Review Preview

Review of 2010
1) Mitre 10 sold

Shareholders overwhelmingly approved the sale of a 50.1 % stake in Mitre 10 to Metcash Limited. Metcash has the right to purchase the remaining 49.9% of Mitre 10 after the finalisation of Mitre 10’s audited accounts in either 2012 or 2013. Mitre 10 CEO Mark Burrowes resigned at the end of May, allowing former Metcash staffer Mark Laidlaw to take over.

2) Big hardware stores change hands

Crane Group, which includes the Tradelink plumbing outlets under its corporate umbrella, buys Hudson Building Supplies’ 15 branches in NSW and Queensland for $31.5 million. In May, Woolworths acquired Gunn’s retail hardware store business in Tasmania for $40. Bunnings buys Mitre 10 stores in Lithgow and Cowra.

3) Woolworths-Lowe’s takes root

The first 12 Woolworths-Lowe’s store sites are announced in Victoria. The Braybrook store in Melbourne’s western suburbs reportedly becomes their initial focus instead of Coolaroo, as previously announced.

4) Category and range reviews

Bunnings continues with aggressive range and supplier reviews to further improve performance and unlock the ‘space prize’. Nippon Paints, Bostik, HB Fuller, Black & Decker, Yates and Selleys all have lines or entire ranges deleted.

5) Paint manoeuvrings

The demerger of Dulux Group is a standout success, though time will tell as to whether a large international company such as Akzo Nobel take a stake. The acquisition of Wattyl by Valspar is a positive for the industry and is expected to provide a more competitive environment.

6) Warehousing withdrawals

ASSA ABLOY withdraws from the Mitre 10 warehouse to open direct accounts with members, as does Makita at the Danks warehouse. Wholesalers may face further movement unless costs can be brought into line with efficiencies.

Preview for 2011

1) Population growth to remain in line with expectations, being 1.9% per annum over the coming decade. The cocktail between births, deaths and migration will alter slightly, though it’s unlikely to impact the trend.

2) Interest rates increased in May this year and again in November placed more pressure on consumer confidence, household finances and impacted negatively on discretionary spending. Retailing through 2011 is expected to be tough.

3) The new housing market is going to be static for the next decade against a current build rate of 145,000 to 150,000 hoses per annum. The problem of affordable housing won’t improve.

4) The Home Improvement sector should fair relatively well due to the on-going needs of consumers with regard to maintenance and repair, as well as the longer term ‘nesting’ trend. Household sizes (formation levels) and growing families will underpin a strong DIY and home improvement sector.

5) Corporate retailing groups are expected to gain market share over the coming decade as buying groups and independents suffer closures through a combination of succession planning and an inability to compete across the critical areas of range, convenience and price.

6) Suppliers are already weighing up their distribution commitments (cost) and identifying the franchised members and independents that are likely to prosper. This means that more suppliers will withdraw from supply through wholesalers and deal directly with those stores.

7) The following categories will come under increased competitive pressure as a result of the Woolworths-Lowe’s joint venture – flatpack and modular kitchens, bathrooms and laundries; plumbing; lighting and window furnishings.

8) Amidst a slight improvement in sales over the past year has been a greater degree of pricing activity that is expected to increase and impact negatively on the industry profit pool over the foreseeable future.

9) With Valspar’s acquisition of Wattyl, we can expect to see more competition between the two category leaders, Dulux and Wattyl.
By Geoff Dart and Mark Daffey.