Industrial, trade and power tools growth driven by several forces

The industrial, trade and power tools segment is currently a melting pot of influences. AHJ reporter, Kiera Taylor, explores what is currently driving the industry and how it has evolved.

Figures released by the Australian Bureau of Statistics in early October showed that total approvals for dwelling construction rose by 0.4 per cent (seasonally adjusted) in August, following seven months of steady growth (http://www.abs.gov.au/ausstats/abs@.nsf/mf/8731.0).

Also in early October, the Australian Industry Group reported a deceleration in growth in the Australian Performance of Manufacturing Index (Australian PMI®), however the decline comes after a 15-year high spike in August this year (www.aigroup.com.au/policy-and-research/mediacentre/releases/PMI-Sept17/). Both retailers and manufacturers report an increase in industrial, trade and power tool sales, which is believed to be driven by this growth, however several other surprising factors have come to light.

Industry changes
Retailers recently reported seeing a change in the way tradespeople think about their tools. Where previously the typical attitude was ‘anything will do’ to get a job done, tradies are now seeing the benefits of buying quality equipment. According to Jeremy Atkinson, Total Tools Lonsdale Franchisee and Total Tools Store of the Year 2017 winner, tradies are trending towards high performance tools.

“They’re looking for tools that will save them time and make the job easier to do,” he said.

“Anything that companies are bringing out, it doesn’t matter what brand, if it’s a time saving tool or can enable high performance, it’s eagerly sought after.”

This is a change that, according to Mr Atkinson’s observations, has come about in the last five to six years and is driven by the realisation that purchasing a quality tool can actually be a long term investment.

“I think there was a period there in the market where people wanted to buy whatever they could to do the job. They thought if that they could get away with something that was cheap, they would do it. Now they’ve realised that quality is very important, and in a lot of cases it enables them to do the job better, quicker and with more skill. So as a tradesman, they actually look like a better tradesman, and they are a better tradesman, by using better quality tools.”

“I think cost is being overshadowed by the brand and the tool itself and what it can do. I don’t think they are blasé about throwing their money away, I think they look at it as an investment now and take great pride in what’s in their toolbox. I think the other side of that though, is tools are reasonably affordable now, especially for what they can do. If a guy can invest in something that saves him four to five hours a week, it soon pays for itself,” he said.

Building on this, Mr Atkinson is witnessing that tradies are increasingly loyal to their favourite brand, particularly the younger generations.

“It’s almost become like a car to them now; they’re either a Holden man or a Ford man,” he said.

“When they see a new tool come out they may be very interested in that tool because they can see the advantages to them, but they want it in the brand they are already aligned to – and it’s very strong. What we even see is a lot of guys buying products that have come out that are brand new and innovative, and they don’t even have a particular use for it yet, but they want the latest and greatest from that brand.”

Brand loyalty
OX Tools manufactures hand and power tools for the wet trades, carpentry and building industry, catering to the professional contractor. According to OX Group International’s General Manager, Rodney Harry, the company is focussed on capitalising on the increase in brand loyalty behaviour.

“We definitely find that if tradies have used a recognised branded hand tool during their apprenticeship, they’ll continue using that same brand right throughout their trade career,” he said.

“We have aligned with major TAFE colleges throughout Australia supporting and sponsoring their field events and training days by placing the OX branded product in their hands from birth.”

The program is called ‘OX Tools for Schools’ and it allows the company to train apprentices on how to correctly use their equipment. The result, Mr Harry explains, is recognition of the distinct blue of OX’s brand.
“We find that there are tradies now saying ‘I see the blue and I just go for it’.”

The program is also an opportunity for the tools to be tested by the people who use them, and assists in highlighting areas for further innovation and development.

“Tradies are definitely looking for the innovation that makes their job faster, more efficient and competitive. Something that cuts down their time,” Mr Harry said.

Innovation was front of mind when OX Tools produced the Mix M8 Mixing Paddle, released earlier this year. Used for stirring paint, grout and render, Mr Harry reports that its unique rubber construction is a patented design.

“It gives a faster and better quality mix using ‘edge to edge bucket technology’. The industrial grade paddles are easy to clean and will not damage the bucket whilst mixing. It is guaranteed to give a faster mix, even with a cordless drill.”

Another new development in the OX Tools portfolio this year is a reimagined carpenter’s pencil – the Sharpdraw Snap Off Pencil. It resembles a retractable utility knife and features a nine millimetre graphite replaceable ‘blade’ that does not need to be sharpened.

“Sales to date have exceeded our expectations – it has been greatly successful,” Mr Harry said.

