Woolworths Acquisition of Danks gets the all clear
Whilst the market expected the ACCC to approve the acquisition in the $40 billion home improvement market, there are some retailers and wholesalers who fear a more competitive marketplace. Comparisons have been made with several retail sectors, namely grocery/supermarkets, pharmacy, banking and take-away food where independents and smaller local operators have not been able to compete. The independent hardware store network has been declining for some 20 years, with the trend continuing across Australia and New Zealand.
With the decline in independents also comes the decline of wholesaling and subsequently wholesalers. This is also in light of the growing proportion of product that is delivered on a Free Into Store (FIS) or direct basis from suppliers. Given the high cost of delivering to stores through a wholesaler, such as Mitre 10 or Danks, the outlook for a proportion of independent hardware retailers is not promising. As we have seen in other markets, there is certainly room for an independent network, albeit leaner and meaner than it is today.
The distinct success factors for these stores being location and a point of difference. As the retail network contracts and the market improves, the average sales per store will increase and result in more suppliers increasing the goods delivered FIS. A significant number of suppliers are already targeting the larger Mitre 10 and Home stores and opening direct accounts that not only take unnecessary cost out of the supply chain but importantly, ensuring that the store is more competitive, has adequate stock and timely delivery. On top of this, the independent retailers are faced with a succession planning issue, where the average age of store owner/s is increasing and many at or nearing retirement. This is exacerbated in a number of instances by the lack of interest from younger family members.
Many of these store owners are also sitting on valuable pieces of real estate with 65 also being of the size that may attract acquisition interest from Woolworths as a means of expanding their wholesale footprint and acquiring suitable sites.
As a leading advisory firm to the industry, we have found that a substantial number of suppliers welcome the entry of another large retailer onto the scene as it potentially allows them to spread their risk. Whether the Woolworths/Lowes venture succeeds or not, and the jury is very much out in that regard due to several key factors, it is likely to stimulate the market and offer consumers perhaps, a different shopping experience.
Ultimately, it is consumers who decide. Given the state of the market, and our expertise, we are currently carrying out briefing sessions with suppliers, investment banks and other organisations specifically relating to the changing face of this dynamic $40 billion industry.
Geoff Dart has been consulting to the Home Improvement and Building Industry for 20 years and is an associate director with Moore Stephens, a leading advisory and accounting firm with offices in all capital cities and a global network throughout 93 countries.