Predictions for the year ahead
Sales of industrial and trade tools in the year ahead will be subject to some volatility, writes John Power, with political, technological and economic forces all rattling the cage.
Industry analysts always look for social and economic trends when predicting the performance of major business sectors, but seldom have the trends been so hard to read.
When the equation involves variables like the erratic state of US politics, Brexit, Chinese expansionism, a slowdown in Chinese economic growth, an upcoming Australian election, falling Australian house prices, tougher lending practices, not to mention the escalation of e-Commerce retail trading platforms, it is easy to see why local analysts are tossing coins in the air to make predictions.
What are the main threats to business stability over the next year? Greg Ford, Chairman of the Queensland-based TradeTools business, which operates almost 20 stores, believes the biggest threat facing traders in the industrial and trade tool sector comes from China’s claim of sovereignty over Taiwan.
This attempt to create a final ‘reunification of New China’, Greg says, along with the 70th anniversary of the founding of the Peoples Republic, has the potential to upset the world economy.
“Of course, nobody expects the US to engage in an all-out war, but China could be belligerent enough to ignore the generally accepted fact that Taiwan is a separate sovereign state, and has been for seven decades. What will happen within Australian politics if that happens is anyone’s guess, but it is hard to see us continuing on with ‘business as usual’ with China, our largest trading partner.”
As Greg notes, “a downturn of only a few percentage points in economic activity could tip us into recession, and the falling housing market, stagnant car sales and current credit tightening wouldn’t exactly help.”
Signs of a nervous market are already apparent, he says, in customer behavior. While all product categories are performing reasonably well, Greg says sales of some consumables are showing signs of leveling off as the growth of building activity slows. “We are also finding though that [low] price point categories are performing well, plus our in-store repair business has recently grown considerably, both of which historically are potential signs of tighter economic times ahead.”
In the face of this volatility, Greg says his stores are continuing to perform well because of sound fundamental business activities, which always come to the fore during weakening market conditions. These include a growing reliance on the group’s home brand of tools, Renegade Industrial, which now accounts for 40 per cent of all trade. With complete control of Renegade’s product mix and marketing, TradeTools is able to satisfy prevailing local market demand instantly via new technological media such as Facebook, Instagram, YouTube, and the group’s own very popular website. “Plus, the Renegade brand has been going since 1989, so it is properly established and quite well known.”
While political uncertainty is undoubtedly causing headaches for business development managers, other factors are also likely to influence the evolving nature of trade in 2019.
Online sales, for instance, continue to offer additional revenue while simultaneously ruffling feathers, as the direct benefits of investment in online trading can often be hard to quantify: how important will e-Commerce be in 2019 as far as trade tools are concerned? Traders like Greg declare that while online trading deserves respect, it has lost some of its mojo.
“It started off with a bang some years ago,” he recalls, “but like most online business, it reached a critical mass and then settled down somewhat into a predictable pattern.”
Australian Hardware Journal asked several other trade tool retail groups to explain how important online trading is to their overall revenue; unsurprisingly, perhaps, all refused to reveal the exact percentage of revenue derived directly from online sales. But we can observe the growing importance of e-Commerce based on an increase in direct-sales tool listings on retailers’ websites, as well as a heavy emphasis on specials, associated social media marketing, online instructional videos, as well as increasingly complex mechanisms to divert online customers to additional products and categories.
One of the biggest challenges for retailers is to work out what influence, if any, a website is having on customers’ decisions to visit a bricks and mortar store – i.e., even if a customer has not made a direct online purchase, the portal might still have motivated the customer to visit the store. This kind of data is notoriously difficult to refine, but it is of great relevance to the industrial and trade tool sector, particularly at the top end of professional product ranges, because costlier product purchases are more likely to involve a personal in-store inspection following online research.
While 2019 will inevitably involve significant unpredictable forces, it is likely that the rising value of e-Commerce will be a more tangible feature of the year ahead.
In a recent Australia Post report1, a number of statistics verify the trend towards increased online business. In 2017, the report states online sales of homewares, for instance, grew by 21.3 per cent. While homewares are not trade tools, it is noteworthy that average spends were $95, showing that customers are becoming more prepared to make significant purchases via the Internet.
It is also significant that, “a new generation of consumers is reshaping the face of online shopping,” the report states. “Australia’s 18-to-36 age demographic has increased by half a million people since the last census, now representing 26 per cent of the total Australian population. This group values flexibility and transparency, and embraces new technology and services.”
Tradespeople, of course, fit this demographic precisely.
The other salient point of the report is that ‘buy now, pay later’ (BNPL) services, like AfterPay, are gaining immense popularity, and now represent 7.7 per cent of ALL online purchases in Australia – a trend that trade tool retailers should take note of.
Wait and see
Even if trade tools stores manage to get all their fundamentals right, from in-store presentation to pricing, range depth and online/traditional marketing, there remains a powerful ‘wait and see’ aspect to the year ahead.
Regardless of which events trigger the most turmoil, it seems inevitable that we will be cursed to live in interesting times throughout 2019.
1. Inside Australian Online Shopping: 2018 eCommerce Industry Paper. Australia Post.