Interview With Bernie Bicknell [full transcript]

This is the full transcript of an interview conducted by AHJ’s Tom Prince and Adam Gordon with Mitre 10 CEO Bernie Bicknell.

Tom Prince What would you like to say to the industry – suppliers, members and so forth – who didn’t make it to Shanghai?

Bernie Bicknell Well, Shanghai was an outstanding success for us in all sorts of ways, as I said to you before we started the interview. It really is a wonderful coming together of people and an opportunity for them to understand exactly what our strategy is and to understand what our views are on the future of the independent hardware industry. I’ve talked about it a lot and we have very very good feedback. We had 580 people which is an enormous number of people to have in another country and the thing went off without a hitch and really had a lot of sizzle – it was a wonderful conference. We obviously had a lot of our stakeholders there with nearly 600 people but I think that it was a reinforcement of how powerful it can be when everyone gets together – we had a ball.

Tom Prince Next question – this refers to the Danks statement to the ASX dated 30th of July in which Danks make a big point about saying that they won’t be merging with Mitre 10. Now, realistically this kind of rumour has been circulating round and round for quite some time. But, it’s interesting that Danks should finally decide to come out with it now. I refer you to the passage “Danks has participated in a number of informal discussions that have failed to result in a complete proposal”. What’s the story there and most importantly, who approached who in these informal discussions?

Bernie Bicknell I think it’s fair to say that I’ve done most of the running personally, so we approached Danks. I’ve been consistently public both through the industry media and yourselves, through the broader media, the Financial Review, in saying that I believe the industry needs a strong second player and that this player has to be the independent player and that, as a result of not competing strongly against Danks, we’ve allowed a very very small player to become a dominant market player. The other thing is that in 2001 when Wesfarmers bought Howard Smith and almost doubled their size in the hardware industry overnight we were faced with something that hasn’t been seen in other countries of the world. You saw the number one player able to buy the number two player in the market and that’s a very unusual thing. So I think from a purely strategic long term point of view I’ve always sensed that there’s a big gap – I think everyone would acknowledge there’s a big gap – between the number one player and the number two, and that’s always a risk to those who are competing for the second place. The reality is that I think Mitre 10 has done the running and I think that, for the right reasons, we really did see the need to put together the strongest possible independent offer and consolidate that number two position. That might sound quite principled and very strategic but I can assure you that’s exactly what drove it. The discussions with Danks haven’t been detailed. There hasn’t been any sharing of numbers with them for some time. In my time over seven years Mitre 10 has never received any numbers from Danks. They were always high level discussions around intent and where we were and what might be.

Adam Gordon Did you feel that they were favourable towards that sort of notion?

Bernie Bicknell I’ve always felt that we were the proponents and that we were the ones that were pushing the proposal. We also understood that it’s difficult for a publicly listed company to enter into any sort of negotiations given the constraints that are on them. We knew that it would be a careful approach by Danks, that was understood. It was a little bit surprising that it was cut off as quickly as it was. We really received no notice of this until we found out publicly so I guess that was Danks really wanting to put a final full stop on any process. I think it’s fair to say that they haven’t been as comfortable with me talking publicly about the need to rationalise the industry as they might have been. That’s fair, I acknowledge that.

Tom Prince What’s the likelihood of another corporate player coming into Australia?

Bernie Bicknell I don’t think it’s strong because I think the market is way too small. I think that there’s a stronger possibility that we’ll see a change in the shape of the industry with Wesfarmers getting hold of Coles and utilising the capability they’ve got there to extend hardware into a different way, I think that’s a real chance. In one sense the whole Coles acquisition can be seen as a property acquisition. I think there are a lot of other big markets in the world that are less developed and offer more potential for growth. But, I think the real chance is that Woolworths or a Coles get into the market and bring a huge amount of resources and ability to take a long term position in it.

Tom Prince The previously mentioned press release by Danks also makes a specific mention of Mega.

Bernie Bicknell I guess that was something you can take a point of view on whether it was something they should have said in public and said without actually advising us first.

Tom Prince Why have they singled out Mega?

