STATE OF THE NATION 2019 – THE VIEW FROM THE TOP

By Steve Bohling April 16, 2019 Hard Talking - Industry interviews

In our annual “state of the nation” survey, we find out what’s new with the DIY and home improvement retailers and builders’ merchants and seek their outlook – and plans – going forward.

To view a PDF of the complete feature as it appeared in NZ Hardware Journal magazine,
click the download button at the bottom of this page.

If you want to find out what’s going on, you go straight to the top.

In this respect, four out of a possible six “captains of industry” in the New Zealand DIY and home improvement channel agreed to take time out and answer the same questions:

  • Toby Lawrance, GM NZ of Bunnings NZ
  • Darrin Hughes, CEO of ITM
  • Matthew Washington, Acting CEO of Mitre 10 NZ
  • Bruce McEwen, Fletcher Building’s Distribution division Chief Executive for PlaceMakers & Mico.

In case you’re wondering I also invited Mike Guy at Carters for his comments (request politely declined) and caught up separately with Kevin Marevich to talk about BuildLink in what’s developing into something of a “watershed year” for the co-op.

As well as posing the same questions of all our captains of industry, I also compiled a snapshot of their latest news, financials and network status, which you can see around this article.

What do they have in common?

What stands out as points of difference?

Let’s kick on.

 

What is your outlook for the next 12 months?

Toby Lawrance: We are really pleased with our performance and still see a lot of opportunity for future growth, including continuing to invest in regional communities along with upgrading and expanding our store network.

“Our focus must remain on ensuring that we are adapting and continually thinking about the needs of our customers” (Toby Lawrance, Bunnings NZ)

We will continue to adapt to suit the demands and needs of our customers with a strong focus on delivering great value, backed up by the best service from our team.

For our team, it’s about making sure they have the right training and development opportunities so that they can continue to learn and grow with us and offer them long-term career opportunities.

Darrin Hughes: There certainly seems to be some concerns from economists in the market around the main drivers of migration, affordability, land availability and Government policy but, as of yet, that hasn’t flowed through to a flattening of demand.

Our members are continuing to see strong underlying strength in builders’ forward order books. The underbuilding of houses and the relative scarcity of quality labour resource means that there remains a significant tail wind – particularly in Auckland.

Overall, in the coming financial year, we expect sales growth to return to more modest levels after the very strong performance of the past few years.

Matthew Washington: We’re continuing to see sustained volumes in the construction market for the foreseeable future, as there is still a fundamental need to meet underlying demand for housing in New Zealand, despite slower growth in building consents for residential.

But we’re not a market in isolation, so we are keeping a watchful eye on the macro global economic indicators and headwinds facing key markets around the world.

The most concerning is the recent downturn in Australia where building consents have declined significantly.

While our New Zealand economy is still going relatively well, we are mindful of these headwinds and the potential impact they may have on our economy in the future.

Bruce McEwen: Overall we see it as a reasonably supportive market. Consents are strong but growth is moderating.

I think there are a couple of issues here. It’s hard to get consistent growth on growth because you run out of resources – you know we have challenges around having enough qualified or tradespeople to actually build everything that can be consented and there are challenges around the amount of buildable land that you’ll see coming available in New Zealand. And on top of that, councils and consenting authorities have their own challenges.

All this will of course differ quite a lot geographically. There are certain markets which are clearly strong at the moment and others which are a challenge – the likes of Christchurch etc – and will continue to be challenged for some time.

 

What are the biggest factors that will influence the success or failure of your business during this period?

Toby Lawrance: The retail landscape is changing and evolving all the time.

Our focus must remain on ensuring that we are adapting and continually thinking about the needs of our customers.

We want to make sure every customer experience with us is easy and that we are offering genuine convenience and choice.

Darrin Hughes: The most common issue facing our members is the scarcity of labour, more specifically, quality labour.

“The most common issue facing our members is the scarcity of labour, more specifically, quality labour” (Darrin Hughes, ITM)

Several of our larger operations are at or near capacity, mainly due to the challenge in attracting and retaining staff whether that be for frame & truss plants or stores.

While KiwiBuild continues to meander along, seemingly going nowhere fast, we are seeing much more promising activity in the social housing area.

Matthew Washington: The biggest factor is to simply continue to do what we do well – delivering great customer experiences across all segments.

Another factor will be how we respond to the rising costs of doing business across the sector – in particular, employment costs.

