Independent home improvement retailers are going out of business at a rapid rate as Bunnings defends its market-leading position and Woolworths tries to stem losses at Masters. Source: The Sydney Morning Herald
Almost six years after Woolworths’ entry into the $45 billion home improvement market triggered an aggressive competitive response from Bunnings, the fallout is being borne by small and family-owned hardware retailers operating independently or sourcing stock through buying groups such as Danks, which is now owned by Woolworths, and Mitre 10, which was acquired by Metcash in 2008.
According to DGC Advisory’s 2014 home improvement market report, the number of independent hardware stores has fallen 12.6% to 15,948 in the past two years, and the number of stores in buying groups has fallen by 8.2% to 1570.
Over the same period, Wesfarmers’ Bunnings has increased store numbers by 24 to 324, including trade centres, lifting its share of the market from 16% to 17.7%, while Woolworths’ loss-making Masters chain has opened 34 stores, giving it an estimated share of 1.7%.
Woolworths has also acquired at least 45 Home Timber & Hardware and Thrifty-link stores once owned by independent retailers, while Metcash’s Mitre 10 has established 52 ‘joint ventures” with hardware retailers who otherwise might have quit the industry.
An estimated 37 Home Timber stores have gone out of business or have transferred to other buying groups such as Mitre 10 or Natbuild, (the National Building Suppliers Group), which is now the largest buying group with about 400 members.
According to DGC, the home improvement market grew 3% in 2014. But Bunnings’ sales grew almost four times that rate, by 11.8% to more than $8 billion, and Masters sales rose 42.2% to $752 million, with both big-box chains taking share from smaller retailers.
Home improvement consultant Geoff Dart, a director of DGC, expects the number of independent retailers to fall by 39% to 9756 over the next decade and the number of stores in buying groups to fall 18% to 1290 as store owners struggling to compete sell out to the major chains or close their doors altogether.
“The decline [in independent store numbers] is accelerating across all retail channels as succession planning and inability to compete take greater hold,” Mr Dart said.
“The large players will cherry pick the well-run stores, who will achieve very good returns for their respective businesses.”
He has called on the Australian Competition and Consumer Commission to approve the sale of small stores to larger chains – rather than block acquisitions on competition grounds – to enable independent retailers to crystallise the value in their businesses and exit the industry with something to show for their efforts.
Over the past four years the ACCC has approved Woolworths’ acquisition of Mittagong Home Timber & Hardware, Becks Hardware, Hudsons Building Supplies and Taits Timber & Hardware and approved several acquisitions by Bunnings and Mitre 10.
However, the ACCC blocked Woolworths’ acquisition of three stores owned by G Gay and Co in Ballarat in 2013, saying it would lead to a substantial lessening in competition.
DGC Advisory has forecast further consolidation among retailers and suppliers, pointing to the fragmented nature of the home improvement industry and recent acquisitions such as Dulux’s purchase of Porter’s Paints in February and Gardena’s acquisition of Neta garden supplies.
Bunnings is the single largest player in the market but has less than 18% of sales.
Specialist retailers such as Reece, Beacon Lighting and Kresta account for 46% of the market and buying groups 9%.
The combined market share of ‘true” or non-affiliated independents is just 3% – despite the large number of stores – and is expected to fall to 2% by 2024.
“Continued rationalisation at retail, wholesale and supplier levels will provide companies with clear growth plans and greater share of their respective pies,” Mr Dart said.
The industry profit pool, which is estimated to be about $3.5 billion, will shift more towards specialist retailers and big-box formats, boosting profit margins as costs per store decline and as retailers introduce differentiated and unique products.
Mr Dart expects the home improvement market to continue to grow by 3% a year over the next 10 years, underpinned by growth in new housing, renovation and additions, property prices, an increase in the number of households, relatively high employment levels and new product development and innovation.
