Bunnings on rising timber prices

10/05/2021

Wesfarmers Boss, Rob Scott, recently pledged that Bunnings will heavily resist passing on rising timber prices to customers. The promise comes in a move to protect its brand equity of being a low cost retailer as the national hardware chain and its stablemates, such as Kmart and Target, absorb pricing pressures from lumber and cotton to shipping containers, according to a recent report by The Australian.

Mr Scott particularly called out lumber as a major input for the conglomerate’s Bunnings chain that was ratcheting higher, due to steeper shipping and shipping container costs which threatens to eat away at margins, according to the report.

“Lumber prices have gone up and there has been constraints there around supply. We have seen pricing pressure, similarly containing shipping is another area where there have been strong increases in pricing and there has also been some increases in other raw material prices, cotton and other categories. I think what is important to note across all these areas the whole market is facing these cost pressures,” Mr Scott told the Macquarie Australia Conference.

It seems it is not only rising shipping costs that is triggering shortages but the current housing boom is contributing as well, according to the report.

Recent latest sector figures revealed that building approvals leapt by 17 per cent in March to levels not seen since 2017, after a 60 per cent spike in apartment approvals complimented another slight lift in stand-alone houses. The Australian Bureau of Statistics also reported that the monthly total dwelling approvals jumped to 23,176, or 47 per cent above levels recorded in March 2020.

Industry sources told The Australian the rise in timber and lumber prices in Australia has not been as accelerated as in the US where lumber prices have skyrocketed more than 400 per cent, but since November local lumber costs are up at least 20 per cent and imported lumber up 60 per cent.

But Mr Scott calmed investors and analysts listening in to the Macquarie investment conference that Wesfarmers would do whatever it takes to maintain Bunnings as well as its other retailer brands credentials of offering low prices to shoppers.

“The way we think about this is not just simply supply costs are going up, how much do we need to increase our price to offset that. That is not the way we think about it, we think about it far more holistically. And that is certainly what Bunnings is trying to do with lumber, they are trying to resist the pressure to just keep on increasing prices because in times like this we want to deliver even better value credentials with our customers,” he said in the report.

Bunnings General Manager for Merchandise, Toby Watson, told The Australian the hardware giant had seen “unprecedented demand for timber products” for a number of months now due to Australians spending more time at home and the incentives for new home builds and renovations.

“We are working with our suppliers and trade customers to forecast demand and plan earlier in the build process so we have additional time to manage orders as best as possible. It is believed some price increases have already been passed on to shoppers,” Mr Watson said.

Natbuild Chairman, Mike Barry, told The Australian prices in Australia have not increased to the same extent as 400 per cent plus rises in the US but that since November pricing pressure in the Australian market has been evident.

“Our intelligence is everybody is feeling the same supply pressure here, and same supply disruptions, and our intelligence also says that the price increases are flowing through fairly consistently across the market,” Mr Barry said.

Meanwhile, at the Macquarie conference Mr Scott said he does not believe the conglomerate has “missed many opportunities” to make acquisitions last year when global equity markets dived in the wake of the first wave of COVID, according to the report.

Wesfarmers has up to $10 billion in balance sheet firepower it could throw at an acquisition. But Mr Scott said in the report that Wesfarmers was not in the game of private equity or funds management and would not leap on weakening share prices to buy stakes in companies, and had just as many exciting and lucrative opportunities to invest in its own portfolio of businesses that could deliver superior returns.

“Reflecting back on the last year I would not say we have missed many opportunities, I think what is important to understand is that Wesfarmers is not a private equity firm and we are not a fund manager, so if you see a price dip and an opportunity to buy on a dip that is not really what we are about,” Mr Scott told the Macquarie Australia Conference.

Wesfarmers Boss, Rob Scott.

Wesfarmers Boss, Rob Scott. Image: www.theaustralian.com.au/

Mr Scott said there were perhaps better investment opportunities within its existing portfolio of businesses.

“I feel that there is a high degree of opportunity and optionality to continue to invest in our businesses, to invest even more in our digital and data capabilities, to invest in adjacent areas.

“These are areas that might not be huge licks of capital but they are areas where we are excited about the growth opportunities and the returns to our shareholders,” he said.