HINEWS IS AUSTRALIA'S HOUSING MARKET "RIGGED"? - Hardware News Network
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HI
IS AUSTRALIA’S
HOUSING MARKET
“RIGGED”?
NEWS
Vol. 2 No. 18
ROY MORGAN
REPORTS
ON RETAIL
MITRE 10 RESULTS
FOR FY2017 H1:
EBIT% IMPROVES
BUNNINGS PLANS
NEW-STYLE “MICRO
WAREHOUSE” FOR
BALMAIN
contents
Is the cost of houses kept
artificially high?
Given Australia’s wide open spaces, do high costs for
first home buyers really make sense? Or is this a case of
deliberate government policy at work? Would the home
improvement industry be better off with lower prices?
22: click to view
Roy Morgan retail report
Roy Morgan presents its annual “state of the nation” report
on retail. The big surprise? Visitations to physical stores are
trending up. The big fear? Amazon may be coming to town.
The strongest trend? People are spending more on going
out – especially to the pub for a drink.
38: click to view
Metcash FY2917 H1 results
While Metcash overall continues to experience problems,
its hardware division – now including Mitre 10 and HTH –
continues to produce EBIT. Up ahead, will Amazon boost the
company by using it as a distributor in Australia?
19: click to view
Bunnings plans micro-warehouse
Bunnings has found its plans to build a new store in Sydney’s
Balmain area has struck local opposition. The store is different from
other small-format Bunnings stores, and may signal a more aggres-
sive push into markets long-held by independent retail-
ers. 6
contents - II
Boral buys Stats: Final
Headwaters figures on Block
Boral has chosen to boost It performed as well as
its exposure to the US past seaons, but will this be
market. enough to ensure it goes on?
11 17
Home Depot Honda offers
Q3 results new mower
Home Depot continues to Honda adds a third model
grow and expand. to its range of pro self-
propelled mowers.
48 59
Home Improvement
News is a publication of
Net Percent Pty Ltd.
Special Advertising Section
© 2016 Net Percent Pty Ltd
Betty Tanddo ABSCO Industries...............................................63
Publisher
betty@hnn.bz Rocky Point Mulching........................................64
0411 031 832
BND: Malco Shear Attachments........................65
Scott Lewis
editor-at-large Merlin Software..................................................66
scott@hnn.bz
Cowdroy Weatherseal........................................68
big box update
Bunnings’ Balmain
micro-warehouse
in this
update:
start text
Bunning has
put forward
planning
proposal for
very small
warehouse-
6 style retail
premise in
inner-Sydney.
This could be
the prototype
for a whole
new line of
Bunnings
stores.
Bunnings’ proposed of the Melbourne contemporary large floors of selling space,
store at the inner-Syd- CBD, this store would formats of some with the upper floor
ney location of appear from the plan 17,000m2 to 20,000m2 apparently having an
Parsons St, Rozelle is diagrams to be quite and medium formats open area for garden
no ordinary Bunnings different. Rather of some 12,000m2 to plants and supplies.
store. With a selling than concentrating 16,000m2. The two floors are con-
floor space of just 4,100 on fitting the max- The documents go nected by a travellator.
square metres, includ- imum amount of on to characterise the It has a number of
ing 500 square metres selected stock into a purpose of this kind of other unique features,
of outdoor garden “compact” space, the retail layout: including a turntable
space, it is one of the Balmain store follows It is relevant that the in its shipping dock for
smaller Bunnings the design layout of large contemporary trucks.
stores in the big-box the larger warehouse hardware outlets are This store is likely
retailer’s fleet. stores. As the planning “destination” sites aimed at the weekend
While Bunnings has documents state: whereas the small quick stop market, as
made great strides The Bunnings “small outlets are more “con- well as the weekend/
with its “medium” format warehouse” venience” sites for local weekday drive-by/
format stores, such is a new venture for residents and trades drop-in traffic, predom-
as the one at Colling- the company which persons. inantly by DIYers, but
wood, on the outskirts currently develops The store has two continues next page
hnn.bz
big box
update
Bunnings Balmain micro-warehouse (cont.)
also, in this inner-ur- Crowle, has
ban location, trades- been vocal
people as well. in his view
To put it simply, this the store
Bunnings store could should not
well be the trial pro- be allowed
totype for a rollout of to go ahead.
smaller format stores Not only
that are directly aimed will the
at taking market share store likely
from smaller indepen- directly
dent stores in urban impact
locations. It is consid- his own
erable effort, too, with operations
the store predicted to (which
cost $11.8 million to have been
construct. ongoing
From a location since 2003),
standpoint, looking at but he says
Artist renderings of proposed Bunnings micro-warehouse
the map, it’s easy to seeit has the
why Bunnings is at- potential
7
tracted to this location.to worsen
It is virtually trian- traffic con-
gulated by the three gestion in
existing Bunnings in an area that
the general area, At- is already
aramon, Ashfield and highly con-
Alexandria. gested.
HNN will cover in There is
more detail at a later also the
A sign protests the planned project.
date the retail charac- matter of
teristics of this new parking. The planning could turn out to a con- ing only 74 spaces? • the projected
store layout. What is documents that only troversial store loca- The answer is in weekend peak for the
of most interest at the 74 car parking spaces tion. To begin with, the the way Bunnings proposed Bunnings
moment is how Bun- will be provided in a site had been granted has positioned this development may
nings is working the basement car park. planning approval in store in the planning be higher than the
planning the system Protests have reached 2012 for a three-level documents. The potential for the ap-
so as to get this type ofa state where an online building with indus- planning documents proved development,
store approved. petition has been or- trial establishments provide this analysis however the flows
ganised to provide a fo- on the ground and of the likely traffic that on Robert Street and
Planning cal point for objections, mezzanine level, and a would be generated by Mullens Street are
approvals and a sign appeared fitness gym on the top the store: significantly lower at
for a brief time, lashed level. This will tend to • the projected traf- these times (i.e. than
Given the style of to the fence around make protesting the fic generation of the the weekday AM and
the store, local small the site (currently an building itself a more previously approved PM peaks).