“OX Tools earlier this year also released the Ultraflex Finishing Trowel. Its flexibility provides a key point of difference from your traditional finishing trowel through leaving a smoother finish.”
The Ultraflex Finishing Trowel features a 0.3 millimetres thick flexible stainless steel twin blade with rounded corners, which enables a smoother finish when plastering and rendering.

Mr Harry too has noticed a shift in tradies’ purchasing behaviours, and believes it is being driven by current demands in the housing and construction industry as well as a lack of apprentices in the pipeline.

“We are certainly finding that consumers are buying major brand names that are tested and proven within the industry, rather than the non-branded items. OX Tools is finding that professional tradies and contractors are prepared to pay for quality tools that last longer and perform reliably, rather than risk using a non-branded hand tool that may not perform or complete the job at hand,” Mr Harry said.

“There has been a lack of tradesmen availability over recent years. We are finding [this] out from TAFE colleges across Australia who are saying enrolments in recent years have been in decline largely due to Gen. Y moving away from practical apprenticeships, and towards office based professions. Whereas infrastructure projects and the demand for more housing, fuelled by the various reality and general renovation television shows, is helping to now spike TAFE enrolments.”

Despite the lack of tradies, Mr Harry reports growth exceeding double digit figures year on year in recent times for OX Tools.

“We have made a significant penetration into the Professional Hand Tool market. The demand for the OX brand is growing and we are capitalising on that,” he said.

Abrasives and industrial tools
According to Pferd’s National Accounts Manager, Zane Bendix, the shift toward quality and brand names is also apparent in the abrasives and industrial tools segments.

“The idea that you get something cheap that is going to do the job just doesn’t fit the bill anymore,” Mr Bendix explained.

“I think in abrasives we are seeing quite a bit that people [in the past] have thought, ‘We’ll buy cheap things and see if we can make more margin on them’. The problem though, is abrasives are dangerous – these things can kill you. If you get it wrong, you can be in serious trouble. So now I think that attitude is generally shifting.”

“People want something that is value for money. Value for money doesn’t necessarily mean buying cheap, it means that when they use the product, when they work it out, it is actually cheaper to use,” he said.

With its origins in a small German town, Pferd has been a family-owned company for over 200 years. Originally forging steel to produce metal fi les at the end of the late 18th Century, it has grown to be a global manufacturer of over 7500 abrasive tools for cutting, grinding, fi ling, brushing, polishing, cleaning and rust removal, to name a few.

Despite the company’s growth, Mr Bendix says that Pferd’s main goal in developing new products has always been creating a product that is a solution to an end user’s problem.

“Most of it comes down to worker comfort,” he said.

“It still comes back to the basics of the worker being comfortable with the product, and also that it meets the best in terms of standards. I’m talking about less dust, less noise, less vibration, less waste, more efficient and better performance. Th at’s very important now,” he said.

This has led the company to release several new products this year, including the INOX ULTRA-THIN Cut-Off Wheel.

“People who work with aluminium usually use wax or oil to actually cut the aluminium, and then they have to clean the oil or clean the wax off before they can weld. With these wheels they just cut, no wax,” Mr Bendix explained.

Another product Pferd has released is the CC-Grind Solid, which according to Mr Bendix, is a new generation of grinding wheel.

“It is amazing in terms of removing stock or metal, but at the same time, is very quiet, and produces less dust and less vibration as well,” he said.

The CC-Grind-Solid system is designed for heavy duty metal grinding. It features an integrated glass fibre backing pad, high performance abrasive grain and unique clamping system, and it delivers 50 per cent less noise and 80 per cent less vibration.

According to Mr Bendix, safety and environmental awareness are also high on the agenda in the abrasives industry, and due to its European connection, Pferd has been able to stay abreast of the latest safety developments.

“We push it really heavily, again because it is a dangerous product. It is important that companies are aware of this, more so now; they have got to make sure their workers aren’t in an environment that’s going to be dangerous them,” he said.

“We’ve been doing it for years, what we call ‘PferdValue’.”

PferdValue is an ethos that sees the company encompassing better ergonomics (less vibration, noise, and emissions using filters) for operational safety, and increased efficiencies (saving energy, time, waste and resources) across its range of products.

“All of these are things [are what] other companies are considering now. And I think what’s driving it is that overseas, for example, if you’re using an angle grinder in Europe, you can only use it for half an hour then you have to stop. That’s because of the vibration that comes through the angle grinder. These are the sorts of things we’re not seeing here yet, but they will come, because long term, vibration can do damage to your hands,” he said.

“Eventually I think you’ll see it here just slowly start to filter over to Australia.”

Mr Bendix also reports seeing growth in the industrial tools sector.

