Busy tradies to lift Bunnings: Macquarie Wealth Management

Professional building tradesmen are tipped to spend more money at Bunnings, a ­Macquarie Wealth Management report says.

Bunnings continues to lead the hardware retail sector, according to Macquarie. Picture: Christopher Chan

It won’t just be renovators, hobby gardeners and lost husbands walking the aisles of Bunnings, with the backbone of the retailer’s business, professional building tradesmen, increasingly projected to spend more money at the hardware chain, according to a ­report from Macquarie Wealth Management.

In a report to its clients, Macquarie argues a strong rollout of Bunnings stores will continue to support positive like-for-like sales for the chain, while a positive outlook for the housing market will also buttress sales.

But just as importantly, tradies are busy with plenty of jobs on their books, a recent Macquarie survey of the mood of tradies pointing to more orders being placed with Bunnings.

“We completed a survey of 27 trade firms to obtain a better sense of market conditions and perceptions towards Bunnings. Participation included the following trades: builders, carpenters, electricians, landscapers, painters, plumbers and others,’’ the Macquarie client note said.

The key takeaways from its survey was that conditions are generally stable or getting better, and that Bunnings remained a “preferred retailer” from 48 per cent of respondents.

Macquarie said “68 per cent of respondents view Bunnings positively (compared to 8 per cent who view it negatively) and 28 per cent expect to spend more at Bunnings over the next 12 months. Primary drivers for the success of Bunnings were attributed to convenience/location (36 per cent), customer service (24 per cent) and product range (24 per cent).”

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The survey found that conditions are generally stable or getting better, with 40 per cent of respondents indicating their backlog is steady on last year and 40 per cent indicating it is more positive.

The positive findings around the Bunnings brand and general health of the building and renovation sectors will be good news for Wesfarmers shareholders, as Bunnings will play a greatly enhanced earnings role within the Perth-based conglomerate after Coles is demerged this year.

Once Coles is spun off, Bunnings will be the most important, and largest, profit driver within Wesfarmers, delivering just over 50 per cent of profits. The success of Bunnings will be more important than ever for Wesfarmers’ ­returns — and much of it could rest on store rollouts.

“Bunnings’ like-for-like stats are impressive,’’ the Macquarie report says.

“Supplementing this, the group has generally rolled out 10-14 stores per annum with a footprint now of 363 stores. While highly variable due to store ramp-up/stabilisation phases, we estimate rollout has accounted for around 30 per cent of Bunnings EBIT growth over time.”

Bunnings continues to lead the hardware retail sector, according to Macquarie.

“Bunnings was clearly the preferred retailer for tradespeople with 48 per cent of responses, while Home Timber & Hardware and Mitre 10 both received only a 4 per cent preference,” it says.

“Even if there is a sharp retreat in the housing market, caused by financial shocks, rising debt levels or a slowdown in new housing, Bunnings could take on defensive characteristics that would serve it well in such a downturn.

“Should there be an external shock, we contend Bunnings should be reasonably defensive as consumers are likely to cut back on more disposable spending and continue to spend money on their primary asset (their home) as evidenced by Bunnings’ strong performance during the GFC.”