From tools to TVs… The rise of diversification

As traditional power and hand tool companies compete for business, many are achieving their goals by entering new markets. From vacuum cleaners and mowers to TVs and lighting, new product categories are emerging to supplement conventional tool sales. John Power reports.

The idea of ‘diversification’ is nothing new in the Australian retail hardware landscape; indeed, the nation’s largest company, Wesfarmers, which owns our largest hardware chain Bunnings, represents a century of corporate diversification and evolution, having started out as a simple farmers cooperative in Western Australia.

Now, many of the star manufacturers represented in stores like Bunnings are themselves reaping the rewards of diversification, making the most of solid brand recognition and logistics expertise to not only expand their ranges of hand and power tools, but also to enter non-traditional sectors.

Perhaps the most conspicuous of these conglomerates is Milwaukee, which now features products in power tools, hand tools, outdoor power equipment, batteries and chargers, lighting, storage, clothing, and other sectors. It is a long way from the company’s early days in the 1920s, when its Hole-Shooter drill was the mainstay of the business.

HiKOKI (formerly Hitachi) is another business with far-reaching product inventories, spanning huge ranges of cordless and plug-in power tools, petrol and electric outdoor power equipment, washers, fasteners, batteries, and even a cordless 18-volt digital TV and radio with Bluetooth to offer tradies the latest in rugged video monitor support.

Bosch and DeWALT have also entered new markets with high-quality laser measuring equipment immediately making an impact in established sectors and causing long-term suppliers to treat their new competitors very seriously.

Not to be outdone, Makita has become a hardware powerhouse with a presence in power tools, garden equipment, cases and storage, and much more. And, like so many of its rivals, Makita continues to enhance its ranges with specialist subsets of products – a good example is brushless motors. 

Nowadays, it is almost possible for a professional tradesperson or serious DIY handyman to conduct all their work activities under the livery of a single favourite brand: for instance, Black & Decker offers everything from mowers and blowers, drills, grinders, speakers, work lights, car vacs, batteries and chargers to window cleaners.

The trend towards diversification has been so great that companies that have monopolised specific product lines must be shaking in their boots, just waiting for traditional tool companies to enter their domains. Could high-profile brands like Kärcher and Gerni, for instance, be under threat from new-generation competitors? Of course!

Batteries: the catalyst

Arguably, these recent explosions in product inventories can be attributed largely to the rise of battery power, which has stimulated both a change in mindset and behaviour amongst our top power and hand tool providers.

Prior to the global market acceptance of Li-Ion battery technologies over the last decade, power tool companies, in particular, focused their attention on individual tool categories. In other words, companies scrambled to dominate particular product lines at different price points. Not surprisingly, customers’ workshops before 2010 usually included a rich and colorful mix of tool brands, as buyer loyalties drifted from one manufacturer to another depending on minute differences in product performance.

The rise of battery technologies, however, stamped out a lot of the market’s variation – today customers embrace large ranges of products from a single manufacturer in order to avoid using multiple battery-charging platforms. Without realizing it, customers have replaced ‘product loyalty’ with ‘brand loyalty’. And it is easy for customers to add a new product (from their favourite manufacturer) to their collection when they already have a compatible powerpack in the workshop, hence the massive expansion of tool product classes available from individual suppliers as a means of ensuring that existing customers never have a reason to check out a rival-platform product. 

Just the beginning

It would be easy to say the argument for product diversity and range enhancement ends there, with battery functionality pushing customer behaviour towards ever-increasing brand allegiance.

But there are additional complexities that manufacturers have become aware of. From a marketing perspective, iconic brands are worth their weight in gold, and savvy hand and power tool companies know that their trusted labels can boost sales when applied to a whole new world of non-traditional products – from cleaning pads or all-weather jackets to toolboxes and portable work lights.

Workwear and personal protective equipment (PPE), in particular, have been obvious categories for tool companies to embrace, as clothes branded with a recognisable ‘trade’ label have instant credibility compared to gear from fashion houses.

Not only do suites of new product lines and accessories gratify companies’ cravings for market diversity, but they also help manufacturers establish an entire corporate culture based around full-solutions offerings. Unsurprisingly, some power tool brands are now almost as powerful as sporting clubs or alcoholic beverages as far as brand loyalty is concerned! It makes sense to make the most of this marketing clout across numerous manufacturing bases.

Beware the competitors

A separate reason for heightened product diversification relates to potential competition from outsiders moving into the power tool sector. Product diversification works both ways: there is nothing stopping a Li-Ion battery producer or cordless mower manufacturer, for example, from entering the power tool manufacturing segment, which means hand and power tool companies are keen to diversify and expand their business interests into new fields as a protective measure.

NB: the incursion of new players into an established manufacturing sector is perhaps best observed in the automotive trade, which is rapidly evolving from ‘vehicles’ into ‘mobility services’, complete with new investment from previously unrelated companies specialising in hands-free automation, battery-powered propulsion, aeronautics, etc.

Hand and power tool markets are equally susceptible to competition from external entities with expertise in electric motors, in particular, as these new kids on the block seek to deepen their direct involvement in downstream manufacturing markets. Will we see a Tesla power drill or grinder on our hardware store shelves any time soon? Or perhaps a Microsoft-based inventory management system for power tools, all linked to a centralised remote control centre showing charging status, maintenance scheduling or seasonal job tips? 

Perhaps not, but there is no doubt that as successful Li-Ion battery and electric motor companies grow and mature, so there will be an accompanying temptation for these producers to become full tool manufacturers rather than component suppliers.

For this reason, the best power tool manufacturers today are eagerly pursuing their own research and development agendas, minimising their reliance on OEMs (Original Equipment Manufacturers) and owning as much of their supply chains as possible, while simultaneously forging new markets in cleaning, storage, garden tools, etc. 

Technological independence and product depth – notably in relation to battery and charging technologies – are necessary if Goliaths are to discourage Davids from entering their territory.

Service diversification

Another crucial focus of attention is on ‘service diversification’, rather than pure ‘product diversification’. Companies like DeWALT are producing expansive ranges of mobile battery charging systems, for example, to make life easier for professional tradespeople. Remote, rapid charging stations, to be sure, will only become more vital in coming years as ‘ease of use’ becomes as influential as actual tool performance in the eyes of customers.

Similarly, just as the need for single battery charging platforms has motivated single-brand loyalty, customers’ desires for simple management systems (like Milwaukee’s ONE-KEY platform) will affect buyer preferences. 

Greater product ranges require more advanced and complex inventory and product management systems, and to date we have hardly touched the surface. Certainly, companies like Bosch have made headway with tool-specific configurations via their Toolbox smartphone app, which allows users to adjust tool settings and parameters according to specific work environments or projects. As such, as apps become more intuitive and user-friendly, and increasingly aligned to energy-saving protocols, it is reasonable to assume that companies with the most complete management packages will entrench brand loyalty even further.

Distribution diversification

Finally, it is worth noting that product diversity paves the way for distribution diversity. While hand and power tool manufacturers are fundamentally bound to retail hardware partners for their day-to-day sales, many are keen to expand their horizons into other sectors with new retail friends. For instance, it is possible to buy a Milwaukee heated jacket or a HiKOKI TV/radio via Amazon.

What does this mean for hardware retail outlets? At the very least it means hardware buying managers must be aware of increased competition, as suppliers use product diversification to open up new markets and fresh retail alliances, both physical and online. 

It also means that the traditional strengths of retail hardware outlets – namely staff guidance and expertise, clear and tactile displays, as well as great pricing – will be more important than ever as suppliers chase the best sales channels for their products.