Online furniture retailer Temple & Webster is moving into the home improvement and DIY market with an online store aimed at challenging the dominance of Australia’s biggest hardware chain Bunnings.
The company plans to spend $10 million over this financial year and the next establishing The Build, an online store selling home improvement products such as ceiling fans, lighting fixtures, bathroom vanities and wallpaper. Further categories, such as tools and building equipment, will be added over the coming months, Temple & Webster told its shareholders on Wednesday morning.
The retailer announced the plans as it updated shareholders on its trading performance through the second half of the 2022 financial year so far, with sales up 23 per cent for January through to the end of April. The company expects its earnings margin to be around 3 per cent for the full year.
Investors weren’t impressed, sending the stock down 6.7 per cent to $5.04 in late afternoon trade.
Home improvement is a “natural extension” for Temple & Webster, says CEO Mark Coulter.Credit: Janie Barrett
The expansion into home improvement is a notable deviation for the online furniture retailer, which has established itself as a significant player in Australia’s home goods market during the pandemic, thanks to a boom in demand for home office equipment such as desks and office chairs.
Chief executive Mark Coulter said the move was a “natural extension” for the ASX-listed business as Australians were drawn to home improvement projects.
“Australia is a country of home renovators, we love our homes, and we love making them more beautiful,” he said. “We believe our expertise in ecommerce and the home will help make The Build become Australia’s first-stop shop when it comes to renovating and redecorating.”
The market for online improvement in Australia could be worth around $16 billion and the category was yet to make its mark online, with just 4 per cent of DIY shopping happening online compared to around 25 per cent in the UK, the company said.
Investors were sceptical, with RBC Capital Markets analyst Wei-Weng Chen saying the company’s sales were tracking well below estimates and that shareholders would look upon the launch of The Build with caution.
“While the total addressable market, margin opportunity and online-penetration story for the home improvement category looks attractive in the medium [and] longer term, we expect the market to approach the launch [...] with an element of caution, given the current macro headwinds facing the Australian property market,” the analyst said.
The company will also face a tough job when squaring off against Wesfarmers’ Bunnings juggernaut, which - despite only recently launching an online store - holds around 50 per cent market share for home improvement in Australia.
Perhaps in recognition of this, Temple & Webster said it doesn’t expect The Build to make a material contribution to its overall sales and earnings for the first four years. However, it expects the long-term-margins for the business will be better than its furniture and homewares category.
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