Bernie Bicknell Because they understand and I think it’s generally accepted in the industry – I’ve certainly communicated it a number of times – the Mega program financially has set Mitre 10 back significantly. Over the last two years we’ve had to take significant write offs on the stores that we had and in terms of the investment that was put into it. It just had a huge detrimental effect to our balance sheet and to our profit and loss. So what they’ve said is correct, it’s absolutely correct. Now, having said that this year’s financial result with Mitre 10 will be another loss – we’re not yet finalised but it will be another loss – but that will be the final write off of all Mega related costs – there will be no more. The financial position of Mitre 10 has been impacted by three things over the last three years and it’s not just Mega. We’ve taken a lot of cost out of our business, probably the best part of ten million dollars worth of overhead costs. That of course costs money to restructure. We’re in the process of going through a significant restructure of our supply chain in that we’re moving two warehouses and increasing the size of those significantly. We’re closing down the South Australian warehouse and we’re going to run that out of Victoria. That again has a significant cost and we’ve taken that up over the last two years.

Adam Gordon I’ve heard speculation from industry suppliers regarding the logistics side of things with Mitre 10. Is there any truth to the speculation that Mitre 10 might in fact use the Danks logistics framework?

Bernie Bicknell No. In fact, we’ve got two new warehouses that we’re setting up. One we’ve just moved into in Acacia Ridge in Queensland and the other one we will move into in March – we have a handover in December – in Deremit out in the Western suburbs. That will actually take us ahead of where Danks are in terms of our cost structure. The area that we have quietly made most progress on has actually been supply chain. I think you can take a view – in the past it has been said by suppliers or other people in the industry – that Mitre 10’s the brand and the marketing and Danks is the supply chain. I don’t think that’s the case anymore. In fact, I’d actually rate our supply chain capability ahead of Danks now. Moreover, we’ve pretty much doubled our capacity through these two new warehouses. They are big warehouses. So no, it won’t happen, it just won’t happen. Having said that, I don’t think anything is going to happen in terms of combined activity with Danks now. I think this document absolutely puts a full stop on it and our response is ‘that that’s ok’. Our response is that we’ve heard it and we accept that and we move on. But having said that, we will be a very aggressive competitor. When I expect to have some future chats with you gents on some competitive things it’s going to be good news.

Tom Prince That actually brings me on to my next question. This is a quote from the Mitre 10 coverage in our September issue: “Now acting as a challenge brand, Mitre 10 is moving away from being the nice guys in the marketplace to the aggressor.” Can you elaborate a bit more about that aggressive strategy?

Bernie Bicknell I think that aggression will show its face in two ways. In the approach to the consumer we must be a compelling alternative to Bunnings. We cannot simply be a ‘me too’ and I think Mega proved that. If we do not have a different offer and a different reason for consumers to walk through our stores we will not have a long term future. I believe that’s true of all the independent players. You’ve seen a little more edge in our ads and we’re happy to acknowledge that saying no, we’re a valid alternative to the big box. You can find an offer in the Mitre 10 store and service that is not available through a big corporate player, primarily because of the ownership and the stint of the game of the independent operator – I think that’s one area. Secondly, within the market we don’t believe the rationalisation has gone away. In the independent sector of the industry there are two very distinct halves. There are those that are building their business and are being successful and are going to have long term future and there are those at the other end of the scale – those that are struggling competitively to make the financials work in their business and we’re seeing store closures. I believe – you’d need to confirm it – in the last six months five Danks stores have closed down in the Brisbane CBD for different reasons. That’s business that doesn’t come back. We will be chasing network. All our work has been about having network coverage. We want to have a Mitre 10 store in every relevant market in the country.

Adam Gordon How close to that are you at the moment?

Bernie Bicknell We’ve got just under 600 stores, we’ve got very good coverage, but we’re underrepresented in the metropolitan area as everyone knows. I think Danks are probably less well represented. What that means is when we go onto TV we’re not maximising the impact of our marketing spend. It means that we’re sometimes not able to get consumers because there’s no door to get through. We’ve got to chase that and I think that over the next six months you’ll see that we chase that one pretty hard.

Tom Prince Is there going to be emphasis on pursuing metropolitan areas, as per your guest Viewpoint editorial in the October Hardware Journal?

