Staying strong – The shape of NZ’s tool market

By Jess Brunette June 01, 2014 Hand & Power Tools

There is opportunity in the power & hand tools and accessories market but what shape is that business taking for the winners in the industry? Jess Brunette reports.

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

The upward mobility of the market for power and hand tools continues here in New Zealand, with the usual culprits – Auckland and Christchurch – sharing the responsibility for the significant increases in sales that were reported to me by many of the major players.

Craig van Asch from Paslode is happy to confirm that sales in the past 12 months have been far stronger than in the previous three years on the back of building construction being up 20% on the previous year.

“New Zealand is still a wee way off our national averages (22-24,000 houses) in terms of housing consents nationally, but we are certainly climbing, and builders are tooling up and getting started again and new builders are coming into the market,” says van Asch.

While Paslode has seen its fair share of sales from the two main centres, van Asch is also seeing encouraging signs of life in the Bay of Plenty and the Lower North Island.

Other players, including Stanley Black & Decker’s Nick Armiger, Makita’s Jamie Teague and Bosch’s Craig Hexter, all have similar tales to tell around increased sales of power tools in recent years and forecast that this should continue for years to come.

Craig Hexter: “Growth is a clear certainty in specific areas like Canterbury and also the Waikato. Plus, if you look at the numbers of dwellings required now and in the coming few years, the market will remain buoyant for our industry.”

The recent announcement from the Government and Auckland City Council that 18,000 more homes have been proposed to the designated Special Housing Areas within the greater Auckland region (taking the projected totals to 33,500) certainly helps to back up this optimism.

Over in the hand tools camp, Neil Pinkerton from SNA E also reports good growth coming from housing consents in the two main centres as well as some areas in which the Bahco brand has a strong presence.

“The market was very flat at the beginning of 2013 right through until August, when business really accelerated, but now we are in double digit growth. Increased building and construction activity and the recovery (albeit not to 2010 levels) of the Kiwifruit industry, as well as excellent grape crops for the wine industry have also impacted strongly on our sales as we are involved with pruning hand tools,” Pinkerton explains.

 

MORE BUSINESS = MORE COMPETITION

However, some players are reporting more competition along with the increased confidence that’s evident in the market.

“It’s been very competitive,” says Steelfort’s Gavin Lowndes. “We’ve had to come up with the right product, promotions and opportunities and you’ve always got to be active to make sure you are keeping your side of the market humming.”

While his business has grown over the last 12 months, Toolware SalesAaron Bell has also experienced new players coming onto his turf: “We’ve seen a lot of non-historical partners in the business that have taken on power tool accessories, making their selections available to the customer a lot more open.

“Power tool companies are taking a crack at accessories, while some companies that have been historically automotive or engineering trade suppliers are coming to the market with a screwdriver or a holesaw,” he says.

 

WHAT’S HOT IN TOOLS?

As Christchurch pulls itself up from the rubble, the type of products that are in demand have changed. Auckland on the other hand seems to be demanding products across the board. Simon Jones from South Auckland retailer PowerTool Shop is at the coal face of the industry.

“Sales for us are up 20-30% and Auckland is booming a lot more for us than Christchurch,” Jones says. “We had one customer come in this morning who had moved from Christchurch as there wasn’t enough work there for his particular trade at this stage of the development.

“Auckland has a broader spectrum of work and things happen a lot quicker because we haven’t had an earthquake devastate half the city and we have the infrastructure to get things up quicker than Christchurch at the moment.”

So which products are doing best in the current market? Jones reports that a surprising success has been in Bosch’s recent range of laser products.

“We took on their distance measures, rotating lasers, cross line lasers, range finders, dumpy levels and we’ve never looked back, it’s a major part of our business now,” Jones says.

Bosch’s Craig Hexter confirms this growth in the brand’s intelligent laser measuring tools as well as power tool accessories and impact drivers and reports that “Bosch Power Tools currently has over 35% of sales coming from new innovations alone.”

Over at Stanley Black & Decker, Nick Armiger has had success in brushless products, task specific storage solutions for construction sites, and the expansion of the brand’s 18 Volt platform with healthy interest in new ideas like the Matrix multi tool system (see sidebar) as well as the introduction of gyro technology based tools.

Toolware sales’ Aaron Bell has seen growth across the board but reports that “driver bits seem to be taking more market share while holesaws are dropping off as we used to be one of 2 main suppliers to the market where now you can name probably a dozen brands doing holesaws.”

For smaller players in the market, getting behind niche products with a marked point of difference appears to be a good strategy for sticking out on the big box shelves.

“A direction we have purposely gone in is in the innovative type products such as the Worx slide driver and handy cutter,” reports Steelfort’s Gavin Lowndes. “Things that are a bit different and aren’t just another power tool or multi-tool. And that’s where we’ve had very good growth and we’ve promoted it, and the retailers got right in behind it and it’s gone particularly well.”

