Industry Insights 2017
In this edition of the Australian Hardware Journal, exclusive interviews have been conducted with industry leaders and retailers, investigating details on ‘the year that was’ and sourcing predictions on what can be expected in the year ahead.
Total Tools General Manager – Marketing, Darren Gunton
Total Tools has had an amazing year of double digit, like for like growth, according to Total Tools General Manager – Marketing, Darren Gunton, who said all stores have performed outstandingly.
“Store numbers continued to grow with double digit new store openings. We expect this growth to continue into next year with no signs of slowing sales. In fact the rate is increasing,” Mr Gunton said.
In regards to member feedback, Mr Gunton said Total Tools members remain extremely positive about the state of the industry, and the Total Tools brand, with record breaking growth throughout the group.
“Total Tools members’ events, such as the Franchisee and Supplier Conference, continue to be well represented by all stores and suppliers. Our customer feedback is monitored daily, and this has also improved over the past year. Customers are impressed with the Total Tools brand and continue to spread positive word of mouth about their experiences shopping with Total Tools,” he said.
Department growth also remains strong, according to Mr Gunton, who said there is currently an even growth across all categories.
“Private labels continue to be a very strong performer and we expect strong growth across all categories next year. We will continue to explore new categories as the business grows,” he said.
When looking at future directions and challenges within the industry, Mr Gunton said Amazon is one to be watched.
“When considering Amazon in the US has a sizable share of the tool market, they need to be monitored as to what categories they choose to compete with in Australia. This may be a challenge to the industry as it may put pressure on sales and margins,” he said.
Looking into the New Year, Total Tools will continue to grow its store base, and plans to add double digit store numbers next year.
“In 2018 we will expand into a number of new territories where we do not currently have stores. We are continuing to get large numbers of potential franchisees interested in joining the Total Tools brand, as well as landlords keen to partner with us. We have expanded our franchising and leasing team to help with the growth in this area,” Mr Gunton said.
“I think that currently the industry appears to be in great health, with all indicators, including sales, franchisee sentiment and customer feedback, all remaining extremely positive,” he said.
CSS Group Managing Director and Co-Founder, Jeff Wellard
When reflecting on the past 12 months in terms of sales and growth, CSS Group Managing Director and Co-Founder, Jeff Wellard, recently reported that the CSS group has continued to enjoy double-digit growth in organic sales, throughout 2017.
“This organic growth is coming from existing membership and is uninfluenced by the addition of new members or suppliers. This is also an excellent result when considering the fact that Western Australia, South Australia and the Northern Territory were affected adversely by the economic uncertainty and low building activity in all three states,” Mr Wellard said.
“Over the 12 month period we added four new members, taking us to 59 members with a collection of 86 stores nationally. Seven new supplier partners were also listed, taking us to 120 partners. All aspects of the group operations were well above target estimates and we were very pleased,” he said.
While the areas of WA, SA and NT are all still suffering from the downturn in the mining industry, store results in these areas have been low without being too drastic, according to Mr Wellard.
“There is a measured optimism about the future right now. The eastern coast capitals all show significant growth while a number of rural areas were on an even par,” he said
Future growth areas
Currently there appears to be some opportunity in the PPE (Personal Protective Equipment) and Safety Supply market segments, as there is a lot more attention being paid to the personal safety of workers and what needs to be done to keep the work space safe, Mr Wellard said.
“Those that can provide succinct and accurate advice, product and support will reap the benefits on offer,” he said.
When asked if Mr Wellard believed if retailers are more likely to move across to a new group, due to on-going industry uncertainty within the industry, or stay loyal to their own banner, he noted that, “There are definitely companies in certain groups that would be better suited to others and we believe there may be an increased move towards member companies looking at the services, support and functionality offered by their group, compared to others.
“The need to maximise group support will become even more critical for independents as time moves on. Our plan is to continue to provide the platforms and services that our members need to keep them strong and to develop closer ties with key distributors and service providers,” he said.
Current economic conditions
The hardware industry is holding its own against the continued media and information providing systems assault on price, according to Mr Wellard, who said this coupled with rogue traders smashing price and devouring margin, is a constant threat to industry professionals who provide value packages.
