Industry Insights 2018
In this 2018 edition of ‘Industry Insights’ the Australian Hardware Journal conducted exclusive interviews with industry leaders, revealing their thoughts on the year that was and predictions for the year ahead.
Independent Hardware Group (IHG)
Chief Executive Officer, Mark Laidlaw
IHG Chief Executive Officer, Mark Laidlaw, made it very clear during his exclusive interview with AHJ, that IHG’s primary aim as a business is to unite independents and collectively offer the Australian shopper a genuine alternative to the Big Box.
“Independents, as a united force, can be very powerful. We started this journey with the merger of the Mitre 10 and Home Timber & Hardware businesses. The last two years have been about bringing together and integrating the businesses under our four brands and helping all members become the ‘Best Store in Town’.”
Although Mr Laidlaw admits that this has not always been an easy path because, “we have spent too much time and money fighting each other,” he says, “Now it’s time to move beyond this and build a successful model that protects all independents in the long term.”
“The Big Box is an independent’s only true competitor. Independent buying groups have a common cause and at some point, we all have to come together and give Australian consumers choice versus this large and formidable competitor,” he said.
When discussing how independents can come together, Mr Laidlaw pointed out that it was not about uniting brands, but more about working together under a successful business model that provides a sustainable future.
“We believe we now have that model with genuine value-add programs that will protect and grow our members’ long-term position. Our strategy is consumer led – a big difference between us and other groups. Every decision, on behalf of members, is based on analysing scan data and consumer trends. We don’t just buy – we select the right range and brands that consumers want, not what the suppliers want to put into stores. We call it the ‘shopper led range’,” he said.
The new ‘shopper led range’ is one of four major initiatives accomplished by IHG over the last 12 months, according to Mr Laidlaw.
“The shopper led range is our recommendation on ranges we believe our shopper wants. It spans every department, all 228 display groups, and there’s a SKU count suitable for small, medium and large stores. Importantly, our warehouses hold 26,000 SKUs, 80 per cent of which are available in single units. This means smaller stores can actually receive single pick items – they do not have to buy the whole carton and we deliver this free in-store. That is helpful to all independents.”
“The second major goal in 2018 has been the significant growth of our ‘click ‘n collect’ program. We expanded e-commerce to Home and Thrifty stores in May, partnered with ZipPay and AfterPay, and we now have over 6,500 products online. This is driving additional sales to our stores – even without carrying the stock. As a bricks and mortar retailer we recognise the importance of e-commerce and have committed to a strong digital program. There are not many independent groups that can commit to this type of investment and make it work,” he said.
The third achievement for the year is IHG’s ‘Best Store in Town’ or ‘Sapphire Program’, according to Mr Laidlaw, who believes one of the biggest challenges facing the industry currently, is independents recognising the value in investing back into their businesses.
“Small business is tough so I can understand why some don’t see the value, but it is so important for long-term viability to reinvest every five to seven years. The ‘Sapphire Program’ is about sharing that cost with our members. We have now completed 40 Sapphire stores, and they continue to grow with most exceeding a 20 per cent sales uplift year on year. We will be ramping this up significantly over the next few years – a mix of DIY/trade and trade-only store transformations.”
The fourth achievement is within the trade area, with Mr Laidlaw saying this segment remains a strength for IHG and its members.
“Trade is the foundation of our model and where the greatest future potential for the Group lies. We are a two-billion-dollar business and over two-thirds of that is driven by timber and building supplies alone.”
“Our strength is the ability to work together in trade cluster groups, and to reposition our network as a ‘whole of house’ business, including frame and truss partnerships and front of wall plumbing and appliances, through IHG’s wholly owned Harding’s business.”
When reflecting on the past 12 months, Mr Laidlaw said he is very “enthused” by the culture that has developed amongst the IHG members.
“It has become evident, in our Family Village Tribe meetings, that our members now realise no matter what their brand they can come together and work together, and be stronger as one.”
2018 has also seen IHG continue to evolve initiatives that help lower the cost of doing business for independents, including common trading terms for all stores and a new online rebate portal, as well as making steady progress on the brand strategy.