hardware stores see unused warehouse) difficult task. development for the Essentially what is
it as a direct threat to protesting the develop- That plan (which site were significant- going on is that Bun-
their businesses. The ment. never went beyond ly greater than that nings is “fitting” the
Hardware Store has its However, as usual, planning approval) projected for the store into the conges-
Balmain branch locat- Bunnings’ property called for 94 parking proposed Bunnings tion patterns of the
ed a few minutes drive team have developed a spaces. How, then, can development during area. It is claimed that
from the proposed site, clever approach to get- Bunnings, as a retailer, the weekday peak the store will gener-
and its owner, Grant ting approval for what get away with provid- periods continues next page
hnn.bz
big box
update
Bunnings Balmain micro-warehouse (cont.)
ate less traffic during in the more blue-col-
times when the traffic Analysis lar Collingwood store
is at its highest, that – seek to produce
is, on weekdays, and While it is evident a compact, as ful-
reach peak traffic loads that the new Bunnings ly-stocked as possible
only on weekends, would affect trade at store, Bunnings may
when general traffic is the long-established select profitable, more
at its lowest. The Hardware Store upmarket locations
Just to add to the pic- nearby, it seems quite to expand into. The
ture, Bunnings is also likely that this is not stores it builds in
claiming that another the primary target of these locations may be,
new, full-size Bunnings this venture. Just 15 instead of small and
warehouse it has minutes away down compact, scaled down
underway, at Victoria the Western Distribu- warehouses, with more
Road in Gladesville, tor is one of Mitre 10’s of a sense of space, and
will also divert some most praised retail out- more limited stock. It
traffic away from the lets, the Sunlite Mitre wouldn’t be surpris- Grant Crowle owns The Hardware Store, with premises in
Balmain Bunnings. 10 store in Paddington. ing if many of these Balmain and Alexandria
The calculations re- When Mitre 10 began locations turned out
garding parking spaces to suggest it would to be near stores that is that these stores case, it would be likely
are just as interesting. consider acquiring are fully-owned by in more upmarket these small warehous-
There is an existing the operations of the Metcash. suburbs might end es have less of an im-
8
standard for the num- Home Timber and There are a number up being the primary pact on retailers such
ber of parkings spaces Hardware Group of other intriguing pos- distribution points as The Hardware Store,
that must be provid- (HTH), HNN did sibilities to this as well. for some Bunnings as the stock overlap
ed for a retail floor suggest that this could There are signs that products that continue would be smaller.
areas. In this case, that alter the competitive Bunnings could well to seem slightly out of In the meantime,
standard calls for 1.78 situation between Bun- launch an ecommerce place in its standard Inner West Council
spaces per 100 square nings and Metcash’s site in calendar 2017. suburban warehouse is accepting public
metres of floorspace. hardware operations. Having more urban, stores. Chief amongst submissions on the
In this case, that would This could be one of smaller stores, could these is the company’s proposal until Decem-
work out to 73, and the first moves in that open the way for it to range of outdoor furni- ber 19. The develop-
Bunnings is supplying direction by Bunnings. facilitate ecommerce, ture, which competes ment application can
74 spaces. If so, the company by offering click-and- favourably with some be found here:
may be planning to collect, or an online of the furniture offered goo.gl/M8YYi9
adopt a quite unique expansion of its special by Harvey Norman
approach. Rather ordering services. and even Domayne.
than – as it has done Another possibility If that did prove the
hnn.bz
indie update
Ruralco expands,
following cuts
in this After a $14.1 million doubles its insurance
update: management restruc- footprint and provides
ture to strip out excess better back office sup-
costs, Ruralco plans to port and underwriting
start text
make up ground on the capabilities.
Ruralco is back of a 70% net prof- In Tasmania, Rural-
focusing on it slump recently. The co’s agency subsidiary,
growth after farm supplies, agency Roberts is set to absorb
and water equipment the TP Jones and Com-
a cost cutting
group added 19 new pany rural retail busi-
program businesses to its net- nesses in Launceston,
work during the past Longford, Latrobe and
year. Campbell Town in Feb-
9
Ruralco is the parent ruary 2017. It will sell Live export and water released estimates on
agribusiness for a host its Kubota and Agco business restructuring the value of the cost
of rural livestock and machinery dealership, alone cost the compa- savings to Ruralco’s
property agencies, Tasmania Farm Equip- ny more than $8 mil- bottom line, but he said
plus the 38-branch ment, in Devonport, lion, with redundan- the “strategic cost out
Total Eden network Launceston, Smithton cies, six store closures benefits will more than
and merchandise and Hobart. and the divestment of cover the expenses
group Combined Rural At the same time, the machinery busi- we’ve incurred”. He told
Traders (CRT). It has Ruralco has been in- ness costing a further Farm Online:
270 business outlets corporating the recent $4.4 million. We’ve taken action
Australia-wide, many purchase of three addi- The restructure, and which needed to be
owned in partnership tions to its Total Eden an $8.7 million slide taken; we’ve got a very
with their operators. water equipment sta- in live export gross engaged workforce;
The group is set to ble in the NSW Lower profits, eroded Rural- we’re very comfortable
launch a generic line Hunter Valley (Hunter co’s 2015-16 after-tax with our platform, and
of drench and lice Irrigation) and two in net profit to just $4.2 we’re very optimistic
treatments under South Australia’s River- million. about the business
the Covine brand by land. They are part of However the group outlook for the next six
mid-2017 following this the 19 new businesses still posted strong months.
year’s successful pri- added to the network results in its core Despite the lean 2015-
vate label release of the in the past year. traditional business, 16 net profit result, the
Relyon farm chemical However, tight mar- with rural supplies’ company’s underlying
range. gins in the livestock gross profits up 16% to performance was solid
Ruralco has also export business and $118 million and agency with revenue up 10%
teamed up with the the cancellation of gross profits up 3% to $1.8 billion and gross
ASX-listed Steadfast an export licence for to $105 million. The profit lifting from last
group to merge its its southern Frontier company has spent year’s $297.7 million to
insurance broking International opera- $14 million on restruc- $304.9 million.
business into a joint tion in July became the turing and divestment goo.gl/NXO1Do
venture with Ausure trigger for a big cost costs.