“Everywhere you turn, whether it be television, radio, written media advertising, or Facebook, there is a discount mentioned, or the cheapest price is on offer, or you get this if you buy this and it is all about price cutting,’ he said.
Mr Wellard said the challenge for the industry now is losing focus on what we provide in opposition to the web based monsters like Amazon and those without bricks and mortar that are hell bent on smashing margins and profiteering while they can.
“Focus on providing quality product, service, support and tactile interaction with buyers are still very important factors to the buyers in this market place and time,” he said.
Inspirations Paint Chief Executive Officer, Rob Guy
2017 has been a positive year for Inspirations Paint, with the group achieving an overall sales growth of 7.5 per cent in the last 12 months, according to Inspirations Paint Chief Executive Officer, Rob Guy.
“Sales performance varies across geographic regions, with members experiencing stronger sales growth in Sydney, Adelaide and Brisbane/Gold Coast. Sales have been flatter in Perth, ACT/Southern NSW and TAS and Central Qld, however overall, Inspirations Paint has continued to grow its share of the Australian paint market this year,”
Looking in-store, the paint application, preparation and paint spray equipment categories experienced significantly stronger than average sales growth throughout the year, according to Mr Guy.
“Within the Inspirations Paint group overall, these categories are expected to continue to experience good growth in the next two years. In addition, the group has initiatives underway to increase growth in the automotive, decorative concrete and waterproofing categories in the next few years,” he said.
Industry uncertainty and member loyalty
The entry of Sherwin Williams into the Australian paint industry has created uncertainty for paint retailers, according to Mr Guy, who said, until Sherwin Williams’ longer term strategy for paint distribution and store network in the Australian market becomes clearer, this uncertainty will continue.
“The entry of Sherwin Williams and the uncertainty its future paint retailing and store network model creates for independent paint retailers, is likely to see rationalisation and re-alignment within paint retailing groups,” he said.
“In the current environment, paint retailers will be seeking increased levels of confidence and certainty in their group’s business model, brand, operational support and marketing. Independent retailers will also be seeking certainty of supply, strength of paint brands and manufacturer relationships in trade distribution. If the retailer’s current group is unable to provide sufficient confidence, value, business support and manufacturer relationships then retailers are likely to seek to move across groups.”
“Inspirations Paint has strong relationships with DuluxGroup brands and is Dulux’s trade distribution partner nationally. In the last three years, Inspirations Paint has focussed on providing its members with centralised business systems, integrated general ledger and payroll, accounting services, HR support services and a comprehensive on-line staff training program. The group also provides its members with a national customer loyalty program, including colour/product recording and personalised customer communications,” Mr Guy said.
Future challenges and directions for 2018
The entry of Amazon will also require paint retailer groups to make changes in the efficiency of the supply model for paint and paint related products to remain competitive in the longer term, according to Mr Guy.
“Independent paint retailers will also face challenges for their future business models as the three main paint manufacturers change their paint distribution models in response to the entry of Sherwin Williams and Amazon, particularly in metro areas. The challenge for paint retailer groups will be to be able to respond to these industry changes and continue to provide their members with a profitable business model,” he said.
Looking to 2018, Mr Guy said Inspirations Paint has plans to grow throughout the new year, by opening and acquiring more stores in key locations.
“Inspirations Paints will also be developing on-line platforms to support the store network, develop new franchise operators and further increase the focus on staff training, into the New Year and beyond,” he said.
Balhannah Mitre 10 owner, Simon Henderson
Balhannah Mitre 10 has gone from strength to strength since opening its doors in 2013, and 2017 was no different. Reflecting on the year, the store’s Managing Director Simon Henderson, reports strong sales growth across the store.
“We have had a huge growth in our trade business over the last 12 months,” he said.
“Sales have grown by 11 per cent, and with positive responses from our customer base we expect larger growth next year.”
Mr Henderson says that they have identified several potential growth areas in the business, including trade, plumbing and electrical, which they ascertained by staying abreast of industry developments and seizing available opportunities.
“During the last 12 months our plumbing and trade sections have had significant growth. Since the demise of Dick Smith Electronics, we identified a range of products that were not available in the Adelaide Hills area, so we pursued becoming a Jaycar stockist. This started three months ago and we are enjoying growth beyond our expectations,” he said.
