivalent baseline Ozito power tools to $28 from their previous $40+ range.

    On the surface, this is the kind of nimble response expected from Bunnings. However, it was much less effective than it could have been. This is due to problems with communication inside Bunnings, a lack of external marketing, and the design of the tools themselves.

    HNN does not think this is an "incidental" failure. In fact, as we discuss below, frontline Bunnings staff responded well to what was an unexpected situation.

    Rather HNN sees this as indicating more systemic issues. Some of those systemic issues apply directly to Bunnings, but most of them apply to home improvement retailers in general.

    What Aldi has done - unintentionally - by marketing these discounted tools is to "ping" the lower-end DIY/hobbyist power tool strategies of most home improvement retailers and manufacturers.

    The tool that created the most effective "ping" is Aldi's WorkZone jigsaw. In this, the first of a two-part series, HNN will compare this jigsaw with the equivalent Ozito tools sold by Bunnings, and examine what they mean strategically.

    In the second part, HNN will look at these tools along with tools from Masters Home Improvement and a recent entrant to low-end DIY, IKEA.
    Bunnings marketing/execution

    For a large company, Bunnings moved fast to counter the introduction of the Aldi tools. The retailer likely had less than a week's notice, and in that time it dropped the price on three of the four discount tools.

    The one tool it did not price match, a small angle grinder, had been advertised at its $44 price in the latest Bunnings catalogue. Bunnings also seems to have dropped the price on one of its drill presses to match another Aldi product, but HNN has not been able to confirm this.

    Where Bunnings did stumble was in not getting that pricing information displayed in its stores. At the store where HNN purchased its jigsaw, the model was still displayed with the original $44.95 price.

    A staff member wandered up after we had checked the model by using the QR code on the side of the box. We mentioned the new price of $28, and the staff member responded that the $45 mark was where it had been for some time.

    However, he then went ahead and scanned the barcode on the box with a handheld portable scanner. That confirmed the new price. He then went away saying he was going to make up a little sign for the product. It's an example of some good staff training.

    When HNN checked back later in the day, there was indeed a sign. Meanwhile, spot-checking two other Bunnings stores we found that one did not display the correct price, and one did. On 4 August 2015 when we checked again, all stores had the correct signage.

    The thing is, of course, that this happened after midday on a Saturday, which means it is possible a number of sales opportunities had been missed. Not to mention what seemed a lack of any actual advertising to support the new pricing. Interestingly, even when HNN used Google to directly lookup the Ozito jigsaw, the wrong price appeared in the Google search results.

    Six years ago, Bunnings had the kind of size and focus where full execution might have been easier. Expansion has brought a lot of benefits, but has it also made the kind of agility needed for this move almost impossible to achieve? If that is the case, then what should Bunnings do to replace agility?
    The jigsaws

    To understand all this better, we need to examine the basic features and characteristics of the Ozito and Aldi WorkZone jigsaws. The chart below offers a comparison.
    Comparison chart of Ozito and WorkZone jigsaws

    To provide more of a "feel" for these two jigsaws, HNN has produced the following two short videos. The person using the jigsaws in these videos has used other jigsaws previously, but this was his first encounter with these two models. He did examine them prior to the video, and he did read the manual pages as well. So this is a good replication of an average user's first encounter with these products.
    Aldi WorkZone jigsaw

    Ozito jigsaw (available at Bunnings)

    Jigsaw feature comparison

    These videos indicate a key point: the design features on this basic Ozito model are more previous generation than current generation. The WorkZone incorporates features that became commonplace three or four years ago.

    To just go through a few of these details:
    Blade change/insertion

    While the blade change system on the Ozito model is relatively good, it is not nearly as easy and convenient as the tool-less blade change on the WorkZone model. While this matters very little to some users, for some key users groups it can be important. (We will describe those groups later.)
    Speed variation

    The system on the Ozito was more popular some years back. The trigger on the jigsaw is like that on most power drills: pressing it harder produces more power. To add set variable speeds, the jigsaw has a screw-dial mechanism that limits how far the trigger can be depressed. Effectively it sets the maximum speed of the drill.

    This has several disadvantages. Most importantly, while gripping the jigsaw for use it is difficult to change the speed setting.

    The WorkZone jigsaw has a thumbwheel at the front of the handle, in easy reach of the thumb while gripping the handle. This makes it easy to adjust the speed while working. The trigger can be locked in the on position, and the thumbwheel moved to speed up or slow down the blade.
    Pendulum action

    The pendulum action provides a front-to-back oscillation of the jigsaw blade. This greatly improves performance on straight cuts through wood, though it does also "roughen" the cut.

    The WorkZone has the usual four pendulum settings, while the Ozito model does not offer this feature. (In the second part of this series, more performance details will be provided through testing.)
    Dust port

    The fitting of the dust port on the Ozito was particularly tight, and locking it into place by twisting is quite difficult to do. The size of the Ozito port is similar to that found on many professional tools, with a 25mm internal diameter. While this might fit more professional dust extraction systems, these jigsaws are more likely to be used with vacuum cleaners, and the larger 36mm port of the WorkZone model is more likely to accommodate those - with a little help from duct tape.
    Jigsaw performance

    In the second article in this series, HNN will go into further detail about jigsaw performance from the point of view of retailer and supplier strategies.

