(Producer/Author: Huatai Securities, Xiao Qunxi, Shi Yu, Guandong Qilai)
Core View:
Long-term steady growth long-slope track, real estate prosperity is upward + product iteration innovation supports strong demand
Power tools are an important invention to improve work efficiency in the development of human civilization, and have developed and iterated rapidly from 1895 to the present. In the long run, with the iteration and upgrading of battery technology, power tools have gradually developed towards miniaturization/cordlessness/lithium-cellization, while innovative iterations have made power tools easier to use, thereby promoting more and more extensive demands. In the short term, the downstream proportion of power tools in real estate-related industries is dominated by real estate, and the upward trend in North America is expected to support strong demand.
supply side: large market capacity, China's global industrial chain center position is increasingly highlighted
In 2019, the global market size of the power tool industry reached US$44 billion, of which the professional-grade power tool market is the largest, about 1.7 times that of the consumer level. The global tool scale has grown steadily, with a CAGR of 6.25% from 2014 to 2019. Due to its significant cost and supporting advantages, the leader in power tools has taken China as the main layout point of its production capacity. In 2019, China's total power tool output accounted for about 64% of the global total power tool output. We believe that China is expected to continue to strengthen its irreplaceable core position in the power tool industry chain, mainly because 1) Southeast Asia's infrastructure supporting facilities are limited and the capacity can be accommodated is limited, and there are problems with short-term rapid transfer costs and long-term transfer upper limit; 2) A few high-end categories may be possible to return to the United States for manufacturing through process automation, but the overall proportion may be small.
Demand side: North American real estate is in an upward trend, which is expected to support strong demand for power tools
downstream power tools are mainly concentrated in real estate-related industries. In 2020, about 83% of the downstream of the Stanley-Bedd tool business accounted for about 83% of the downstream of the tool business, and 72% of the power tool terminal market in Chuangke Industry in 2019 were related to real estate. Regression data shows that the year-on-year growth rate of tool business revenue of Stanley Baide and Chuangke Industrial has a certain positive correlation with the year-on-year sales of newly built housing in the United States. North American new home sales and existing home sales both hit record highs since 2006. After seasonal adjustment, residential building permits, which are the weather vane for future housing construction, will grow by 22.8% and 16.79% in January-2 months in a month, respectively. Residential building permits are usually ahead of new home starts and new home sales for 1-2 months, which may indicate that the high prosperity of the US real estate market is expected to continue, supporting strong demand for power tools.
channel end: the proportion of building materials supermarkets has increased and increased KA importance, the rise of e-commerce may give new brands opportunities
Since 2011, leading building materials supermarkets represented by Home Depot have shown an increase in the revenue share of power tools leaders. We believe that the main reason is 1) that large retailers such as supermarkets are gradually increasing in the channel share of the tool market; 2) that the industry concentration of supermarkets is also gradually concentrating on leading companies such as Home Depot and Lowes. The importance of leading supermarket customers is becoming increasingly prominent. The proportion of retail sales in e-commerce channels has steadily increased in the past 10 years, and the epidemic has catalyzed the rapid growth of e-commerce channels in North America. We believe that since the demand for e-commerce docking is relatively primary and consumers do not have strong brand preferences, new brands may have opportunities to increase their awareness. For example, Aoji International's TACKLIFE is a brand cultivated by the east wind of Amazon . Its electric circular saws and laser remote measuring instruments are both ranked in the 20H2 "Best Seller" category in Amazon, the United States.
1. The market capacity is large, and China's global industrial chain is increasingly prominent.
1.1 has a high concentration of categories. Motors/electronic control/battery are core components
power tools are an important invention to improve work efficiency in the development of human civilization. It has developed and iterated rapidly since 1895. 1895 Germany's CE&Fein company produced the world's first power tool, which is an electric drill with a shell cast with steel and powered by a DC motor. In the 1960s, with the development and progress of science and technology and the booming development of the world economy, the use of power tools began to emerge, and power tool manufacturing was the first to achieve industrialization in developed countries and regions such as Europe and the United States.In the 1970s, Japan quickly became one of the main producers of power tools with its relatively low production cost. By the late 1980s, with the gradual maturity of battery charging technology, power tools began to gradually move from cordless to cordless. In 1978, Bosch invented the first cordless electric drill. But it was not until Makita introduced brushless motors to the power tool industry in 2004, and Milwaukee introduced lithium battery power supplies in 2005, and cordless power tools began to gradually become popular.
There are many categories of power tools but the concentration of functional categories is high. The use and update of tools are important features of the development of human civilization. With the development of science and technology and the changes of the times, traditional hand tools have gradually been replaced by a wide variety of power tools. Power tools are generally divided into six categories in terms of functions: drilling (electric drill, electric hammer), fastening (impact wrench, electric screwdriver), grinding (angle grinder, straight grinder, electric grinder), cutting (chainsaw), polishing (sander) and others (hot air gun, concrete vibrator, garden tools, etc.). Since the design principles of power tools are relatively similar, the functional categories are also relatively concentrated. According to KBV Research, five categories of products including electric drills, electric grinders, chainsaws, sanders, impact wrenches accounted for 90.5% of the overall sales of power tools in 2019.
power tools can be roughly divided into industrial grade, professional grade and DIY grade according to the target customer group. industrial-grade tools have high precision, long working life, high technical content, stable working condition and highest price. The target customers are mostly professional factories or engineering construction and facility workers, with the main brands including Swiss Hilde, American Mivoc and German Overtone, etc.; professional-grade products are the most common, have the widest market, and are also the most competitive field in the power tool industry. The design emphasizes adaptability to complex family environments, and the working state emphasizes stability. It mainly targets the construction industry, pipeline industry, and home decoration industry. The main brands include American Dewei, German Bosch, German AEG and Japanese Makita. DIY-grade products are low in price, cost-effective, cheap in consumables, emphasize portability and combination, packaging attracts attention, and relatively low working stability. The target customers are mainly ordinary families, suitable for occasional maintenance operations, and solve the simple repair problem of doing it yourself in the context of high labor costs.
