Feature Article: Review Preview Overview

2006 was an ordinary year for the hardware industry. Consumer (DIYers and Trade) spending over the past year on hardware and building products remained static at $25.5 billion. This has been in an environment where a significant proportion of home owners have been hit by three consecutive interest rate rises and an escalation in living costs.
Competition is increasing, with general merchandisers expanding their ranges of DIY and hardware goods. Rationalisation is accelerating in most industries, as market weight and buying power becomes critical to growth. Specialists are targeting DIYers as the housing industry continues to come off the boil and traditional stores have been losing market share to large players (in all retail sectors, not just hardware). Warehouse outlets have been expanding and redefining their consumer offer to grow sales in a tough retail environment, making conditions difficult for small independents. 2006 saw the market trends of women in DIY and DIFM (Do It For Me) continue to strengthen across the board.

Although Danks Holdings Ltd reported a disappointing profit result for the financial year ended June 30, 2006, the company is confident about 2007, with strong sales and improved trading margins in the first four months of the 2006-07 financial year. While after-tax profit for the company was down 36.2% on last year’s result to $2.97 million, the payment of a full year dividend to 40 cents per share indicates the company’s confidence. At the company’s AGM held in November, it was reported that the restructuring of the Central Services Unit at Danks was delivering efficiencies. Major changes included the appointment of a new Operations Manager in the Supply Chain and centralising the accounts receivable area. Voluntary redundancies in the Sydney and Melbourne distribution centres had also cut costs. More efficiencies were expected with the consolidation of several storage facilities in Melbourne into one distribution centre at South Dandenong (Vic). Danks are continuing to look for possible acquisition opportunities, with the aim of diversifying into related markets.

At the end of the 2005-06 financial year, Bunnings reported a comparative growth in earning before interest and tax, of 6.5 % on the previous year. Operating revenue increased to $4.3 billion, 5.2% higher than last year’s and earnings before interest and tax of $420.5 million, were 1.1% higher. Trade sales grew modestly by 1.5% on the previous year. In the financial year, 12 new warehouse stores and three smaller format stores were opened, making a total of 142 warehouse stores and 84 small format stores operating across Australia and New Zealand. WA Salvage, Wesfarmers’ bargain hardware and variety chain, delivered a disappointing result for the year with sales and earnings below last year’s. The HouseWorks retail concept is still being developed with two stores now trading in WA. Bunnings expect continued retail sales growth and a modest improvement in trade business in 2006-07. New warehouse development is forecast to continue at between 10 to 14 stores per year.
Mitre 10’s earnings before interest and tax in 2006 was $4.9 million. Expenses were reduced by $7 million in Mitre 10 Australia and substantial expense reductions were also achieved in WA Hardware Services (WAHS) and the Mega business through integration with Mitre 10 operations. Mega continues to be a problem for Mitre 10, with the company considering shutting two of the six Mega stores. On the bright side, Trade Express delivered double-digit growth. Looking forward, Mitre 10’s ‘Four Pillars’ improvement program will continue and a strategic revitalisation of the True Value brand will be implemented. Mitre 10 is reportedly in talks with private equity firms over the funding of a new investment vehicle to acquire hundreds of independent store operators in a rationalisation of the hardware industry.

By Geoff Dart and Lesley Hetherington