We are focussing on developing efficiencies in our operations through significant investment in technology, and prioritising our customer facing staff to retain that exceptional customer service.

It’s important we continue to adapt to the rapidly changing retail and digital environments, particularly with the entry of digitally savvy millennials into the market.

Bruce McEwen: For me it’s always people and culture. There are lots of little drivers or triggers that influence success but it always comes back to people and culture and I think we are pretty strong on both those counts.

The other thing that’s critical is delivering to customers’ needs and they’re ever-changing so that’s really critical for success.

If you look at compliance and you look at the challenges around logistics, supply chain, those sorts of things, just paperwork even, anything can you can do to make it simpler and ultimately save time – which is one of the biggest costs in the build process that often gets overlooked – wherever you can take time out of the build process, you’re adding value for your customers.

 

Which key aspect(s) of the business will be your main focus in the next 12 months?

Toby Lawrance: We’re always focussed on expanding our product range to bring new, innovative products to customers, including growing categories like Smart Home.

We will also continue to improve the efficiency of our distribution and delivery systems to help our stores better serve our customers.

We are also committed to continued exploration of online opportunities and seamless transactions.

In the future, we will be introducing self-checkouts into some of our bigger stores like Manukau, Botany and Riccarton, as well as including them where it makes sense in our new store builds.

This will provide another convenient option for customers as we continue to look for ways to make their experience with us as easy as possible.

Darrin Hughes: We’ll look to further develop our brand – with 94 stores throughout the country we know ITM is the preferred merchant for the small and medium builder segment.

We will be driving a greater connection with them in helping develop their businesses through professional and social opportunities.

 

 

“We are focussing on developing efficiencies in our operations through significant investment in technology, and prioritising our customer facing staff” (Matthew Washington, Mitre 10)

Matthew Washington: Continuing to grow our retail footprint so that we remain highly accessible to our customers, as well as growing our core retail and trade businesses, and evolving our online offering.

We are building out our in-store experience with our showrooms – with a focus on providing services in these key categories.

Bruce McEwen: The biggest thing is always deliver the fundamentals, every day – that’s what the customer expects of us.

Digitising our customer facing branch processes is a big driver for the next 12 months and that’s largely about really delivering a better customer experience, making it more efficient … getting customers in and out of the branch quicker and easier.

But first we’re going to transform our delivery capability. So we want to bring a whole new level of service to delivery... Think Uber, if you like – the Uber of the delivery of product is where we’re looking to go.

Just imagine if as the builder you could see where the truck was and when it was going to arrive? You’ll see that rolled out through this year.

You’ll also see us in-source a chunk of our freight. I just think delivery is a core competency, something which we should be good at and so we’re going to be.

Ultimately we need to work out how we connect with our customers digitally, be that information price, invoicing... Now the real ambition for us is how do we connect into their world?

Think of the Air New Zealand app and how they get inside your world – that’s a space we need to get our business into...

 

Which will be your “hero” categories in the coming year – any changes?

Toby Lawrance: We are very excited about our Clever Living range [fully specified prefabricated homes delivered to site].

This is an innovative product that provides a simple and affordable solution for New Zealand customers.

With the current housing shortage and rising prices, pre-fabricated houses are growing in popularity and our Clever Living product provides a low cost solution to cater for that.

Darrin Hughes: We’re not concentrating on specific hero categories; instead we’ll be focusing on cementing our relationships with key suppliers to provide a high quality and cost effective ranging to meet our customer’s needs.

We want to be at the forefront of contributing to innovation development with our suppliers by providing genuine customer insights to help them tailor their offering to our local market.

Matthew Washington: As New Zealand’s largest garden retailer, we are seeing investment across several stores to grow or improve their garden centres, ensuring customers have the best range and an even more enjoyable experience in-store.

Our growth in trade in recent years has placed increasing demand on our building supplies and timber categories, necessitating considerable investment across our stores in expanding the footprint of trade, to accommodate the needs of our trade customers.

Finally, alongside our kitchen and bathroom categories, outdoor furniture continues to go from strength to strength as people continue to look at making best use of their homes – particularly their outdoor areas.

Bruce McEwen: Not really, our core trade categories are our heroes and will remain so. We do however see opportunities in heating, kitchens and bathrooms.

We are also making strides on installed solutions – installed roofs, installed slabs, those sorts of things – providing solutions for our customers and again taking away some of that risk and complexity.

