Forum Archive Index - January 2001

["Mike Hudson" <mikehudson@clear.net.nz>]

Don't read this unless you are really passionate about building materials and their suppliers

Peter wrote

"Mike Hudson told us a few months ago that his business was going pretty well - still the same Mike? How have the large price increases you talked about had an impact on business. Can't have been too high by the looks of some of the prices in your latest catalogue"

Thanks for you interesting comments on the building materials market.

There certainly has been a slowdown but it doesn’t seem as great as it could have been considering the Building Consents data that you quote. We are certainly seeing two economies at the moment. The rural and provincial areas are doing very well particularly in the South Island (although Dunedin and Invercargill are coming up from a low base).

The two problem areas are Christchurch and Auckland; ChCh should recover quickly on the back of the rural resurgence but Auckland is another matter. Auckland accounts for about 40% of our turnover, probably the same for Carters but quite a bit more for Benchmark as they have no representation in the South Island.

The perception of falling interest rates triggered by the cuts announced yesterday can only help the residential sector and may account for the rise in FLB yesterday.

Your comments about Mitre10 are interesting, they do seem to be focussing more on the DIY side although they did brand some of their stores "Home and Trade" a few years ago but as a group they just don’t have they buying power of PlaceMakers, Carters, Benchmark and ITM. This situation was worsened when two of the larger Mitre10 trade oriented stores were sold to PlaceMakers .

The problem with their current positioning is that they are bumping up against the likes of The Warehouse and Briscoes who are both very good operators. IMO if not for their garden centres many of the Mitre10 stores would be battling.

The biggest threat to the building supply merchants is not from competition between themselves but from a change in the distribution channels. New Zealand is unique (probably apart from Japan) in that most locally produced building materials is channelled through distributors. In the UK and the USA for example, builders, contractors and other major end users source direct from the manufacturers. If that happened here ( there are many reasons that change could happen not the least the rise of B2B exchanges via the Internet) the merchants would lose their "bread and butter" with dire consequences. This is one of the reasons why the traditional merchants are chasing more of the DIY segment.

The prices rises do not seem to have any effect although we had a massive November as customers bought early to beat the increases in gib board and insulation that became effective on 1^st December. As the rises were due to increasing fuel prices and a lower dollar we are now going back to suppliers requesting price reductions in view of the changed circumstances. I am sure their will be some very tense negotiations.

The new CEO of FLB seems to be a hard driver and I am sure that we will see some action soon. I still rate the share a "Buy" but as I have said before I would be a lot happier if the mess in Peru could be cleared up.

Cheers

Mike H