Bernie Bicknell Absolutely. We’ll have to be better at being able to put stores on the ground than we currently are but the aim will be to put stores into those areas where Bunnings can’t follow us. It’s a fairly clear strategy.

Adam Gordon It’s a tricky one though, given Bunnings’ fairly good track record at getting fairly good or prime real estate in the metropolitan area.

Bernie Bicknell If you take a line from say ten Kilometres from the Melbourne CBD there are probably thirty opportunities where there is no hardware offer. Many of the people who live in those communities don’t want to have to hop in their car and drive four or five Kilometres to buy hardware. So I think there’s an opportunity there but we have to be very very smart in the way that we put the offer together, making sure it really addresses the needs of each market.

Adam Gordon The Bunnings group have – as you’re probably aware of – launched a smaller version of their warehouse stores for that exact reasons you’ve just identified. Is it going to be a case of who gets there first?

Bernie Bicknell I think it’s always a case. Not only, but that’s certainly a component. Speed to market is absolutely everything.

Adam Gordon Is there a hunt for real estate at the moment in town?

Bernie Bicknell We don’t operate in the same ballpark as Bunnings do. Bunnings can basically throw as much money at it as they need to. We’ve got to be a lot more creative, we’ve got to find partners to do that with so it will be a lot more complex for us. But, we’ve got to do that.

Tom Prince How far down the track are you?

Bernie Bicknell First quarter really, we’re really only just starting. For example, there’s an awful lot of investment money with small investors who would love to be in a hardware store. But, they don’t have the understanding and the knowledge to run a store successfully. We’ve got to turn our mind to more formal training programs, how to educate these people, how to provide support for them when they’re in their early days. It’s really a franchise model when you think about it. We are in early days and we’re now starting to resource up that area to do that.

Tom Prince So when could we see a model store?

Bernie Bicknell You’ll certainly see it before the end of the financial year, so midway through next year.

Adam Gordon Some of your members have obviously been in the industry their whole lives so is there a sort of mentor program between the members there?

Bernie Bicknell Yes. That’s worked informally but very effectively over the years. Always, you use that information. We’ve got some successful stores. Take Chalmers in Camberwell for example. We can learn a lot from that store as an example. So you can understand the margins that are available, the cost of doing business, what sort of critical mass you need – there’s a whole bundle of things you can learn from our existing members. They’re a very rich source of learning.

Tom Prince Is there anything else you haven’t mentioned yet?

Bernie Bicknell I think there’s a window of opportunity. On the understanding that this Coles thing goes through it’s a huge huge challenge for Wesfarmers and I think the hardware industry, the competitors to Bunnings, should see it as a window of opportunity to get more aggressive and to try and make some progress. I think for too long they’ve had the running on their own. I still believe that the idea of Danks competing against Mitre 10 head on – I’ve said this before – is absolutely music to Bunnings’ ears because it’s having the fight at the wrong end. Make no mistake, Bunnings think that both ourselves and Danks are completely irrelevant in the market.

Tom Prince Irrelevant?

Bernie Bicknell Irrelevant. Yep, I really believe that. They’ll be polite about it but I think they actually do not think we’re a relevant player on the market.

Tom Prince Gosh.

Bernie Bicknell Happy to be quoted on that.

Tom Prince Let’s move on to a different market, the comparisons to New Zealand. New Zealand is obviously a much smaller market but it is a lot more vibrant. I recall when I interviewed Mitre 10 Mega in Campbellfield that their business model was taken from New Zealand. Is there anything that can be taken from the New Zealand model these days that can be applied here?

Bernie Bicknell There’s a single critical factor with Mitre 10 New Zealand that’s made them successful. When the big box opportunity appeared they grasped it. Now, in Australia that was 1990 to 1992 and Bunnings was the only one that grabbed it. That’s the historical fact and Mega was an attempt twelve or fourteen years later to play catch up and that’s just not a good strategy. Mitre 10 New Zealand are very very strong and they’re actually beating Bunnings in New Zealand. They have more big boxes on the ground than Bunnings have and they’re very successful. Something like 60% of Mitre 10 New Zealand’s business is done through their Mega stores. They’ve applied really good skills, they’ve done what they’ve had to do but the important thing is they did it on a timely basis. They did it when the time was right and you can’t undo that. I can’t wind the clock back fourteen years. I often wish I could.