In addition to growing the store’s product range, Mr and Mrs Henderson are also expanding their digital offering in 2018, bringing the business well and truly into the digital age and improving service levels to existing customers.
“We are currently working with our point of sale provider, Striven, to have our product range available to order via our web page. We are also introducing Tradies Online for our account customers to access their invoices, quotes and statements online,” he said.
Balhannah Mitre 10 will also introduce a truck tracker for its delivery trucks in order to improve communication about delivery times with customers, who will be able to better organise their work commitments, according to Mr Henderson.
Mr Henderson has witnessed what he describes as a resilience across the industry throughout the last 12 months, despite developments like the closure of Masters temporarily affecting some hardware retailers.
“The closure of Masters Hardware did have an effect on a range of retailers that had the same ranges, due to the discounts that they applied to clear the stock, and also the number of new big box stores that have opened across the country,” he said.
“I think the industry is very buoyant and positive, with more positivity on economic conditions.”
Looking to the coming year, Mr Henderson believes it will be important for hardware retailers to focus on giving customers the best service possible in order to survive against the bigger stores.
“I think that current independent hardware stores need to continue to differentiate from the corporate stores so that we provide our customers with a truly local supplier for all their hardware requirements. We need to keep our customer service levels at a very high standard to differentiate ourselves in the community to be a proudly local supplier to the community,” he said.
Inverell H Hardware Timber and Building Supplies Owner, Leigh Muggleton
Leigh Muggleton, co-owner of Inverell H Hardware with his wife, Erin, describes 2017 as an “unbelievably great” year. Sitting close to the border of New South Wales and Queensland, Inverell has experienced a surge in new building and renovation projects, leading to huge growth in sales for the store.
“We have probably improved around 15 per cent on the last year and it’s been just phenomenal,” Mr Muggleton explained.
“The work in our area has really gone ahead tremendously.”
“I think I’ve seen a confidence grow… people have decided to have a go and it’s all happening,” he said.
According to Mr Muggleton, the confidence stems from a number of different factors. Inverell is a rural town, and the weather has a ripple affect across the community.
“We’ve had an immense amount of rain, so therefore the farmers have got confidence – they put people on. The abattoirs that we’ve got are starting to get good beef, which helps our town as well. So the confidence is high I believe, in our industry and in our area particularly,” he said.
“All my builders, for next year, have an amazing amount of work [in the pipeline] – some even for the whole of next year, some of them for six months. And they’re still getting enquiries. So there’s a bit of a confidence out there.”
This year, Mr and Mrs Muggleton also decided to rebrand the store to H Hardware, which they believe has helped boost their entire business.
“We repainted our shop, put up new signs all the way throughout and have new uniforms, and that has really helped our business as well – tremendously,” Mr Muggleton said.
Mr Muggleton indicated that sales were steady across the store’s different categories, which he believes is because they have positioned the store as a one stop shop for building supplies.
“If you’re living in the big cities, a lot people buy items direct, like say plaster board is bought direct from Boral or CSR depots. We sell all of that – there’s not much we don’t sell,” Mr Muggleton said.
“So this year everything has been pretty steady.”
Mr Muggleton did note two new products in particular that have sold quite well in the store throughout 2017.
“Timber linings by Gunnerson Timbers are doing very well… and garden blocks from National Masonry; coloured blocks have become very popular in our area,” he explained.
However a growing threat to the overall confidence of the local industry, according to Mr Muggleton, is an increase in building regulations, especially surrounding efficiency and sustainability, which increases the cost of new building projects.
“There’s some pretty stringent stuff in now – which it should be, a house should be fuel efficient – but it’s really becoming a concern for the builders,” he said.
“We used to sell quite a lot of floor systems, bearers and joists – LVL, HJ, iJoists – for houses that were to be above ground. That’s almost impossible now it’s got so high a rating.”
“If you’re going to have air conditioning and say a heater, like a slow combustion timber heater in your house, you probably have to put at least double-glazed windows in, which over doubles the price of your windows… I think that’s going to be interesting in the industry if that starts to bite very hard,” he explained.