“Our brand roadmap is clear about leaving no one behind. There is a place for all independents in our model but members are also now recognising that a strong volume needs to be under the Mitre 10 brand to expand our national presence and be a genuine alternative to the Big Box. We have been open and transparent with all members on the brand options they have available.”
When looking to the year ahead and talk of an economic downturn in the industry, Mr Laidlaw said the question is whether the downturn is a “correction” or a “crash”.
“We are coming off record dwelling approvals. In the next two years demand will dampen, but it will still be higher than the previous ten-year average,” he said
“I believe there will be a correction but I don’t believe there will be a crash and, for us, this presents great opportunities, particularly in renovations, additions and alterations. This is an area we are strong in and we predict this will remain steady, perhaps even grow as new dwellings come off,” Mr Laidlaw said.
When looking at the year ahead, Mr Laidlaw said the IHG strategy remains consumer driven.
“We have piloted four trade concept stores and plan to roll out another eight in the next 12 months. These will be supported by our trade technology including Truck Tracker, Trade+ and Tradies Online. We are investing heavily into this area on behalf of our members.”
“IHG’s ‘Sapphire Program’ will ramp up and by 2022 we expect 200 stores to have completed the transformation. The group’s supply chain will also see continued development with a state-of-the-art distribution centre opening in Queensland,” Mr Laidlaw said.
“The great thing for us is that Metcash continues to invest in the hardware pillar. Metcash has a very strong balance sheet, and will continue to support the right opportunities in the hardware space. We have the strength and synergies of a corporate, but our mission is all about building successful independents.”
“As a low-cost and transparent business partner, we know we are only successful if our independents are successful,” he said.
Hardware & Building Traders (HBT)
Chief Executive Officer, Greg Benstead
It has been a busy 12 months in HBT, according to HBT Chief Executive Officer, Greg Benstead, who said membership continues to grow well on the back of 22 years of consistent growth, with the group now boasting over 700 members.
“We have been very fortunate to grow consistently over the last 22 years with our membership continuing to grow well. From a supplier perspective, we are actually in the middle of a significant category management project, where we are making sure that we have all the right suppliers for the group. A lot of our recent meetings, with our buying team and suppliers, have been based around growing business. We have been visiting suppliers to try and understand their strengths and weaknesses and also make sure we are aligned with their strategies as well,” Mr Benstead said.
“Every category has its own little idiosyncrasies. Therefore, a lot of our recent meetings have been about optimising our suppliers. That does not mean we delete anyone. It just means where it is very obvious that select suppliers are doing business that will grow a category, we let our members know about those opportunities.”
“One of the great strengths of our group is that all of our efforts are about trying to improve deals and sales for members. We do this by pushing more sales through to the suppliers who are supporting us which is a ‘win win’ for everyone,” he said.
According to Mr Benstead, a recent steering group meeting saw a long conversation between HBT members and the buying team, and clarifying what traits needed to be consistent with suppliers to ensure they are highly beneficial to the group.
“Consistent supply, a quality product, reps on the road, merchandising strategies, promotional and marketing opportunities, good rebates for members, being easy to deal with, all of these things combined make a good supplier. If you tick all the boxes then you are going to continue to grow, it is as simple as that,” he said.
When discussing particular areas of growth within the hardware industry, Mr Benstead said he believes every buying group could have shown growth within a particular area over the last 12 months.
“Growth can occur simply because you put a focus on a particular area, which means some of it may be stealing share from competitors. The best growth is when the category is growing and the stores are dealing with the right suppliers and maximising the opportunities.”
“When looking at this more broadly and asking what categories we believe are growing in the market place, yes there are quite a few. You only have to look at building these days to see that traditional timber veneer homes, as we knew them, are becoming a smaller percentage of residential construction. We now see housing being built with all new materials, with varying renderings and composite products. So building and construction these days is different, and therefore these along with the tools and sundries that are used in construction are the emerging categories that seem to be growing.”
“The stores that get behind these ranges early enough also become winners as well. Retailers need to constantly review the market. A lot of retailers have a consistent range of products that their customers have traditionally purchased. The growth is often in having the new/alternate product as well as educating their customers, in regards to a new direction, because this can help their customers’ business as well,” he said.