Consolidated Brokers cutting drive and man- Managing director,
(ACB). This more than agement revamp. Travis Dillon, has not
hnn.bz
big box update
supplier update
Boral’s US acquisition
Boral has agreed to
buy Utah-based firm
Headwaters for USD2.6
billion (AUD3.5 billion)
in this in a deal that will dou-
update: ble the size of its US
business.
It will be funded by a
Husqvarna
start text
AUD2 billion share is-
survey reveals sue, as well as borrow-
popularity of ing and Boral’s existing
eco-friendly cash, according to the
company’s announce-
equipment
ment to the Australian
stock exchange.
James Hardie Chief executive Mike
11 downgrades Kane said the deal
would provide cost
profit
savings of around
expectations USD100 million per an- Boral’s big bet on the cycle” he was talking already leveraged to
num within four years US with the election less about infrastruc- the US housing market
Boral buys of closing. He said in of Donald Trump, ture and more about and badly hurt by the
the statement: who has promised to the recovery in the US downturn.
US company
The businesses of launch a USD1 trillion housing market. Today, Mr Kane’s the-
Headwaters Headwaters are highly (AUD1.35 trillion) infra- The huge US housing ory is simple. Due to
complementary with structure investment crash a decade ago years of under-build-
Boral’s existing US program via tax breaks caused new housing ing since the crisis
operations – in fly ash, for the private sector starts to slump from and strong pent-up
roofing, stone and light to boost economic more than 2 million in demand, the housing
building products. growth. 2005 to just 646,000 in market has bottomed
Headwaters chief Headwaters’ fly ash fiscal 2009. and is now in a five-
executive and chair- business (a waste The bursting of the to-seven year upswing
man Kirk Benson said product from coal- US housing bubble that will see housing
the combined group fired power plants that sparked the global starts move back to
would be one of the is used as a cement financial crisis and led their long-term annual
“leading manufactur- substitute in heavy to millions of home average of 1.5 million,
ers and distributors of construction) would foreclosures. Property from around 1.2 million
building products and be a big beneficiary of prices plunged more in 2015.
construction materials what Mr Kane called than 20% and many Mr Kane says the
for infrastructure, new a “Trump bump”, gave up on the great market is now largely
residential, repair and although he insisted American dream of controlled by so-called
remodel, commercial this would be “gravy” owning or building a “production” home
and institutional con- for Boral and hadn’t home. builders who own huge
struction”. been built into its due As a major manu- land banks. Prior to the
diligence projections. facturer of bricks, GFC, when the econ-
American dream So when Mr Kane other cladding like omy was awash with
told AFR Weekend “this stone, roofing, tiles money, these groups
The market was was the time to buy and building materials
quick to connect this business in this in the US, Boral was continues next page
hnn.bzindie
supplier
update
12 Headwaters’ products includes high quality siding and roofing.
were in a building frenzy but today they are being much
more cautious.
The result, Mr Kane said drawing on his 42 years of experi-
ence in the US market, could actually be a more sustainable
market. He said:
It’s a housing market that’s been characterised by violent
swings every seven to eight years. And now we are probably
going to be in a 10 to 12-year recovery.
While the Headwaters deal will help diversify Boral’s US
operations away from the new-home market – the propor-
tion of revenue from new homes in the US business will fall
from 66% to 45% after the deal – housing will remain the key
to Boral’s American dream. Around USD810 million (AUD1.1
billion) of its revenue in the US will remain exposed to the
sector.
Beyond the macroeconomic and political forces influenc-
ing the success of the takeover, a benefit to Boral is that
Headwaters can sell its products through Home Depot and
Lowe’s stores.
https://goo.gl/ldOyxT
https://goo.gl/ktjYIi
hnn.bzsupplier
indie
update
James Hardie cuts FY expectations
comparable adjusted levels. volumes in the North
net operating profit James Hardie expects American fibre cement
for fiscal 2016 was the US housing market business and a higher
USD242.9 million. to grow steadily in fis- average net sales price
Chief financial cal 2017. But although in the international
officer Matt Marsh US housing activity fibre cement segment,
said in a briefing was improving, market which includes Aus-
for market analysts conditions were uncer- tralia.
that James Hardie tain and some input Although demand
was taking steps to costs were volatile. in the renovation and
increase manufactur- In Australia, net new housing markets
ing capacity to meet sales are expected to grew in the US, James
strong demand now trend in line with the Hardie’s production
and in the future. average growth of the costs increased be-
Mr Marsh said the renovation and single cause of unfavourable
downgrade was detached housing plant performance and
driven by a combina- markets in the eastern higher start-up costs
tion of start-up costs states. associated with lifting
and the company not James Hardie re- the production capaci-
being able to ship cently booked a 24% ty of the US plants.
13
everything it had fall in first-half profit In Australia, net sales
orders for. He said: to USD144.1 million, for the half-year lifted
James Hardie chief executive Louis Gries
So a combination of mainly due to greater due to a higher average
Building products lated adjustments those two is really the asbestos-related ad- net sales price and
supplier James Hardie for the year ending driver of the adjust- justments in the prior greater volumes. But
has downgraded March 31, 2017, ranged ment down to USD250 corresponding period. the guidance pointed
expectations for its from USD256 million million to $US270 Excluding asbes- to a transition year for
full-year adjusted net to USD285 million million. tos-related adjust- the company, where
operating profit, saying (AUD342 million to Chief executive Louis ments, net operating good volume growth
production constraints AUD381 million). Gries said it would be profit was up 10% to does not provide the
are affecting its ability But management another two or three USD141.4 million, from upside that the market
to meet US demand. expects full-year quarters (six to nine USD128.7 million a year may have anticipated.
The company noted adjusted net operating months) to get James earlier.
that analysts’ forecasts profit to be between Hardie’s manufac- Net sales rose by 11% https://goo.gl/ZBPh77
for net operating profit USD250 million and turing network up to to USD973.5 million,
excluding asbestos-re- USD270 million. The targeted performance driven by higher sales
hnn.bzindie
supplier
update
Eco-friendly equipment
finds favour
A recent survey con-
ducted by Husqvarna
shows that its US-
based customers prefer
eco-friendly equip-
ment and are willing to
pay more for it.
The Green Spaces
Survey was conducted
in August of this year.