Adam Gordon We hear a lot about the success of Kosta’s as a Mega brand.

Bernie Bicknell And it is. The problem is not the stores. The stores are good. The problem is the way it was set up actually impacted the Mitre 10 company’s financials. It cost us too much to try and start the thing up. There are a whole range of other things, you could spend an hour talking about Mega and some of the learnings out of it. I guess it’s pretty easy to have twenty twenty hindsight on all that too. The stores themselves have a place. We will still develop big box stores when the opportunities come up. We’ve got [inaudible] who is just now going through the development and design stages of a thirteen thousand square metre big box. That’s exactly the right thing for his market and he’s more than happy to have the Mitre 10 brand on it. That will be a good combination but in terms of corporate it’s not the main game for Mitre 10 as a company and that’s where the hurt’s been.

Tom Prince So where is Mega heading?

Bernie Bicknell Mega will evolve over a period of time. The stores themselves are becoming better and better. They’re here to stay but they’re not the main game for Mitre 10 to play. We have to be able to put small stores down in small markets, big stores down in big markets. The harsh reality is that Bunnings have already got a lot of the big markets so it’s just a lot less open to us. The other big learning is that we don’t to run corporate stores. We actually want independent operators. I think Kosta’s at Campbellfield is a great example of that. It’s got a lot more energy because of the fact that it’s got the Kostas actually running it – people who know what they’re doing. So I think it’s got a role. The Mega issues are more about the relationship with the company than they are about the relationship with the market.

Tom Prince What is planned for the next Mitre 10 trade show?

Bernie Bicknell The next one will be in Australia and we’re working on something at the moment in Melbourne. We can’t announce it yet but it’s an alliance that I think people will really warm to. We’re yet to sign so it would be inappropriate to talk about it but we’ll probably break it up into two halves. We’ll probably have a formal conference and trade show and then six months later we’ll have another one, more of a buying product or [inaudible]. So what suppliers want to be able to do, more than once a year, on a national basis, is to show their new products and have access to our stores. It’s still in development stages. The other thing we’ve got running is called ‘Simply The Best’ which is a loyalty program for our stores.

Tom Prince You took them to China too.

Bernie Bicknell To Beijing. At the moment we look like putting a study tour together in twelve months time that’s potentially going to Europe to see the best retail offers. That’s been a very successful program. We run I think it’s fourteen suppliers and forty stores so we took a hundred and twenty people to Beijing. In connection to that, because we were going to Shanghai for our conference, it made a lot of sense logistically.

Tom Prince Will you continue with the openness that you had with this last one?

Bernie Bicknell Absolutely. It was such a powerful result that we’ll include suppliers in all of our sessions now.

Adam Gordon [inaudible] certainly seems a lot more positive about the situation. I guess that comes through just knowing what’s going on rather than speculating.

Bernie Bicknell Yes. As you can tell from some of the things I’ve said today I don’t think there’s any secrets. I really don’t think there’s any secrets there. We’re more than happy for people to understand what we’re trying to get done. To acknowledge when we have a win and in the case of Mega where we haven’t to own up to it and say yes, we understand. We’re not trying to gloss over anything.

Adam Gordon Do you think the market’s healthy at the moment?

Bernie Bicknell I think the market is healthy. News South Wales has been a problem for everyone and interestingly enough, just talking to a couple of the big trade suppliers recently, they haven’t seen much of a bounce in New South Wales. I think the market would be very very healthy if New South Wales was back on the boil and it’s not. It’s probably flat at best.

Adam Gordon Do you think that’s partially or largely to do with the drought, that’s probably impacted that state more than others?

Bernie Bicknell There have been seven years of drought, there’s been a flattening out of property prices which I think has made for a loss of confidence, particularly in the Sydney market, and I think the issues politically and the problems that the government has had, have really dampened the whole economy there. I think a lot of people are struggling. It’s historical truth in the past that whenever you have an election people tend to hold their breath and the economy doesn’t move forward so I think that’s a real risk as well. All in all, the market’s pretty good. We’re quite heartened by the trade into the market. We’re finding that we’ve had very very solid growth in trade over the last two years and that’s continuing.

