Trade war fears from Bunnings expansion forced K&D strategy change

KEMP and Denning Limited dropped its 2016 strategy of focusing on supplying the building trade and closed stores because it feared a price war with Bunnings and Clennett’s Mitre 10.

K&D’s site in Hobart is believed to be of interest to commercial rivals. Picture: MATHEW FARRELL

KEMP and Denning Limited dropped its 2016 strategy of focusing on supplying the building trade and closed stores because it feared a price war with Bunnings and Clennett’s Mitre 10.

Shareholders were told the company faced a potentially devastating cash flow squeeze from the expansion of Bunnings.

In 2016 then-chairman Ray Brown told shareholders that the sheer weight of increased competition in the retail landscape had prompted the board to transform the business model so that it was predominantly trade focused.

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General manager Jason Hutton, who replaced Nick Fazzolari in March, was asked why that strategy had been abandoned.

“The market changed quickly and consequently we believed the Tasmanian trade market was not big enough for three players [Bunnings, Mitre 10 and K&D],” he told shareholders.

“Profitability in the trade area is largely dependent on scale and we thought it was too risky to engage in a price war that we couldn’t fund.

“If we lost significant market share there was chance that asset values would fall.”

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During the 2016-17 financial year, K&D closed stores at Glenorchy, Devonport and Cambridge with the loss of a substantial number of jobs and sold operations to Clennett’s Mitre 10 for $4.2 million.

The meeting heard that the early termination of a lease at Cambridge cost the company $500,000 with redundancy costs of $530,000 while early termination of a lease at Devonport cost $2.5 million.

Tenders for K&D’s Kingston site, valued about $3 million, closed this week.

Shareholders were paid a 20cents a share dividend at a total cost of $530,000 despite a prediction that the company would earn just a nominal cash surplus in 2017-18.

K&D has had its assets, including land at 103 Melville St, revalued.

The city site was valued at nearly $18 million in the latest annual report and is believed to be of interest to commercial rivals.