Supporting members who have their own brand names, and improving rebates and sales for all members remains a primary focus for the group. In regard to branded stores, Mr Benstead said that HBT is happy to assist any members who wish to brand their stores either to H Hardware, or under the new banners of ITT (Industrial Tool Traders) or Paint Traders (to be launched shortly). History has shown that these brands can assist in store growth and therefore is an important option for many members, he said.
“H Hardware began as a ‘brand in a box’ for members who wanted to pick up a brand that was ‘professional, planned and had market stand out’, but not a franchise. That is what H Hardware is about. We are still very excited when members open new ‘H’ stores and we are constantly supporting this brand and creating marketing and promotional options for that group. It is simply an option for our members,” Mr Benstead said.
“We have done exactly the same thing in the ITT world with the Industrial Tool Traders brand. Our first ITT store will be launched very shortly under the new brand. We also have a brand called ‘Paint Traders’ where we will be doing something similar that many of the independent paint stores can take advantage of. So clearly, we are continuing to push that option but only for the members that wish to go that way. HBT is primarily a buying group and that will always be our number one focus. We will always support independents who trade under their own brand name, that is our foundation,” he said.
Although the industry has been talking about a small down turn in the economy in the year ahead, Mr Benstead said the downturn appears to be primarily from a credit squeeze rather than anything inherent in the economy.
“I believe you always need to be looking forward and thinking about what is happening in the marketplace. The best retailers find a way to grow business in new areas to make up any shortfalls in others.”
“In regard to the credit squeeze, and through talking to a lot of suppliers, we are finding that a lot of forward estimates point to a softening in high rise construction over six or seven stories. Generally you will find the refurbishment market and the normal housing market seems to be holding up in most places.”
According to Mr Benstead, a primary focus for HBT in the year ahead is further, “look after the real independent”.
“From our perspective, we will continue our goal of being ‘the best little buying group,’ in Australia and our plans are focused on ensuring the real independent HBT and ITT members continue stronger then the ever.”
“We will be putting more focus into those states that are showing renewed growth, including South Australia, which is growing very well at the moment. We also believe we will see growth in WA. There seems to bit of a tailwind heading that way again after a couple of years of softness, which is why I believe WA will be another area of opportunity for us in the year ahead.”
“In NSW there have been some recent question marks that it may have hit its peak, however we have not necessarily seen a decline at this time. We have just seen it softening a little in some categories however still growing in others,” he said.
The buying/business teams, along with Mr Benstead, have also spent the last few months running state meetings. According to Mr Benstead, the meetings have so far been a success and will be a preferred mode of communication for the group moving forward.
“We have been running a lot of members’ meetings where we go state-to-state, inviting the members to a location and conduct meetings. We have found these have been particularly successful so far and we are collecting a lot of good information about what is happening with our members and suppliers. This will be a major focus in 2019. After all, that is the most important part of our business…listening.”
“This state meeting concept was something we started a few years ago and we have now re-introduced this to ensure we maintain first hand communication with our members. I also believe it is far more beneficial and economical for our members if we go to them rather than the members having to come to us,” he said.
In the meantime, Mr Benstead said HBT’s new buying team has settled into their roles, after several new members came on board in recent months. New buying team members include Mark Sampson (ITT), Kevin Marshall (Hardware and Building) Peter Hurley (Timber) and Valentyna Skyba (Buying Administration), with HBT’s new General Manager of Buying, Jody Vella.
“The new buying team is very busy and it seems everyone has their head around the categories and growth and there are lots of plans for the year ahead as we roll forward. Our members will benefit when all these plans are complete,” he said.
The new team, along with the member team under Mike Loricco, includes Gavin Keane and Steve Sanders who are all working on ensuring that HBT members get “communication and support to ensure independents have the ideas, deals and backing to make 2019 a great year”, he said.
Chairman, Greg Ford
Activity has not fallen away in the Australian hardware industry, according to TradeTools Chairman, Greg Ford, however, there has been a slowing down of the industry’s upward trajectory.