Of the 1,579 consum-
ers polled, 65% stated
they would choose a
landscaper who uses
eco-friendly outdoor
power equipment over
14
one who doesn’t.
Companies
that choose to be
eco-friendly are also ment and the benefits Both saws have an model can share the things, Husqvarna has
more likely to receive that the technology intuitive keypad and same type of battery. two new trimmers and
ongoing customer sup- provides. a 10-inch bar, but the On the more tradi- edgers.
port, as 72% of the sur- Along with being 536LiPT5 comes with tional gas-powered Husqvarna said the
vey respondents said eco-friendly, the con- a telescopic tube and side of things, Husq- 522L trimmer is an
they would support sumers polled also had weighs slightly more varna has two new affordable option for
eco-friendly companies an interest in quieter at 10.8lbs (almost 5kgs); trimmers and edgers. landscapers who don’t
over those that do not outdoor power equip- the 536LiP4 weighs Husqvarna said the want to forfeit the
use battery-powered ment, with 57% saying 7.4lbs (3.6kgs). 522L trimmer is an manufacturer’s durable
equipment. Jeff De- they would pay more The 536LiLX trimmer affordable option for design. The 525LK
wosky, vice president for a landscaper who is another addition landscapers who don’t trimmer features a
and general manager uses quieter equip- and features a two-way want to forfeit the detachable shaft that
for Husqvarna North ment. A strong majori- rotation head, enabling manufacturer’s durable allows it to be a jack-
America, said: ty of respondents (71%) users to operate the design. The 525LK of-all-trades, swapping
Husqvarna is commit- felt that companies product in both a trimmer features a out attachments such
ted to keeping a pulse that choose eco-friend- forward and backward detachable shaft that as a dethatcher, brush-
on the future of public ly equipment should direction. The 536LiH- allows it to be a jack- cutter and edger.
green spaces so we receive tax benefits. D60X hedge trimmer, of-all-trades, swapping The 525ES edger
can best advise both At GIE+EXPO, the meanwhile, has been out attachments such has a steel shaft drive
consumers and pro- largest industry event upgraded with a new as a dethatcher, brush- while the 525ECS edger
fessionals on sustain- for outdoor power proprietary motor that cutter and edger. comes with a curved
able, efficient ways to equipment held each maximises its working The 525ES edger shaft and flex drive.
maintain parks, as well year in Louisville, time, and the tool’s rear has a steel shaft drive https://goo.gl/SrA8SK
as commercial and resi- Kentucky (USA), handle can pivot to en- while the 525ECS edger
dential properties. This Husqvarna revealed able both vertical and comes with a curved
report demonstrates additions to its 500 horizontal trimming. shaft and flex drive.
that there’s a demand Series battery lineup, As with all of Husq- https://goo.gl/SrA8SK
for more eco-friendly including the 536LiPT5 varna’s battery-pow- In the more tradition-
outdoor power equip- and 536LiP4 pole saws. ered equipment, each al gas-powered side of
hnn.bzindie update
Bathroom retailer
using virtual reality
do the specifications.
in this We can design the
update: bathroom for them.
We give them a code.
They then load it up
Aussie
start text
online
on their computer
retailer is when they go home
utilising virtual and play with it, show
relaity for its their family, chop and
change things and
customers
then buy from home.
Australian online tions, from the exact strategist for Caroma, The technology is in
retailer The Blue Space position of the sun Mr Mammoliti saw a its first generation and
16
will launch its virtual as it moves through gap in the marketplace, Mammoliti said his vi-
reality (VR) technology the day, based on and decided to start sion for The Blue Space
in early 2017 to enable the customer’s home a company that takes is that people can do
shoppers to choose and specifications. This can the stress and hassle this in their homes,
buy bathroom designs. create a more accurate out of building a bath- with their own virtual
The technology will ambiance of lighting room. reality systems.
replicate the custom- when they are viewing The company primar- Developers of the
er’s own kitchen or their virtual bathroom ily operates online but technology, Situ, are
bathrooms (including design. it has recently devel- currently refining the
dimensions), which will The retailer said its oped a bricks-and- design, with a virtual
allow them to see what VR technology is with- mortar presence, with colour palette to be
a range of packages in 99.9% dimensionally showrooms in Bris- implemented into the
would look like in their accurate, to correctly bane and Victoria. A system at a later stage.
own space. Managing display all the fixtures few more have opened The Blue Space is
director, Josh Mammo- and fittings in the in New South Wales looking to install more
liti told Power Retail: space including all where customers can pop-up stores in high
It simply takes the hardware and surfaces. book for a virtual reali- traffic locations. Mr
hassle out of shopping Mr Mammoliti said: ty consultation or have Mammaloti said:
for a kitchen, bathroom Bathrooms are quite their bathrooms built We’re currently
or laundry. You can complicated, especial- online in 3D. He said: testing it out to mak-
really see what each ly when people are The showrooms will ing sure it all works.
choice you make will sinking usually $5,000 be about the virtual Customers will also
look like in your house. or a lot more into one. reality and consultancy eventually be able to
You can ‘live in it’ I wanted to build a side of things – it’s not buy through the VR
before you buy. It helps business that looks at really about the tradi- technology, which is
with choice, saves time everything that makes tional showcasing of also being tested for
and reduces the risk of it difficult for a custom- physical products. its future generation
buying something you er to build a bathroom We’re aiming for models.
don’t actually like. or kitchen, and do ev- people to come in, https://goo.gl/
The virtual reality erything to take down do a 3D bathroom or XDOF9O
technology also shows those barriers. experience it via virtual
real lighting and reflec- As the former digital reality and for us to
hnn.bzSponsored by
statistics
The Block Season 12:
Final statistics
Whether or not Seasons 8 and 9, before the end-of season hope that after three
Channel Nine’s reality the disaster of season numbers. lacklustre seasons, the
a few renovation show “The 10, then the show In Graph 2, on the show will suddenly
quick stats: Block” managed to failed. following page, the ef- turnaround, and begin
meet its objectives Graph 1, below, tells fect of this poor end ofperforming as well as it
during its 12th season the story. This shows season can be clearly did in the past.
