Bunnings Warehouse shifts focus to larger stores

Bunnings' focus has shifted from freehold development back to leasehold, a move that allows it to take advantage of tighter yields for commercial assets while it ramps up its national conversion of small-format stores.

The Wesfarmers-owned hardware giant has spent $600 million to $700 million on its development pipeline this financial year, slightly less than the previous year, Bunnings property development manager Andrew Marks told Fairfax Media.

"Whereas two or three years ago we were probably only doing freehold developments on our own properties, now we're back to 30 or 40 per cent leasehold," Mr Marks said.

"The last few years we've seen yields reducing in a way that is beneficial for us. We've certainly taken advantage of the significant demand for Bunnings leased properties. Why wouldn't we?" 

The shift from smaller "home centres" (under 5000 square metres) to larger-format "warehouse" stores (anywhere from 5000 to 21,000 square metres) was being driven by population growth and changing consumer preferences.

Displays of architectural and LED lighting, kitchens, playground equipment and home automation goods were taking significant floorspace in the bigger, upgraded stores.

"All these categories didn't even exist a few years ago," Mr Marks said.

Over a 10-year period, 60 smaller-format stores have been replaced with larger outlets, while 29 larger format stores were closed to make way for upgrades, a recent Bunnings investor briefing said.

Landlords of smaller-format outlets have responded to the upsizing by chasing other bulky goods clients. 

National retailer Total Tools was quick to take up space vacated by Bunnings at the Sunbury Showroom Centre. It signed a 10-year lease for 1,100 square metres on rent between $170-$250 a square metre, CBRE's Ryan Arrowsmith said.

Like Bunnings, which moved across the road into a store twice as big, Total Tools wanted to tap into Sunbury's rapid population growth.

Mr Marks said the hardware chain had rolled out a similar upgrades in Mentone, where it moved next door, and Altona, where it upsized from 9000 to 16,000 square metres.

Development applications were in place for Sunshine and Mildura, stores in Epping (Victoria) and Minchinbury (NSW) were expanding and others were under construction in Lismore, Rockingham (WA), and Bathurst (NSW).

"In these growth areas where we have been present for 10 to 15 years, the old stores can't always cope," he said.

"There's probably another 10 on the drawing board. That's in addition to opening another 40 or 50 Bunnings Warehouses in the next three years. We're on track to open 26 stores around the country and in New Zealand this financial year."

Bunnings had accumulated a deep pipeline of land holdings during the global financial crisis which was underpinning its expansion, he said.

Source: Simon Johanson - The Age, Business Day.

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