 

“We want to bring a whole new level of service to delivery... Think Uber, if you like…” (Bruce McEwen, PlAceMakers & Mico)

Then there’s manufacturing – the traditional house and traditional frame & truss. What’s next in that space?

I’m not suggesting pre-fabrication, that’s a whole different ballgame, but there are components of a house that you can manufacture offsite, frames as well as other components of the build process, and I think that’s something you’ll see us do more and more of going forward.

Obviously floors and mid-floors, roof cassettes … are obvious extensions of our fame & truss manufacturing capability. So that’s where we will look to direct our attentions.

There have been several instances of non-compliant or poor quality materials being imported into New Zealand and sold via some merchant channels. What steps are you taking to protect your customers from this risk?

Toby Lawrance: We take our commitment to product quality seriously and all of our products meet strict New Zealand standards.

We work really closely with our suppliers on this and have robust procedures and processes in place, regardless of where the products are sourced, to ensure they are safe, compliant, and fit for purpose.

We remain very committed in this area and will continue to work with all of our suppliers and stakeholders.

Darrin Hughes: We have been working with all our major suppliers to confirm source of origin on all products and validating their quality regime to ensure source factories are providing continuous compliance with New Zealand standards and practices.

We’re aware that there have been instances of products being supplied from traditional suppliers that have been sourced from overseas factories that do not meet our standards.

As some customers and merchants continue to drive price based offers, there is an increasing risk of quality being compromised or short cuts taken to achieve volumes.

We see increasingly that the responsibility of ensuring non-compliant products not entering the supply chain will fall to the merchant.

Our expectations on our supplier partners have increased accordingly as we seek greater transparency of product origins.

Matthew Washington: We pride ourselves on delivering quality home improvement and building materials that New Zealanders can trust

We take great care in ensuring our products are not only safe and compliant but are fit for purpose and help our customers get the job done right.

Most important to this is working with trusted suppliers and industry bodies, ensuring we are quality checking our stock, and having expert resource dedicated to product compliance internally.

We are always reviewing any new information or research about products that we stock or any feedback we receive from customers to inform any action we may need to take.

Bruce McEwen: We have pretty stringent QC processes to ensure whatever we import under another brand or put under our own brands meets the appropriate standards.

We do and we’ll continue to stand behind everything we sell and deliver …

It’s about the level of warranties [and] quality assurances businesses are prepared to give the products they sell.

 

Can you tell us about future new members or store openings?

Toby Lawrance: We’re excited to be opening our new Westgate and Christchurch Airport stores in the near future, with Westgate set to be our largest Warehouse in New Zealand.

Whanganui will follow not too far behind. As with any store opening, the end result is a real testament to the team, our suppliers and support functions all working together to make it happen.

I am super keen about our future new store opening pipeline and store upgrade plans.

Darrin Hughes: There are a number of proposals for new stores being evaluated as we seek to provide the most comprehensive trade network in New Zealand, so watch this space.

Over the past year, our members have made significant investments in their businesses to expand premises, relocate to new premises or expand their networks.

Examples include new stores being constructed in Taupo, Tuakau, Masterton, Mangawhai and Alexandra.

Matthew Washington: The Mitre 10 cooperative is constantly growing to serve our customers better and in more communities around the country.

While I can’t give away too much, we have our eye on several locations for new stores, including land we have purchased in two major growth locations for future development opportunities.

We are seeing some great growth across the network, with our Members investing in expanding the footprint of their stores, and some making the transition from Mitre 10 to Mitre 10 MEGA, or from Hammer Hardware to Mitre 10.

We will also be opening a new Mitre 10 Gisborne and Hammer Hardware Wellsford before the end of the year, and both stores will bring new Members into the cooperative. In addition, in Beachlands we will see the local Hammer Hardware reopen as a Mitre 10 around Christmas time too.

Bruce McEwen: We just opened a standalone Mico in Motueka. We obviously already have a PlaceMakers in Motueka but it was going so well we couldn’t squeeze a Mico in – that’s a good problem to have!

The new PlaceMakers in Rotorua is now painted blue and we’ve also rebuilt and refurbished branches in Timaru and Oamaru.

But we’ve created a pretty strong network so across 130 locations we don’t have too many places that aren’t covered.

We also have two new JVs since Christmas. Thames went into JV just recently as did Hutt City both with longstanding, experienced PlaceMakers operators. So the JV model is alive and well I guess...