A report by BI
depends on how you the regular season, out- seen. In all the other On the other hand,
Intelligence want to define those side of the split finale. audience measures, it does manage to fill a
shows some objectives. If the goal The show did manage Season 12 holds its great deal of program-
interesting was, after the disaster to build a little momen- own. It offers, in fact ming time, and offers
of “Reno Rumble”, to tum, in weeks seven a very slight improve- almost a guarnteed top
ecommerce
come back with a show through to nine, with ment over the previous ranking on the night of
stats from the that managed to equal nine being the kitchen season. the finale, which must
US: Season 11, then “The reveal week. However, be worth something to
17 Block” actually did its showing after the Season 13? the TV executives at
meet its objectives. kitchen reveal was Channel Nine.
Ecommerce
If the goal was to quite poor, with the The big question, of The question for
continues to made some kind of week 12 shows, which course, is whether “The HNN to answer is, of
produce a high headway back to the seemed disorganised Block” will be given course, whether it real-
growth rate of audience numbers the and lacking in focus, yet another season. ly offers any real value
series enjoyed back in really dragging down There seems very little to home improvement
16%.
Mobile
commerce is
beginning to
replace other
forms of access
(i.e. desktop).
Media,
sporting and
hobby goods
are shifting to
digital quickly.
Furniture
sales are also
performing
strongly,
despite
logistics.
Graph 1:Average weekly audiences for The Block seasons 8 to 12.
hnn.bzstats
advertisers.
That is one of those
questions that has
become exceptionally
difficult to answer.
The amount of compe-
tition for the attention
of the DIY audience
continues to grow, not
just with the launch of
additional TV shows
that cater to a similar
audience, but also the
growing attraction of
online DIY content.
Type in the Google
search “diy on tv”, and
you get the listing of
TV shows shown in
the image at right.
Where “The Block”
is highly generalist,
each of the shows that
18
come up from the DIY
Network are highly
specific, and targeted
at a very segmented
audience.
In the end, “The
Graph 2:How The Block performs across a range of audience measures.
Block” itself, and its
format may be less to
blame for its failures. It
is TV itself that is sim-
ply not coming close to
meeting the expecta-
tions of audiences.
Results from a Google search for “diy on tv”.
hnn.bzcompanies
Metcash FY 2016/17
first half results
Australian supermarket and hardware Metcash is well placed to invest in growth oppor-
wholesaler Metcash has released its results for tunities, as well as in further operational cost
the first half of its FY 2017, to 31 October 2016. and efficiency improvements.
Sales revenue was reported as $6629 million,
up by 0.35% on the previous corresponding Hardware
period (pcp), which was the first half of FY 2016.
Earnings before income tax (EBIT) was reported The company reported sales revenue for its
as $82.8 million, down by 4.72% on the pcp. Net hardware operations of $581.6 million, up by
profit after taxes was $74.9 million, down by 9.59% on the pcp. Profit before tax was $12.5
38.61% on the pcp. million, an increase of 7.76% on the pcp. The
Net profit was affected by several non-recur- company reported that sales on a like-for-like
ring items. The pcp comparative profit included (comp) basis increased by 1.7%, up from the pcp’s
Overall profits of $35.1 million, relating to the sale of number of 1.3%.
19 revenue grew Metcash’s automotive operations to Bursons. The newly acquired HTH operations did not
The current results include the acquisition costs materially contribute to EBIT, according to Met-
slightly, while for the Home Timber & Hardware Group (HTH) cash. However, HTH did contribute $51.5 million
EBIT declined of $4.5 million, and an additional $3.4 million to revenue.
more. spent on Metcash’s “Working Smarter” program In its presentation to investment analysts,
aimed at reducing operational costs. Metcash stated that its EBIT percentage of
Metcash reported that while the hardware and sales fell to 2.1% for the reporting period, down
The hardware liquor divisions had performed well, the results from 2.2% in the pcp, noting a decline, however,
division saw had been impaired by a dip in the
revenue performance of the company’s Metcash
increase by food and grocery operations. For
2016/17 H1 2015/16 H1 Change
the latter, revenue fell by 1.16%
close to 10%. and profit before tax fell by 8.05%. Sales revenue 6629 6606 0.35%
EBIT rose by In a comment presented in
Underlying Profit 82.8 86.9 -4.72
close to 8%. Metcash’s earnings press release, After Taxes
the company’s CEO, Ian Morrice,
is reported as stating: Earnings before 128.1 133.7 -4.19
HTH Despite difficult market condi- income tax
contributed tions in the Supermarket sec- Net profit 74.9 122.0 -38.61
$51.5 million tor, Independent Retailers are
AUD Millions
to revenue, continuing to invest in growing
but nothing to
their businesses, including new Metcash Hardware Division
stores and refurbishments, and
EBIT. we remain focused on supporting 2016/17 H1 2015/16 H1 Change
this growth. The acquisition of
Sales revenue 581.6 530.7 9.59%
Discounting HTH broadens our footprint in
the hardware sector and, along HTH Sales revenue 51.5 0
HTH revenue, with smaller acquisitions in the
EBIT margin Earnings before 12.5 11.6 7.76%
Liquor business, have diversified income tax
increased the Group’s earnings base.
EBIT margin 2.36% 2.19% 0.17%
from 2.19% to The Group’s strong underlying
cash flows have further strength- AUD Millions
2.36%. ened our financial position.
hnn.bzcompanies
of just 4 basis points or 0.04%. Based on the has used Mitre 10 largely as a means of financ-
non-contribution to EBIT by the HTH revenue, ing its ambitious goals in the grocery sector,
HNN believes a more representative EBIT mar- making the minimum investment required to
gin for Mitre 10 operations would be 2.36% (or as secure a good return, rather than making lon-
Metcash would present that number, 2.4%) an ger-term investments to grow the business into
increase of 17.2 basis points. the future. The addition of HTH to the hard-
Metcash said the increase in EBIT came ware division may change that equation some-
despite pressure from Masters’ liquidation sale, what, but it is difficult to see Metcash taking on
and the unseasonal cool weather on Australia’s much more risk over the next two years.
eastern seaboard. The long-term question that remains is wheth-
The company noted that it completed a er Metcash will become a diversified retailer,
further four Sapphire store transformations moving to make its grocery business a smaller
during the half, bringing the total to 16. It claims contributor overall, or if the company will
an average sales increase of 17% across these instead spin-off its hardware division at the end
revised stores. of FY 2018 so as to finance further expansion in
its grocery business.