“There are definitely signs of growth for us. Part of that might be market share, but at the same time, I think there’s a really good feel about the market at the moment,” he said.

Challenges
While tradies are gravitating towards the higher end of the market for their tools, according to VEK Tools owner, Kiro Anthanasiadis, not all manufacturers have the end user’s needs in mind. He believes that the trade and power tools segment is instead being driven, in part, by larger retailers’ standards for pricing.

“Some of the brands are changing to fit into the demands of the retailer, especially the big players,” Mr Athanasiadis explained.

“All the big players are starting to almost, to a certain degree, dictate that side of it. It’s definitely a lot more challenging than what it used to be. The market being driven by price also then costs us in terms of quality for the brands,” he said.

“You find that when everything is based on price then you start having issues with the brand being able to develop a product like they were in the old days, when they were bulletproof and lasted ten years.”

“Now you find that with the edge that a lot of the bigger retail chains, say Bunnings, are trying to get, they want to hit a price point. So with hitting a price point, the supplier is developing a product based on a budget, hence you see quality changes in brands taking different directions just to fulfill the needs of a specific chain of retail.”

But Mr Athanasiadis says that there are brands that continue to focus on the end user, although price is still a huge factor.

“Some of the brands are still customer focused, but I think at the end of the day everything comes to price because every brand has its par that they need to meet in terms of turnover targets and expectations from their overseas division. So for arguments’ sake, if Brand A drops their price and the market starts buying at that price, then Brand B needs to do that as well, otherwise they’re priced out of the market. So you find that it’s changing the way people do business. In retail, for us in industrial trade and industrial supply, the market comes down significantly,” he said.

Mr Athanasiadis also reports that suppliers are currently getting record high prices for tools, but that it comes at a cost to retailers.

“You’d probably almost be happy to pay the higher price if you had the margin to go with it. It’s getting to a position where the whole market is becoming tighter and everyone is paying the price for it, which also leads to even your staffing in your shop,” he said.

“If you’re not making the margins then how do you pay well to your staff as well? It’s all just a knock on effect.”

Industry outlook
In its most recent Quarterly Report, Hays Recruiting indicated that construction is one of Australia’s biggest economic drivers with plenty of projects in the pipeline. The report states that, “Commercially savvy jobseekers with skills in demand are able to fully leverage market conditions to advance their career (https://www.hays.com.au/report/construction-1521).”

Despite the positive outlook across the industry, Mr Atkinson from Total Tools Lonsdale says that the competition in the construction industry is fierce, and foreclosures are an unfortunate reality.

“The competition is not only about prices and winning jobs… it might be interstate consortiums winning the work. I hear in some cases it’s even overseas crews that are coming in,” he said.

“You see the good operators, the ones who have got all their systems in place, they never seem to be out of work at the moment. The ones that are maybe not quite as advanced in technology or systems, may be falling behind,” he explained.

Mr Athanasiadis from VEK Tools has also witnessed an increase in the amount of builders and tradies foreclosing.

“I think every trade and every business has its challenges now with being profitable and having the ability to keep going,” he explained.

“We would average getting probably a letter a fortnight about a customer or company going into administration. Obviously it’s not a good thing to be seeing,” he said.

It seems logical to conclude that this ‘thinning out’ of tradies has left competition amongst the remaining ones stiff, and undoubtedly contributes to the increased demand for more efficient tools as their workloads increase.

But competition is tight within the retail sector of the tool industry as well, with the Internet and big box stores posing the biggest threats.

“They [big box stores] are becoming more involved in the tool specialist channel. Where in the past you had your hardware [store] supplying hardware and you had specialists supplying the tools, now everyone is trying to diversify to survive, so that competition is changing everyday. If you don’t watch what’s happening, you’re swallowed up,” Mr Athanasiadis explained.

“It would be rare you could be a single store operation and not part of a buying group or have multiple stores these days to survive. I think everyone is having to become part of a group or have multiple stores to be able to deal with the demands and to be able to buy the volume of stock you need to buy.”

The threat from online retailers is something Mr Bendix from Pferd agrees with, but sees it as a welcome change in the industrial tool space.

“I believe the industry is due for a bit of a shakeup… we’re seeing glimmers of it with Amazon,” he said.

“I actually think it’s good. I don’t think it’s a bad thing for the market. I think customer service is really going to come in as an important factor.”

“The reality is you’ve got to have a point of difference, and what’s happened, is there has been a blurring of those lines. Customers and retailers have gone for that cheap space, and unfortunately that becomes a race to the bottom, and that doesn’t help anyone,” Mr Bendix said.