Fundamentally, the mixed ownership model makes sense in certain locations with the right people in the right place. It works.

And look, not everybody wants to be a JV, so that’s fine too. Some people are very happy leading the business and not having an investment interest.

And that’s just fine with us. Horses for courses.

 

As you can see from the above, all of our players are addressing rising costs – and not just their own costs but those of especially their time-poor trade customers.

Set against this is the backdrop of a continued elevated level of demand – not one of our players is talking about cutting back their store networks – even as growth continues to moderate.

So they’re not only super-busy but they’re also seeking to offer more – more convenience, sharper pricing and better levels of service.

No surprise then that our retailers and merchants are almost without exception talking about introducing new ways of working and greater efficiencies, both to mitigate costs and leverage and differentiate their brands.

Next time, with the prospect of Bunnings joining Mitre 10 in the local e-commerce arena, it will be interesting to see what effect online is having on the hardware channel… 




Bunnings NZ
– Toby Lawrance, GM NZ

Bunnings in New Zealand had another good year last year with double digit top and bottom line growth.

In terms of e-commerce, with Bunnings Australia announcing firm plans to go live within the next 18 months, it’s clear we’ll see the New Zealand arm follow suit, possibly sooner than later.

After all, it’s now armed with the extra capacity of its new Auckland DC and, with self-checkout set to be rolled out in selected branches, staff will have additional time to pick online orders from the shelves.


SNAPSHOT – BUNNINGS NZ
Gross revenue last full year: $1.2 billion (+11.2% for year ended June 2018)
Gross Profit last full year: $372.7 million (+10%)
Trade % of top line: 50% (est)
Bunnings Warehouse stores: 27 (-)
Bunnings small format stores: 20 (-)
Bunnings Trade Centres: 8 (-)

 




ITM
– Darrin Hughes, CEO

This time last year Darrin Hughes talked about injecting more operational discipline into the ITM network. What’s progress with this?

“We’ve been able to look at data to better understand store performance and areas of development for the co-operative.

“Ultimately, this will translate into a larger technology solution for our network to give us insights on our customers’ behaviour.

“One key advantage this has given us is the ability to better provide a nationally consistent offer to large volume housing companies including consistent pricing through our stores and common standards of operation to meet their needs. 

“Already this is translating into a much higher level of interest from this customer segment in developing supply terms with ITM.”


SNAPSHOT – ITM
Gross revenue last full year: N/A
Stores: 94 (+4)

 




Mitre 10 NZ
– Matthew Washington, Acting CEO

Growth may be slowing but demand is sustained says the Acting CEO, with more than half an eye on sharpening processes and increasing efficiencies faced with rising costs.

Employment costs in particular are driving “significant investment in technology”, he says, which will allow customer facing staff to maintain the quality of customer service.

There are also prospects for further developing the idea of in-store showrooms around the Mitre 10 network, encouraged by positive results from last year’s kitchen and bathroom showroom upgrades.

The latest in this vein has been a successful Colour Centre pilot with a broader rollout due this year.


SNAPSHOT – MITRE 10
Gross revenue (total Group sales) last full year: $1.5 billion (+7.1% for year ended 30 June 2018)
Mitre 10 MEGA stores: 41 (-)
Mitre 10 stores: 42 (+2)
Hammer Hardware stores: 44 (–4)




PlaceMakers & Mico
– Bruce McEwen, Fletcher Building Distribution Division Chief Executive

Despite apparently marginal gains at the top and bottom lines in the last FY, PlaceMakers & Mico still sees the marketplace as “reasonably supportive”, even if softening around the regions.

Still, Fletcher’s two distribution banners are on the front foot and taking significant measures to ensure their trade offering remains top of mind.

Among these are aspirations to offer customers ever-higher levels of real-time information and communication and more digitised touchpoints so builders and tradies spend less time off-site.

More installed solutions from the blue barns would also be a reasonable bet in the bid to up their trade customers’ productivity.


SNAPSHOT – PLACEMAKERS & MICO
Gross revenue last full year: $1.5 billion (+1% for year ended 30 June 2018)
Trade % of top line: 95%
Operating earnings last full year: $104 million (flat)
PlaceMakers stores: 62 (+1)
Mico branches: 66 (+1)
PlaceMakers-Mico colocations: 9 (-)
PlaceMakers-Mico shared sites: 3 (-)

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