    The WorkZone model, with 650 watts, is right on the edge of the kind of power that higher-end jigsaws have. Its real advantage, however, is in the pendulum action, which makes cutting in straight lines much faster.

    Just how much faster? HNN has prepared the video below to illustrate the difference. Both jigsaws are using the standard blades with which they were sold. The WorkZone jigsaw is set to run at its maximum pendulum setting of three. They are used to cut through a standard pine board that is 185mm wide by 19mm thick.


    It is a stark difference, especially when, as we will explore below, the jigsaw is the user's principal, and perhaps only, power saw, and thus likely to be used for straight cuts through wide planks.
    Jigsaw durability

    One of the major build differences between the two jigsaws is that the Ozito model is made of lightweight metal, while the WorkZone model is made of plastic with a metal gear housing at the front. The plastic of the WorkZone jigsaw does not have a particularly good finish, either, showing a number of small colour blemishes.

    Durability is also reflected in the length of the warranties, with Ozito offering three years, and WorkZone just one year. It is interesting to note that the Ozito power cord comes with a label that declares in large type: "THIS PRODUCT IS INTENDED FOR DIY USE ONLY". The Ozito warranty also declares itself void when the tool is utilised for "professional, industrial or high frequency use".
    Jigsaw markets

    One of the main reason why HNN believes this Aldi tool release may be a clear case of Aldi out-Bunningsing Bunnings itself is the clever positioning of the WorkZone jigsaw in the market.

    One of the really intelligent things Bunnings did ten or so years ago was to not only introduce tools at excellent price points, to also provide tools that broadened their category appeal. That is very much what Aldi is doing with this jigsaw.

    The Aldi jigsaw is clearly aimed at the light DIY category. It could, with the parallel guide and pendulum enhancement, serve as the only power saw someone with minimal needs has.

    Yet this is also a good jigsaw for a hobbyist. The speed control enables a much slower set speed than the Ozito. It comes with a blade for metal as well as wood. Hobbyists frequently move from one material to the other, so the easy blade change system would be of great help to them.

    Also, this could serve as a good second jigsaw for a more serious DIYer, or even a tradie. At 650 watts, and with a pendulum action, it's not exactly a performance slouch. It might not last under heavy usage, but at $30 that is not so much of a concern.

    The Ozito saw, by comparison, might be OK for someone who is a light DIYer, if it is not their only power saw. It would work fine cutting circles or inside corners in plywood, and similar slightly "crafty" tasks. It is not a bad jigsaw, but it has a narrow range of appeal.
    Value

    The reality, of course, is that even with the steep discount down from $45 to $28, the two jigsaws are far from a direct comparison. The truly comparative Ozito model is the next one up in the range, the JSW-6100, which is currently sold by Bunnings for $65. That features tool-free blade changes, a pendulum action and a 620 watt motor.
    Ozito 610

    It also offers some additional features, such as tool-free bezel adjustment, a dust blower and a plastic case. That is at more than twice the price of the WorkZone model.
    The strategic consequences

    It is interesting to note the squeeze that Aldi managed to place on Bunnings with its jigsaw. The baseline Ozito jigsaw simply doesn't cut it anymore, unless it is sold at sub-$20, which is not a place Bunnings would likely want to go. Yet Bunnings could not effectively discount the next model up, because it has a few too many features, and some options that would be expensive in manufacturing terms.

    Aldi found the precise point in the Bunnings tool line-up where it could inflict the most competitive pressure. How did that happen?

    In terms of internal product line design, what Bunnings/Ozito failed to see was how features had gone further down the price chain in jigsaws. Sub-$20 jigsaws may still use screw-based blade mechanisms, but just about every jigsaw today uses tool-less.

    New to jigsaws in 2015 is the more widespread availability of the pendulum mechanism. It's likely the JSW-4000 has been around in one form or another for quite a few years, and the need to refresh the bottom of the range was not understood.

    Externally, what Bunnings has perhaps not understood is both how the craft/hobby sector of the market is growing, and that this sector is becoming more adventuresome. One indication of this is how often the use of jigsaw is cropping up in the DIY instructions in home design magazines. For example, the current edition of Bauer Media's homes+ magazine has a DIY craft project that absolutely requires the use of a jigsaw.

    Even further than this, however, is the issue of Bunnings past and current corporate structure as regards the design and supply of tools. It is likely that in the future it will face increasing competition from companies such as Aldi.

    These are smart, global organisations that are every bit as focused as Bunnings. They have access to top-level strategists, and to economies of scale (in terms of total gross orders placed to suppliers) that can exceed those of Bunnings.

    We'll be exploring more of the strategic consequences of these changes in the next article in this series. It is necessary to include both Masters and IKEA in the picture.

    Until next time,

    Betty

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

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