Acquisition HNN notes that, as has become the
case over the past 18 months, Metcash
Adjusting for cash already held by HTH, bal-
anced against adjustments to working capital,
has delayed making the recording of its
the $165 million acquisition cost for HTH works presentation results to analysts available.
out to $163.2 million. Assets acquired included HNN will be providing separate analysis
20 trade receivables and loads amounting to $171.1 of this when it does become available.
million, and inventories amounting to $125.6
million. These and other assets balanced against
trade payables and provisions of $168.1 million
balance the acquisition out at $163.2 million. No
goodwill was included in the transaction. Total
transaction costs amounted to $6.4 million.
Metcash noted that the 2% retention rebate
provided by HTH was discontinued in October
2016. Integration of HTH and Mitre 10 is expect-
ed to be completed by the end of FY 2018. The
company states that it expects HTH to contrib-
ute more than $10m to EBIT during the second
half of FY 2017, exclusive of integration costs.
Analysis
The food & grocery division of Metcash con-
tinues to struggle in what has become a highly
competitive retail sector. Roy Morgan holds
that IGA’s market share, at around 10%, is now
less than that of Aldi, which it believes has 12%
Australia-wide.
One possibly hopeful event on the horizon
would be the entry of US online retailer Ama-
zon into Australia, as Amazon has suggested it
might make use of Metcash’s supply chain. Even
should this occur, Metcash and other grocery
retailers could be hard-hit by the entry of Ama-
zon, which could take market share in profitable
staples such as laundry detergent.
HNN has suggested in the past that Metcash
hnn.bzRigging Australia’s
housing market
22
As retail strategists, we all feel sometimes
that looking 10 to 15 years ahead seems al-
most pretentious. This is particularly the case
at the moment, when the retail sector looks
set to experience some turmoil over the next
three or four years, which could change just
about every projection we’ve already made.
The potential entry of Amazon to the Austra-
lian market, increased automation in manu-
facturing, and the opening up of parts of Afri-
ca as production centres will all have effects.
hnn.bzThat said, there are some types of strategic decisions that
really need a long-term view. One obvious area is determining
the location for a new store, especially when it’s an expan-
sion, and you are hoping for something that will be slightly
contra-cyclic to existing stores. Retail locations can take up to
five years to fully develop, and most would plan on an addi-
tional five years of returns following that.
Aside from that kind of investment planning, though,
there are some other opportunities that only become evident
from a longer-term view, and that require longer-term think-
ing. HNN believes there could be such a longer-term advan-
Pricing out the people
tage developing in the Australian market currently. It relates
There are four major influences
to what could be a fairly major shift in the way urban-based on house prices:
real estate markets operate in the area around state capital • Land supply
cities. • Planning regulations
• Commute distances
What we would suggest is that, for the last 20 years, these • Mortgage rates
real estate markets have become increasingly “rigged” to fa- The basic thesis is that these are
vour those who already own property, to the disadvantage of manipulated so as to keep house
new entrants into the property market. (By “rigged” we don’t prices high. From a state govern-
ment perspective, this keeps the
mean anything corrupt, but we do think there is a pattern of majority of the electorate (home
actions with the goal of keeping property prices maximised.) owners) happy. From a Federal
While some of this is state-based, with state governments Government perspective, this also
provides ageing baby boomers
working to keep what they see as an important sector of
with a financial resource that will
their electorate happy, much of it is Federal-based as well. ease the burden on the govern-
One reason why property markets have been protected is ment as more of them move into
23 likely so as to provide a boost to the large number of Austra- retirement age.
The big losers are the young first
lians who will move into their retirement years over the next
home buyers. They are effectively
decade, and who could otherwise create a substantial drain being asked to pay the equivalent
on the budget. of a social security levy when they
However, this attempt to control property values has not purchase their first home.
One way of escaping this situa-
fully taken into account the increasingly digital economy of tion may be for these younger buy-
Australia. As those who end up being disadvantaged – young- ers to purchase properties in areas
er couples seeking to buy their first home – are also the group distant from city centres, then use
with the most familiarity and comfort with technology, it is partial or full telecommuting.
This trend, even if it remains
possible they will use technology to find a way around this small, could lead to lower house
problem. prices in the future, especially for
While this could, in the long-term, create instability in younger people.
real-estate markets, it is likely to benefit home improvement
retailers, especially those who have prepared strategically for
this change.
Today: inefficient markets
While it regularly makes front page headlines, the property
market is seldom analysed in great detail. Often it is simply
assumed that rising house prices indicate the economy is
going well, and that times will be particularly good for home
improvement retailers, as high house prices tend to increase
the number and value of home renovation projects, as well as
accelerating new builds.
While the number and value of renovations is a good
hnn.bzindication of the short-term health of home improvement
retail, a better medium-term predictor is the formation of
new households in owner-occupied dwellings. It is fairly ev-
ident that today many large real estate markets in Australia
are inhibiting growth in this area, as first-time home buyers,
and buyers seeking to expand from multi-unit dwellings to
detached dwellings, have trouble finding appropriate proper-
ties.
About markets
Efficient markets are supposed to allocate resources by bal-
ancing supply and demand. High demand triggers low supply,
which triggers price increases, leading to increased produc-
tion. Conversely, high supply reduces unsatisfied demand,
which leads to price reductions and decreased production.
In the case of the current real estate market around many
major Australian cities, high demand has continued without
any real increase in supply. Much of that control over supply
is in the hands of state governments, which control both the
release of state-held land for building, and planning regula-
tions which determine what can be built where.
In particular, many commentators see a reluctance by state
governments to release more state-held land for residential
development as being a key to the current high prices for
entry-level housing. The economics website Macrobusiness
24 (www.macrobusiness.com.au) highlighted this process in a
2014 article about control of land release in Canberra:
One thing that separates Canberra from the major capitals is
that there are swathes of vacant land located close by to the
various activity centres in Civic, Woden, Tuggeranong, Belcon-
nen, and Gungahlin. In an open market, free from excessive
government interference, such land
would be made open to develop-
ment, ensuring that land prices
remained affordable for housing.