 

MARGIN OF ERROR

Regardless of the popularity of a product and the appeal it might bring to a brand, that is not always a guarantee of good business, with everyone in the industry having something to say about the steady erosion of margins on tools in recent years. So where are people finding the healthiest margins?

“Power tool accessories would have the best margin for both suppliers and retailers,” says Aaron Bell from Toolware sales. “It’s the lower price point, more consumable products that flick over pretty quickly versus a hand tool which people brag about having 30 years later.”

For Irwin ToolsKimm Wray, the way forward has been to carve out a niche away from more generic products that suffer from price competition.

“Margins have been eroded quite a bit with people importing no name brand products, so for us it’s been a matter of trying to be a little more innovative and coming out with new products like impact fastener-drivers. People have dabbled with sets but we have brought a full range in. So we are getting our gains from innovation and replacing some outdated products with some new ideas and new ranging.”

On the shop floor PowerTool Shop’s Simon Jones sees the best margins in accessories by far: “Circular saws are our best seller and multi tool cutters also fly out at $60 apiece, and people will come in and buy ten of them, so we make serious money in this area.”

However, having a comprehensive range of power tools is still the main focus of the store. So how do you get healthy margins on power tools? “It really depends on how you buy,” says Simon Jones.

“If you are in the market of buying one and selling one then you are going to be bankrupt pretty quickly, whereas we are in the ball game of buying pallets,” he says.

“Also we sell different stuff. So although other people have Makita they will sell the circular saw, the jigsaw, the angle grinder, the drill and the cordless, whereas we sell the more specialised products like the plunge saw, the impact wrenches, the wet cutting tile saw and the accessories that go with them because they will always buy extras to go with it. And we say for every tool we try to put two add-on accessories with the initial purchase.”

 

PARALLEL LINES

While most in the business accept that price erosion either from increased competition or an increase in own brand products is simply a fact of life, parallel importing remains a concern not only for profits but also safety and the reputation of the industry.

In terms of safety, the biggest concern for those in the power tools industry is when American or European market stock is imported without suitable adjustment for New Zealand voltages.

“With electrical goods we get it every day where they have batteries from all the different manufacturers,” explains Simon Jones. “And if they were bought in New Zealand we would replace them so it’s really the customer that gets let down by buying parallel imported goods, either by service or the products because it wasn’t designed for New Zealand.”

Craig van Asch has seen some worrying examples of parallel imported Paslode products in recent years: “I have examples in my office where you can see someone has opened up the internals and put drill holes through where the compliance bar is. And they are selling these to builders on site who are probably none the wiser,” he says.

“There was also a very well documented case a few years ago where a second hand tools dealer was importing counterfeit labels for tools in a suitcase and was found in customs so I think there’s an opportunity for WorkSafe NZ and those types to really target this stuff.”

Craig Hexter pulls no punches when asked about this issue and reports that “Bosch is taking legal action against this practice, also those companies using the Bosch acronyms and logos without written approval on their websites.”

So what do you say to those customers who just can’t turn down a good price on a power tool? Craig van Asch shares his thoughts.

“There certainly are bargains out there, that’s just the way the market is, but you are talking about a saving of a hundred dollars max so how much is your health and safety worth? And professionals need to consider the broader implications: there’s no backup service, or limited service which may take longer, and importantly what’s the impact on your business? If someone electrocutes themselves on your site with a non-compliant tool, insurance could be voided.”

So far, Kimm Wray at Irwin Tools hasn’t been adversely affected by parallel importing but is still wary for the future: “It’s a tough one as I think it will happen more and more. And Amazon are now building new warehouses in Australia and that’s a concern,” Wray says.

Despite competition, eroding margins and continued parallel importing practices, none of the players I talked to would deny that, particularly in power tools, business is prosperous and that we are still climbing out of the slumps.

Simon Jones sums up the situation well: “With our website we cover with the whole of New Zealand and can sell from Invercargill to Kaitaia, and we do! So I think if you can do it properly and do it well, there’s money to be made in the power tool industry at the moment.” 

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IDENTIFY YOURSELF! NEW LAWS FOR ONLINE TRADERS

On 17 June 2014 changes to the Fair Trading Act will come into effect that will require businesses to identify themselves as a trader when selling online. This means that consumers know they are protected under the Fair Trading Act and Consumer Guarantees Act when purchasing from an online trader.

“Traders should disclose their trader status clearly and prominently in every place online where a customer can complete a purchase. Ideally traders should be making their trader status clear from the outset, and on every website or platform the trader uses,” says the Commerce Commission.

These changes are part of the larger Fair trading Amendment Act which was passed into law on 18 December 2013, the aim being to modernise New Zealand consumer law, “better reflecting the digital and commercial world we live in and aligning New Zealand and Australian consumer law.”

While these changes certainly won’t stop parallel importing in its tracks, the New Zealand Retailers Association for one agrees that this is a step in the right direction to ensuring that all consumers have access to products that are safe and fit for purpose.

You can find out more about all these changes at the shortened links below.

http://bit.ly/Sp08K5

http://bit.ly/1maUNQy

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