Adam Gordon You guys are implementing programs. You were talking before about training, a lot of product training as well because your point of difference has got to be backed up obviously.

Bernie Bicknell Product training is accessible and easy to do but I’m also talking about management training. For example, when someone who owns a thousand square metre store gets into a four thousand square metre store because they’re expanding, suddenly they’ve got more staff, they’ve got different supervision structures, and a whole range of management problems they probably never had. The product training is always there and I think suppliers do a very very good job. I think the amount of trouble they put in and the number of places they get to for product training in this country is really quite commendable. I think what Mitre 10 now has to get much better at is the training on how to run a store. We’ve seen it and we’ve provided a lot of help but when owners step up in scale – suddenly they’re in the AFL – and it all happens with a lot more intensity. It’s more about that to enable those people to develop their businesses.

Adam Gordon With your suburban focus, as we just touched on before, one of the key issues is real estate. Given the areas that where both you and Bunnings have a presence, do you have any specific strategies to increase the local awareness of where the Mitre 10 stores might be?

Bernie Bicknell Yes. That will give us some distance but really we just need to put more down on the ground. Just a point of clarification – when you talked about Bunnings downsizing, they’ve been talking three thousand and thereabouts. I’m talking about four hundred to fifteenhundred, so I’m talking about being able to put a store in Port Melbourne, Saint Kilda, South Yarra, Abbotsford, North Melbourne, Carlton. [ED: These suburbs are all inner city suburbs].

Adam Gordon Small stores.

Bernie Bicknell Yes. Probably a one and a half to two million turnover store that supports a small team, a mum and dad operation. Whether a three thousand square metre store is to be got, and there are still some country towns that need to get bigger, we’ll do that. But, we’re approaching it from different ends.

Adam Gordon There’s a Danks store – and I don’t want to bring up the opposition – Sunlite City Hardware in Sydney – is I think a good example of that small sort of format.

Bernie Bicknell Well we’ve had two Danks stores in Sydney come across to us, Cronulla and Bexley – Thrifty Links that are now Mitre 10s. That’s a great addition to our brand. They’re not huge stores but they’re good stores. But, they’ve just increased our footprint so that’s just increased our Sydney advertising enormously.

Adam Gordon So will that be a focus of Mitre 10 in terms of growth as to looking to recruiting new members?

Bernie Bicknell Absolutely. We will now step that up considerably. Again, sometimes that will mean competitor stores will want to get out of business and they will want to cash their investment up and we’ll have to be able to find a new owner and make sure they are able to successfully run a hardware store. We’re now seriously chasing down that spot and I think Danks will tell you exactly the same thing.

Adam Gordon Have Mitre 10 got some new financing arrangements at all?

Bernie Bicknell Now that this thing is absolutely put to bed and won’t happen – we’re now moving on. We will now look for another equity partner. I have no idea where that will take us at an early stage. When I talked to you before we started the interview I thought there had been a little bit of misquoting in the press. One of the misunderstandings was that this was being driven by Mitre 10 wanting a public listing. Well that’s not the case, that’s not what drives it at all. That will take whatever fall, it’s actually about getting a strong strong number two player on the market. We’ve started to work very early days to go and find another equity partner.

Adam Gordon Anyone on the…

Bernie Bicknell That was the other thing that happened to me with the Fin Review. They actually quoted a name which was so far out of left field it didn’t make sense to anyone, including the party they named. Any work we’re doing is under confidentiality agreements. When we get to a point we’ll be happy to talk about that.

Tom Prince Is there anything else you wanted to add?

Bernie Bicknell I always tend to be the one preaching the need for change. I’ve said this in China – we’ve no right to survive and to thrive other than through being relevant and if we’re not relevant, regardless of what brand we have over the door, the independent hardware sector will just get smaller and smaller. I think a lot of the good stores understand that but I think that’s actually the issue. Relevance and providing a good compelling alternative to the big boxes. That will be the arena we compete in over the next five years.