However, such a situation does not
exist in the ACT. Instead, the gov-
ernment owns most of the available
land, which it rations to the market
via a quota system, thus ensuring
that land prices remain high and
homes are overly expensive.
goo.gl/R9CF02
Other commentators have
pointed to similar processes in
place in most of Australia’s states
and territories.
Outside of the obvious remedy
of land release, other efforts to
increase supply, such as changes to
planning regulations that make it
easier to build more multi-dwelling
hnn.bzresidences, have also been met with serious resistance.
Melbourne has indicated particular resistance to the intro-
duction of more multi-dwelling residences. There have been
claims of the threat of “vertical slums” developing, of an over-
supply of apartments “crashing” the market, and so forth.
What has actually been happening, as Australian Bureau
of Statistics (ABS) numbers indicate, is that the multi-unit
dwelling market in Melbourne has begun to take on the
pricing rhythms and patterns of the detached housing mar-
ket. That would indicate that where once the apartment and
detached house markets were quite separate, they are now
becoming more of a single, conjoined market.
However, real estate prices are such that simply increas-
ing availability by building more apartments may not be
enough to satisfy demand. A secondary front in the same
struggle has been the development of increasingly smaller
apartments. With the age of first marriage steadily creeping
upwards, to now be close to 30 for men, singles are looking at
ways to get into the property market on a single income.
Yet while many cities that have faced the same market
problems have become advocates of smaller apartments,
under 37 square metres in some cases, architects and others
involved in city planning have resisted similar moves in Mel-
bourne. Draft guidelines proposed in June 2016 would require
a minimum apartment size of 50 square metres.
25
Beyond these measures that directly and immediately
affect the supply of dwellings, there have also been indirect
failures that have contributed to the problem. Melbourne in
particular has made poor investments in both its private and
public transport infrastructure.
Not only have morning and evening car commute times
increased in Melbourne, but intra-city transport times have
also increased dra-
matically for week-
day business hours.
The most recent
innovation in pub-
lic transportation
for Melbourne has
been to reduce
seating on trains by
between 13% and
20%, increasing the
nominal (not max-
imum) load-carry-
ing capacity of an
average (Siemens)
six-carriage train
from around 800 to
900. (The maximum Micro apartments designed for a building in New York City.
hnn.bz“crush-load” on these trains is close to 1600.) Reducing seating
to increase capacity is pretty much a last-ditch alternative
for public transportation, a final admission that, in fact, the
entire system needs to be replaced.
These failures in infrastructure mean that people find
themselves increasingly penalised the further out from the
city centre they live. This makes inner city dwellings even
more attractive, driving prices still higher. Yet, despite this,
Melbourne continues to contribute to its problems by in-
creasing centralisation around the city centre, instead of
helping to develop viable satellite areas, as Sydney has man-
aged to do.
All of these problems were recently neatly summarised in
a speech given in late October 2016 by the Australian Federal
Treasurer, Scott Morrison, to the Urban Development Insti-
tute of Australia. In his introduction he stated:
Supply-side constraints include: complex land planning and
development regulation; insufficient land release; the plan-
ning, cost and availability of infrastructure provision; trans-
action and betterment taxes, public attitudes towards urban
infill; and, for Sydney in particular,
physical geographic constraints.
goo.gl/FrHsef
Solutions exist
26 Cities such as Melbourne are
frequently compared to overseas
locations such as San Francisco
and even New York and London
when it comes to house prices and
housing availability. Yet the fact is
that Melbourne, just like almost
all state capitals, is very different
from these other cities. Drive
45km in just about any direction,
and housing rapidly thins out, to
be replaced by rural land, or at
best land that has been allocated
to low-density housing. There is Heat map of house prices around Melbourne, Australia
no shortage of actual area
on which housing can be
constructed.
Cities such as San
Francisco in California
have, instead, radically
constrained geographic
boundaries. San Francis-
co is built on a narrow
peninsula which, just to
make things interesting, is
subject to periodic earth- Heat map of house prices around Houston, Texas, USA
hnn.bzquakes. Attempts have been made to extend the city through
land reclamation from the San Francisco Bay. Indeed, most of
the (uncharacteristically flat) financial district of the city is
built on reclaimed land. But as recent events indicate, build-
ing on that land is rife with problems, in particular subsid-
ence.
By contrast, view the housing maps of just about any city
in the USA’s southwest or mid-west geographic areas, and
you will see a radically different picture. Housing is far more
widespread in distribution. As a result house prices have
remained far more reasonable and obtainable. These are the
geographic regions that most closely duplicate the situation
for most of Australia’s state capitals.
To provide some sense of where the US housing market
is today, these are comments offered by the chief financial
officer of The Home Depot, the US-based home improvement
big-box retailer, when commenting on the forecast for the
company during November through January, FY 2016/17:
So we looked at the affordability index which is over 150%, so
that’s good news. And then we went back and looked at, okay,
historical percentages of household income used for mort-
gage payments. If you look at the years 1995 through 2000,
22% of homeowner’s income was used for their mortgage
payment. It’s down now to about 14%. Interest rates could go
up to 7%, and no one is suggesting that will happen, but in-
27 terest rates could go up to 7% and we would be back to about
22% of household income used for mortgage payments. So
we’ve got a long way to go before there’s any impact, we think,
to our business from rising interest rates.
A report from ratings agency Moody’s in December 2015
indicated that on average Australian two-income households
were spending 29% of their income servicing their mortgages,
despite record low interest rates. In Sydney they were spend-
ing 39%, and in Melbourne they were spending 32%. In Perth,
which has seen housing price falls, the rate was down to 21%.
goo.gl/4bbZKd
The question
To put the question that arises from the above situation as
clearly as possible: If there is an admitted shortage of housing
that average working couples can afford, and there are some
evident solutions ready to hand, why have the market forces
been daunted, and the result been steadily increasing house
prices, and a steady reduction in affordability?
The answer must be that, despite all the press and atten-
tion given to housing affordability, there are other concerns
that are more pressing and given a higher privilege.
