Fundamentals will matter in 2013

Most retail-based sectors had a difficult year in 2012, and hardware was no exception. While Australia’s mining boom contributed to overall healthy economic figures for the nation, there was no hiding from the fact that the most populous States of NSW and Victoria – which have low mining activity – were ‘treading water’ throughout most of the year as manufacturing waned and service industries suffered prolonged post-GFC (global financial crisis) anxiety. So, how will Australia’s economy perform in 2013, and what can hardware sector businesses do to maximise returns?

According to professor Ian Harper, partner at Deloitte Access Economics, speaking at a recent business function1 in Melbourne, it is likely that the slow growth of the world’s advanced economies in 2013, including Australia’s, will continue into 2013. The good news is that few pundits are predicting a return to recessionary times.

“While it’s true that no-one is predicting a global recession any time soon, it is true that there has been an echo or aftershock from the GFC,” says professor Harper. “There is no doubt that growth has been slowing and even into the coming year (2013) we don’t expect to see a terrific recovery in that growth. Frankly, in the emerging economies as well you can see the same pattern; some of that is the result of the GFC, some of that is the result of deliberate slowing by the Chinese Government. The Chinese economy is now the world’s second-largest economy and so when it slows it obviously slows the growth of the world economy.

“Australia’s economy slowed this year (2012), picked up a bit in late 2012, and the latest forecasts show a slowing again in 2013. But the average rate of growth is something close to 3 per cent. That is Australia’s long-term trend. So, there’s no sign of recession internationally, and no sign of recession here in Australia.”

Ticking all the (big) boxes

In broad terms, Australia’s hardware sector is expected to perform in line with general economic trends, though large-format ‘big box’ stores are likely to increase market share at the expense of smaller independents. As stated in a recent IBISWorld Industry Report2, “the Australian hardware retailing industry is expected to grow by 2.7 per cent in 2012–13 and at a compound annual rate of 0.6 per cent over the five years through 2012–13 to $12.3 billion… IBISWorld forecasts that the industry will grow at a compound annual rate of 3.5 per cent over the next five years to reach $14.7 billion in 2017–18.” In other words, notwithstanding a healthy five-year forecast, immediate trading conditions in 2012–13 are tipped to be flat. One of the most crucial factors affecting hardware retail performance relates to housing construction and renovation markets – two very different sectors. Demand for housing continues to outpace construction activity nationally, allowing plenty of opportunity for growth and painting a positive picture for sales of housing materials and general hardware; similarly, there is also scope for an upswing in renovation activity following GFC declines. As the IBISWorld report states, “More buoyant economic conditions, including solid employment and wages growth, should encourage many homeowners to increase DIY and renovation activity, supporting demand for hardware. Hardware stores will also benefit as DIYers and tradespeople resume major jobs delayed during the (GFC) downturn.” This point is particularly important because 57 per cent of all hardware retail sales are derived from replacement and renovation market segments, compared to just 29 per cent for the new household market3.

Safeguard the fundamental
So, given tepid economic growth in the year ahead, it is more important than ever for retailers to adhere to fundamental principles. As the profiles on the following pages show, the best companies are concentrating on solid brand recognition programs; superior product quality and reliability through ongoing R&D; high-class point of sale (POS) displays and support materials, including dynamic and interactive displays; as well as improved training offerings for in-store staff and installer partners. These kinds of measures will maximise retailers’ abilities to win customer loyalty through trustworthy, familiar product ranges and professional service.

For more information about economic conditions in the year ahead, including separate product category overviews, see the Hardware Suppliers Directory 2013.