“We have found that the strong growth we experienced earlier in the year is not quite as strong, however we are still seeing some growth. Sales are still going OK but it is not as vibrant as it was. This is particularly the case on the Gold Coast,” Mr Ford said.
The slowing down is coming particularly from the building industry, which Greg says, was predominantly evident after the completion of the Commonwealth Games.
“There was a lot of building activity in the lead up to the games on the Gold Coast, but a lot of this work ceased after the games, in April.”
When looking at specific growth areas, Mr Ford said his 18 stores, which span throughout Queensland (and one in NSW), have all shown similar growth throughout.
“The growth is nothing spectacular but it is steady. Our newest TradeTools store in Labrador on the Gold Coast, has also done well which we are happy with considering it can take up to 12 months to get off a trade store ground.”
“TradeTools Labrador is in a central location, and while it took some time to gain traction, it is doing quite well now and hitting all its weekly target figures. It is not unusual for a TradeTools store to take a good year before it settles down,” Mr Ford said.
When it comes to in-store products that have travelled well in 2018, Mr Ford said the TradeTools in-house brand, Renegade Industrial, has become stronger and is a larger part of the group’s turn over. Mr Ford attributes the house brand’s success to his customers developing faith in the brand.
“Renegade Industrial has been a part of the business for over 30 years and now represents 40 per cent of the businesses turnover. We plan to continually release new products under our house brand and also update our current products over time.”
TradeTools aims to open one new large store per year, with plans in place to open its eighteenth store in Cairns in the next six months, and another in Browns Plains (outer suburb of Brisbane), six months following the Cairns opening.
“But this is just what we do,” says Mr Ford. “We plod along like we have always done.”
“We have a funny old business model but it seems to work. For 40 years, I have watched other groups go on these massive expansion plans and then their plans blow up in their face. However, we don’t do that. We are bit older fashioned than that,” he said.
Looking into the New Year Mr Ford believes the forecast for the industry is that it will remain steady over the next
“I do believe there will be a downturn but this may not be for another year or two. It has definitely been a steady year but in saying that we are still up on last year so that’s good for us,” he said.
Managing Director, Jeff Wellard
The Construction Supply Specialists Group (CSS) recently reported that it will turn the half year (FY2018/19), well ahead of budget forecasts and expectations and is already looking to the second half of the year with great anticipation.
Strategies that were initiated last year, which are already providing positive results, will really start to kick in from February 1, 2019, CSS Group Managing Director,
Jeff Wellard said.
“Last year we decided the way forward was to stay focused on existing member benefit platforms while also developing new, innovative and progressive platforms that would ensure our continued forward motion. Working in an industry segment which can be quite volatile – due to technology changes, changing buyer expectations and new commercial interests entering the market space – can place added pressure on any business, especially if that business is unprepared and/or slow to react,” Mr Wellard said.
CSS continues to be flexible, fast moving and ready to leap over any hurdle, according to Mr Wellard, who said the group is currently reviewing all new, existing and proposed strategies to ensure they reflect the needs of members and the needs of their customers.
“A strengthening of our marketing presence across all mediums, closer attention to detail in purchasing and logistics, and the imminent appointment of a specialist brand manager, are key drivers designed to maintain our momentum.”
“While there is a little ‘chat’ about the possibility of a downturn a year or so away, we at CSS are working with our membership and our established supply partners to ensure we identify the ‘areas of opportunity’, that will be there for each and every one of us. Once identified, we will work together to ensure the required platforms, within our scope of operations, are put in place to give beneficial outcomes for all concerned,” Mr Wellard said.
“The road ahead may have some pot holes for groups like CSS, who represent independently owned and operated industrial entrepreneurs. However, if these are identified early and we make the necessary ‘moves’, members can certainly ride the bumps and come out the other end on top,” he said.
CSS has followed these principals over the past 16 years and acted when they needed to, which is why they find themselves in such a strong position today, Mr Wellard said.
“Just like last year, we still see industry rationalisation (corporate raiders and others using private equity funding to buy up profitable independents) and the growth of internet monsters – like Amazon and non-bricks and mortar players smashing price, margins and operational profits – as our greatest threats. In fact, not just our greatest threat, more importantly the industry’s greatest threat going forward. We all know that price is only one component of the value proposition and we will be working hard to ‘paint the full picture’ at all levels throughout our commercial community.”