Inside the markets
To better come to grips with what forces are influencing
housing affordability, we need first to examine closely the
hnn.bztwo main components of the housing market, the demand
and the supply.
Housing market demand
One oft-quoted figure is that home ownership in Australia
is amongst the highest in the world, at around 68%, though it
has declined slightly in recent years. It is now similar to the
home ownership rates held by France, the UK and the USA.
Other advanced nations do have much lower rates, with Swit-
zerland at around 45%, and Germany at 55%. Romania tops
the list with over 95%, while Mexico has 80%.
What drives this high level of ownership? There are two
main drivers. One is cultural and largely emotional in nature.
The other is a more rational need to wisely invest funds.
It is better to deal with the latter of these first, as the for-
mer actually gets much of its underlying force from positive
assumptions made about the latter. The raw question is: does
buying a house make good financial sense as compared to
instead renting, and investing in other assets?
Fortunately for us, this is a question that has already been
explored at some length by a number of academic papers. For
our purposes the most useful of these is likely an academic
paper from Melbourne University, written by Dominic Crow-
ley and Shuyun May Li, entitled “An NPV Analysis of Buying
versus Renting for Prospective
28 Australian First Home Buyers”,
published in 2014. This can be
accessed at:
goo.gl/CWtULS
This paper takes a 30-year slice
of time, from 1983 through to 2013,
and divides it into 20 10-year se-
quential slices of investment time
(1983 to 1993, 1984 to 1994, up to 2003
to 2013). For each of these 10-year
slices, and for each of Australia’s
eight state capitals, the authors
estimate whether investors would
have been better off buying the
house they lived in, or renting that
same house and instead investing
their money.
The results of this study are
shown in Table 1. As this indicates,
while there is a distinct weighting
towards buying a house, the out-
comes are actually far from being
completely certain. Certainly the
idea that investing in a house is
Table 1. Rent/buy real estate investment decision table.
hnn.bzdominantly the best possible idea is proved to be untrue. The
authors also point out in the paper that, looking at a 20-year
investment cycle, the best investment pathway would have
been to switch at key times from home ownership to invest-
ment in other assets. They also point out that the investment
regime used to obtain these results was quite conservative,
and that it is likely even a slightly more aggressive invest-
ment attitude would have yielded different results.
While these results certainly do not wipe out the idea that
investing in a home is great idea, they do indicate that not
investing in a home is far from a disastrous path to follow.
While the authors did not calculate this, it would be interest-
ing to see a comparison that omitted the incentives that the
government provides for home investment, such as the tax
deductibility of interest paid on home loans. At a guess, given
the loss of that incentive, the two decisions would be nearly
equal for much of the time.
The second area of demand, which in light of the above
seems all the more significant, is the cultural and emotional
demand. The desire to own your own home has long been
seen as an essential part of being “Australian”.
But for just how long has that been going on? As it turns
out, the origin of this desire is sometime after World War II,
and it was one of he policies pursued by the Menzies govern-
ment of the time. In fact, it was foreshadowed in Menzies’
29 most famous speech from May 1942, on Australia’s “Forgotten
People”:
The material home represents the concrete expression of the
habits of frugality and saving “for a home of our own.” Your ad-
vanced socialist may rave against private property even while
he acquires it; but one of the best instincts in us is that which
induces us to have one little piece of earth with a house and a
garden which is ours; to which we can withdraw, in which we
can be among our friends, into which no stranger may come
against our will.
If you consider it, you will see that if, as in the old saying, “the
Englishman’s home is his castle”, it is this very fact that leads
on to the conclusion that he who seeks to violate that law by
violating the soil of England must be repelled and defeated.
National patriotism, in other words, inevitably springs from the
instinct to defend and preserve our own homes.
It is a direct, and very literal, link between actually owning
a home and being patriotic. Later, after Menzies had regained
power, the government under his leadership set a number
of measures in place to further encourage home ownership.
Several of these were outlined in a campaign speech given by
Menzies in May 1953:
What is needed is that encouragement should be given to
home ownership, now that, by sound industrial policies, ade-
quate supply of materials, and steady continuity of work, the
costs of building have been reduced.
hnn.bzThe Labour Government, when it prepared the Common-
wealth-States Housing Agreement in 1945, rejected the idea
that people should become, in the famous phrase, little capi-
talists. Indeed, steps were taken to discourage the purchase of
homes to be built under the Agreement.
In the result, Governments are becoming the greatest land-
lords.
We have always stood for home ownership. The Agreement
expires over the next year or two. We will require that any new
agreement encourages ownership, and leaves ample opportu-
nity, both financial and otherwise, for the work of Building and
Co-operative Societies and private building.
The speech continues to outline a number of generous
provisions to encourage ex-servicemen to acquire a home of
their own.
While the specifics of this kind of cultural statement do
not really hold much influence today, the general attitudes
described here do exert a powerful influence even now. In a
nation of immigrants, recent and established, owning a piece
of ground is a clear statement about belonging, about having
a metaphoric as well as a literal home. For many it is an im-
portant rite of passage from being a dependent child to being
a full, independent adult.
There are other advantages as well. For those less disci-
plined when it comes to savings, having a mortgage is a kind
30 of enforced savings plan. And, of course, having a nice home
makes leveraged wealth far more visible to others than own-
ership of stocks or a term deposit.
Supply
As suggested above, dwelling supply is constrained by
three basic factors: availability of land on which to build,
planning permissions and building regulations, and transpor-
tation infrastructure, specifically time taken to commute to
places of work.
The consequences of these constraints as they currently
exist were quite clearly spelled out by Treasurer Morrison in
the speech previously quoted. He notes, for example, that:
The proportion of home loans that are being provided to first
home buyers was 13.4 per cent in August 2016, well below its
long-term average of 19.4 per cent.
The conclusion that the Treasurer draws from this and
other statistical facts is that:
All of this can seem very unfair. The market is getting away
from people. No matter how hard they work or save or even
earn, they are finding it harder and harder to get into the
market.
What follows from this statement, however, is some rather
odd reasoning. One of the first declarations Treasurer Morri-
son makes directly afterwards is:
Housing in Australia, especially in Sydney, Melbourne and
hnn.bzYou can also read
