Temple & Webster has launched ‘The Build’ to see it expand into home improvement and take on the might of Bunnings

The online retailer is taking on Bunnings with its new home improvement site, but a grim trading update has triggered a share slump.

Mark Coulter, CEO of Temple & Webster believes customers are ready to shop online for their home improvement projects just as they have done for home furnishings and furniture. Picture: Supplied

Online furniture and homewares retailer Temple & Webster is taking on Bunnings in the $26bn home improvement sector after cutting its annual earnings guidance, which triggered a major share sell off.

Its shares have sunk more than 9 per cent after the group reported on Wednesday a disappointing trading update that implied a large miss of market consensus earnings targets and slowdown in sales.

It is the latest online pure-play retailer to report disappointing sales to the market, following poor quarterly sales and earnings performances from Kogan.com and Booktopia. It suggeststhat shoppers are slowly but surely retreating from online shopping and that boomtime conditions enjoyed through the first two years of Covid-19 are coming to an end.

The grim trading update comes as Temple & Webster is trying to broaden its reach with the launch of a new home improvement and home renovation online shopping platform called The Build which will bring it into direct competition with market heavyweights such as Bunnings, owned by Wesfarmers, and Mitre 10.

But as it scopes out new businesses its core furniture and furnishings business is showing the signs of a slowing e-commerce market. Temple & Webster said sales had jumped 23 per cent for January 1 to April 30, against a sales update in February for the beginning of the second half which showed revenue growth of 26 per cent.

Temple & Webster also noted that for the 2022 year its EBITDA margin range of 2-4 per cent was reaffirmed but it was expected to be at around 3 per cent.

The trading update implies a 14 per cent downgrade to consensus EBITDA, according to analysts.

Shares in Temple & Webster dropped 9.3 per cent to $4.90 just before midday in a higher market.

RBC Capital Markets analyst Wei-Weng Chen said while the total addressable market of around $26bn, margin opportunity and online-penetration story for the home improvement category looked attractive in the medium to longer term, the market could approach the launch of home improvements with “an element of caution” given the current macro headwinds facing the Australian property market.

Temple & Webster plans to leverage its e-commerce retailing experience and the evolving nature of online shopping to move into the home improvement and renovation market that is valued at $26bn.

Just as Australians grew to accept buying couches or chairs from their screens and without touching them or sitting on them, Temple & Webster believes particular home improvement products will also lend themselves to this type of consumer — and in fact might be more alluring than furnishings.

Its new online site, The Build, has launched with an initial range of more than 20,000 products across 39 categories including bathroom fixtures such as vanity units, toilets, sinks, tapware, exhaust fans, bathtubs; kitchen fixtures which includes cupboards, sinks, taps; indoor and outdoor lighting fixtures, ceiling fans, blinds, curtains and wallpaper.

New categories such as flooring and tiling, outdoor living and landscaping, tools and building/renovation equipment will be added in the coming months.

Temple & Webster chief executive Mark Coulter believes there is an opportunity for the retailer to maximise share of spend in the home and realise synergies with core furniture and homewares business. The home renovation market will also be counter cyclical to the housing market, namely moving versus renovating.

“I think the home improvement category or renovation category is a natural extension for Temple & Webster, we are already famous for the home and we’ve built the largest e-commerce business in furnishings and homewares,” Mr Coulter said.

“I think moving from the loose furnishings to what is attached to the wall and floor feels like a very natural extension, and we are already seen as a place to come to make your house beautiful so why not do the whole room.”

When Temple & Webster started out in furniture and homewares there were many sceptics who doubted Australian consumers would be keen to buy a couch or armchair online — without the ability to touch and feel it, let alone sit in it — but that scepticism was ultimately proved unfounded with the retailer’s annual sales topping $326m

Mr Coulter said he believed Australian shoppers would also begin to gravitate to shopping more online for home renovation and project products, with the millennial cohort especially more open to shopping for home improvement on their laptops and smartphones.

“We have already seen that overseas. If you look at the US and UK it is already following a similar adoption curve to furnishings and homewares where people, millennials are growing up and buying homes or renovating homes, they’re turning to these channels and as we have always said online offers convenience and value - and that is a compelling proposition.

“I think it is very similar dynamics, in some respects one could argue that dynamics for home improvement may actually be better than furnishings and homewares with the touch and feel for many categories is less important than for example a sofa.”

The home improvement category also had its own healthy industry dynamics and economic case that should support an expanded online shopping platform.

“With more Australians shopping online than ever before, The Build by Temple & Webster meets the needs of today’s digital-first shopper who prefers the convenience and ease of renovating online rather than the traditional renovation process of driving from showroom to showroom to source projects.”