How Bunnings plans to meet the challenge of US giant Amazon

Mike Bruce
Sep 10, 2019, updated Sep 14, 2019

Bunnings plans to have 55,000 products online nationwide by Christmas.

US retail giant Amazon has fired another shot in its assault on the Australian market, this time aimed at hardware darling Bunnings.

Amazon Australia on Tuesday revealed it would open a “Garden store” selling “a range of enticing outdoor products from gardening equipment to pool supplies to patio furniture to BBQs”, it trumpeted in a statement.

The online retailer already sells “home improvement” products (divided into 12 sections from hand tools to kitchen taps), but its foray into outdoor is another step in its challenge to the undisputed king of Australian hardware retailing.

A spokesperson for Amazon was unable to say how many products would be available in the new garden section, only that it will add “to the over 125 million products already available on Amazon.com.au”.

So should Australia’s most trusted retail brand be worried?

In the short term, no. In the long term, possibly, according to industry watchers.

IBISWorld senior industry analyst Michael Youren said while Bunnings had been remarkably successful at increasing general revenue, its online sales were a sleeping giant.

Mr Youren said while the retail market for hardware and building materials was worth about $21.9 billion* a year, online sales amounted to just $326 million, or less than 1.5 per cent, of that.

An increasing move to online is being mirrored in the United States where Bunnings’ equivalent, Home Depot, reports online sales were 7.9 per cent of total sales in 2018. But that was up 24 per cent for the year, from 6.4 per cent in 2017.

“That provides a lot of potential for a new entrant like Amazon,” Mr Youren said.

“So it [Amazon] definitely poses a threat, but also due to the size and scope of Amazon and its ability to update its product offerings pretty quickly, which is obviously important in today’s retail market.”

Amazon extends hardware range in Australia

A sample of mowers available from Amazon. Photo: Amazon Australia

Senior analyst with Retail Oasis Trent Rigby agreed that Amazon didn’t pose a short-term threat to Bunnings, but its deep pockets and capital grunt would allow it to play a long game against competitors.

“I think Amazon is a huge threat,” Mr Rigby said.

“I just don’t think it is [a threat] yet. But there’s real potential there. Down the track, in a year or two, they pose a huge threat to anyone in that home and hardware space.”

Like many other categories that Amazon chases, it generally starts with a soft launch, creates a beachhead and builds from there.

Mr Rigby said Amazon may also capitalise on the rise of the “millennial maker” culture, whereby younger generations – more disposed to digital shopping – are rediscovering the joys and economies of do-it-yourself.

Online is happening at Bunnings

Bunnings’ financial performance is impressive enough. In 2019, it had earnings before interest and tax of $1.62 billion – a creditable increase of 8.1 per cent on 2018 in a tough retail environment.

But that is petty cash compared with Amazon, which had revenue of $339.5 billion in 2018 – an increase of about 31 per cent on its 2017 revenue of $259.2 billion.

Mr Youren said while Amazon had not had much impact on the Australian market, it had the wherewithal to stay the course and chip away at the likes of Bunnings.

Bunnings wouldn’t comment directly on Amazon’s latest move, saying only that it welcomes competition, has been competing with many retailers across different ranges for years, and it would continue to focus on its customers.

But like Home Depot in the US, Bunnings sees its bricks-and-mortar stores as a competitive advantage against Amazon, pushing its “in-store experience” and its “meaningful and personalised customer experiences”.

The Bunnings sausage – another factor in its “in-store experience”. Photo: The New Daily

And after years of relying almost solely on the in-store factor, Bunnings said it will have a “fully transactional online offer” of about 55,000 products by Christmas.

Having started with a trial of its click-and-collect program at one Victorian store in December, and rolling that out to Tasmania in March, Victoria in July and the ACT in August, it will roll it out to all states by the end of November.

*Bunnings’ assessment estimates the value of Australia’s “Home & Lifestyle” market, including commercial sales, about $78 billion.