Despite the failed state of their building industry the gents I spent my time with were still able to share a laugh and focus on what they need to change to become successful once more. They have indeed been through some very tough times.
I make no apologies for making reference to the U.S. housing market; it is something I do regularly in these pages. My experience, and my father’s before me, is that our American friends can give Australian builders and suppliers an excellent, pre-emptive view of our own industry’s near and medium term future.
In my opinion the Australian and U.S. residential building industries share four characteristics that distinguish them from other housing market across the world. They both have:
1. an abundant supply of undeveloped land
2. a growing population base
3. home ownership remains a cultural priority
4. [Despite recent experiences] both economies are strong and its citizens are comparatively wealthy.
While Australians have been innovators in their own right my choice to visit the U.S. was in the hope of learning more about the practises they have recently adopted. Assisted by the sheer volume of their detached housing starts the U.S. home building industry has been a constant source of innovation, with many new trends finding their way into our markets.
In recent decades some of the U.S. evolutions we have embraced include prefabricated roof trusses & walls, engineered timber products and light weight multi-unit construction; among others.
Beyond building products and techniques the world looked to the U.S. in 1979 as a new form of retailing was created. A revolution was born when the first warehouse home centre began trading in Atlanta. Bunnings has since imitated the format and big box retailing has quickly become a way of life in Australia, as it is in the U.S. The Home Depot now operates 2,000 centres (Bunnings has approximately 200) with an annual turnover exceeding $80 billion. Other versions have also emerged, including Woolworths’ newly announced partner – Lowes Building Centres.
In the face of the Big Box phenomenon many traditional lumberyards re-organised themselves into providers of builder focussed solutions – and thrived. Bowens (among others) observed these changes and realised we also had to re-establish ourselves in order to survive the impending challenge to our retail exposure. From the early 1990’s our sole objective has been to provide builder focussed solutions as we strive to become ‘The Builders Choice’.
Again, the purpose of my recent visit was not to appraise history or boast about the relative health of Victoria’s housing industry, my interest was in the detection of future trends.
From Bowens’ point of view a significant change is already on the horizon, with the opening of Lowe’s Building Centres imminent. Their teaming with Woolworths is a clever match of two category killers and their combination will have a significant effect on our industry. If the American experience is repeated, which I believe is very likely, small, medium and large independent timber & hardware operations will disappear. As too will some manufacturers and wholesalers. The ACCC would do well to contemplate this new environment.
Bunnings and Woolworths both quote industry volumes in excess of what many analysts understand to be true, with the single purpose of diluting their perceived market share and therefore averting the ACCC’s attention. It is argued that Bunnings already have a 50% share of the DIY/hardware market in multiple segments and the introduction of another major player will change the landscape permanently. You only have to visit the U.S. to glimpse a future dominated by corporates.
Significantly, however, the reducing trend of trade sales at the U.S. big box retailers should also be highlighted. While The Home Depot and Lowe’s continue to sell to contractors / builders this business, as a proportion of their overall turnover, has fallen steadily over the past few years. Even so, the shadow of dominant warehouse hardware stores is cast over every market in the United States.
Another growing U.S. trend is the rise of environmentally supported products; particularly in the timber category. Strong advocates are variously described as committed, even foolish and their affect on trends continues to be mixed, at best. Apparently the highest proportion of FSC product sold by a U.S. lumberyard is 6 per cent. Despite the slow progress it appears the movement to greener practises is gaining traction; it is something we will continue to monitor.
Use of the internet was one matter on which I was expecting the Americans to have been further advanced. The housing industry continues to lag best practise while other industries wholly incorporate this revolution. To ignore the opportunity to deliver improved services through the benefits of available technology, or dismiss out of hand the possibility of marketing through social networking sites, is foolish.
It was also interesting to discuss the emergence of factory built homes. Forget what you know of this technique today, the future will be very different. Increased automation and infinite quality improvements are taking place in Australia right now, with several projects underway. From the people I spoke with America appears to be no further advanced than we are at this stage.
The threat of ‘new era’ factory built dwellings is significant. It removes both builders and (the likes of) Bowens from the process. This is another subject on which I intend to keep a close eye.
One of my colleagues made an interesting observation in regards to the history of change following severe economic slowdowns. With the agreement of others he persuasively argued that periods following previous recessions have seen greater changes than when markets have been flat or turning down. In slow times I suppose it is fair to suggest businesses combine greater periods of self reflection with a strong motivation to search out growth opportunities and develop new ways of completing old tasks.
In summary, my U.S. friends didn’t appear to be involved in any extraordinary innovations, however it is always good to freshen the mind and observe how others approach what is a very similar task. There is always something to be learnt.