“Our customers still tell us that product quality, first class service, ‘honest and fair-dinkum’ advice and being able to put a face to the people you deal with, are what is most important to them when making buying decisions. Fortunately, CSS members are geared up, focused and skilled in the art of selling ‘value’ to their customers, as opposed to just slicing and dicing dollars out of our market. This might sound a little old school, but we know it is working, because we see the results,” he said.
In saying this, the past year has still been a great 12 months for CSS, with new member additions fuelling some of the group’s double-digit growth. True organic growth also registered, by far, the vast majority of medium and long-term members and was the highlight of the year so far.
Mr Wellard believes this growth will, “continue well into the future as we work with professional and dedicated members, suppliers and end users within our expansive market segment.”
Chief Executive Officer, Robert Guy
Inspirations Paint has achieved another consistent year of growth, with group sales up six per cent in 2017-18, according to Inspirations Paint Chief Executive Officer, Robert Guy. The group also grew its market share in this period, selling 5.3 per cent more paint volume than the previous year, according to Mr Guy.
“While store numbers remained static, with new store openings balancing store closures, overall, the group performed better or in line with the market in all states. In 2018, the NSW building and re-paint market, and in particular Sydney, helped deliver the best trade paint sales volumes in the group’s history,” Mr Guy said.
“Inspirations Paint experienced almost 10 per cent growth in the overall paint equipment and supplies category. Like the previous year, paint application, preparation and the paint spray categories in particular, performed strongly.”
“In 2018, NSW/ACT was the strongest performing market, both for the paint industry and Inspirations. Inspirations Paint achieved double-digit store-on-store paint volume growth in NSW/ACT. Paint markets contracted in WA and Tasmania. Across the board, Inspirations Paint, by state, performed above or in line with the market in all states,” he said.
When touching on the expected downturn in the economy in the next 12 months or so, Mr Guy said he does expect overall market paint volumes to weaken in the next 12 months.
“It is a reasonable forecast to expect we will experience a slowing in paint sales over 2019. We expect that the weakening in the metro housing markets will dampen trade paint sales and that a federal election, flat wages growth and increasing fuel and energy costs will also put pressure on retail paint sales.”
“The first four months of 2018-19 has seen slightly negative retail sales, however, trade sales overall remain positive. Inspirations Paint has commenced an increased advertising and promotional program for 2018-19 and continues to increase the level of member operational support. Additionally, the group plans to open several metro stores in 2019,” he said.
Mr Guy also pointed out that the evolving role of Sherwin Williams in the Australian market continues to create uncertainty for paint retailers, as their corporate distribution strategy starts to form. It is for this reason that independent paint specialist retailers need to continually focus on strengthening their business models, supplier partnerships, operational support and marketing to remain relevant, he said.
“Also the last 12 months has seen the larger paint specialist chains increase their focus on owned-brand paint accessories and improving range and margins. This is expected to continue in 2019 and further rationalise the number of the broader range suppliers in this segment,” he said.
While Mr Guy said he does not expect a boom in the Australian paint industry in the next 12 months, Inspirations Paint continues to work on initiatives to develop new categories in the decorative concrete, waterproofing and remediation areas.
“In the coming year Inspirations Paint will continue its focus on providing increased levels of member store support, specifically centralised business systems, integrated general ledger and payroll, accounting services, marketing automation system, HR support and a comprehensive eLearning platform,” he said.
“In July 2018, Inspirations Paint acquired the Nerang and Oxenford franchise stores on the Gold Coast. These two stores represent the most successful and profitable retail stores in the group. As such, these stores will provide the group with a solid source of future group income to fund store marketing and store support services beyond the current levels as well as generating funds towards store and network development and strategic business initiatives.”
“The acquisition of the Nerang and Oxenford stores will also build the company’s store operational capabilities as well as improving franchisee and store management training and retailing capabilities,” Mr Guy said.
For now, Inspirations Paint plans to continue its growth in 2019 by also opening and acquiring several stores in key metro locations, he said.