In 2019, the global market size of power tools reached US$44 billion, with a large market capacity and a steady growth in the industry. The global tool storage and accessories market size of has grown steadily, from US$48 billion in 2014 to US$65 billion in 2019, with a CAGR of 6.25%. According to Stanley Black & Decker's Investor Presentation, the global market size of the power tools industry in 2019 reached US$44 billion, accounting for 67.7% of the overall tool, storage and accessories market (65 billion), of which the professional-grade power tools market is the largest, about 1.7 times that of consumer-grade power tools.
The United States and Europe are the main source of demand in the global power tool market. According to Markets and Markets, North America and Europe accounted for 38.36% and 32.08% of the sales of power tools in 2019, respectively, and the Asia-Pacific region accounted for 20.75%. According to Stanley Investor Presentation, Latin America, as a tool emerging market, accounted for about 4.6% of its sales in tooling in 2019.
Motor/electronic control/battery is the core component of power tools and has a high cost. According to the announcement and prospectus of motor supplier Kangping Technology, electronic control supplier Besdaq, battery supplier Penghui Energy, the average sales price of motors, motor controllers, lithium battery controllers and lithium batteries for power tools in 2019 were RMB 46, RMB 33, RMB 52 and RMB 29 respectively. According to our calculations, the above components account for more than 50% of the production cost.
1.2 The trend of miniaturization/cordlessness/lithium batteryization has become. Domestic battery companies are accelerating their entry into the supplier system
cordless power tools are light and portable, with a wide range of application scenarios. The application areas of power tools include road construction, auto repair steel structure, decoration and decoration, etc. Most of the application scenarios are outdoor operations. The traditional method of powering power tools through wires greatly limits the working radius and operating conditions of the power tools, and outdoor operations are very difficult to make progress.The new generation of cordless power tools powered by batteries are light and portable, expanding the operating range, improving working conditions in various application scenarios, and improving working efficiency. With the portability of power tools, the cordless power tools market has expanded rapidly. According to Huajing Industry Research Institute, the market share of cordless power tools reached 52.9% in 2019.
Lithium battery power tools are expected to gradually occupy the dominant position in the power tool market. Because lithium batteries have the advantages of high energy density and long cycle life, as their production costs gradually decrease, the permeability of lithium batteries in cordless power tools has increased rapidly. According to EVTank research data, global lithium batteries accounted for about 87% of cordless power tools in 2019, and the output of lithium-electric power tools exceeded 240 million units, gradually occupying the dominant position in the power tool market.
batteries for power tools are mainly Japanese and Korean suppliers, but Chinese battery manufacturers are accelerating the introduction of power tools supply chains among leading foreign companies. Samsung SDL, LG and Murata accounted for 45.22%, 19.13% and 9.91% of the market share of lithium batteries for power tools in 2018, respectively. According to the minutes of investor surveys by various companies, Yiwei Lithium Energy entered the TTI supply chain in 2018 and began to ship large-scale shipments in 2019; Tianpeng Power (a wholly-owned subsidiary of Weilan Lithium Core) entered the Bide supply chain in 2018 and has also shipped on a large scale, and several other companies are under small batch verification; Penghui Energy entered the TTI supply chain in July 2020, and the supporting power tool battery products have been verified in small batches and overseas markets. They are in the negotiation stage of orders and will arrange mass production according to market and customer needs.
1.3 has significant cost advantages, and China has established its global manufacturing capacity center
In 2019, 64% of the global power tool production in China. In 2019, China's total electric tools production accounted for about 64% of the global total electric tools production. From 2012 to 2019, China's total power tool output remained around 250 million units, and the output was relatively stable.
Due to its significant cost and supporting advantages, China has established its position as a global manufacturing capacity center in the past 20 years. electric tool manufacturing is a personnel-intensive industry, and its upstream supply chain requires relatively complete industrial base supporting facilities. China has unique advantages in this regard. At the same time, China's huge economic volume is capable of accommodating the manufacturing needs of the large capacity of electric tools. Therefore, China has gradually established its position as a global manufacturing capacity center in the past 20 years and has cultivated a mature supplier and foundry system locally.
Over the past 25 years, the leader in power tools has regarded China as the main layout point of its production capacity. company opened its second factory in Dongguan in 1996 and opened a new factory in Shenzhen in 1998. By 2001, China had accounted for 50% of the overall production capacity of Chuangke Industry, and continued to transfer production capacity to China between 2001 and 2008, and gradually increased the supply ratio of parts and raw materials in Asia. In 2008, Dongguan Chuangke Industry's Asian Industrial Park was officially completed and put into production. It is a large-scale base integrating production, engineering and operation. In 2010, the company's production capacity distribution in North America, Europe, emerging market countries and China was approximately 24%, 6%, 3% and 67%, with production capacity mainly concentrated in China. In order to improve supply chain efficiency and avoid the impact of trade frictions, Stanley Baide is gradually adjusting its global production capacity distribution and striving to achieve a higher proportion of localized sales. The company expects that its production capacity will account for 37.2%, 9.6%, 7.8% and 45.4% in 2020 in North America, Europe, emerging market countries and China, respectively.
Although facing unfavorable factors such as Sino-US trade frictions and anti-globalization, we believe that considering the limited alternative production capacity and China's obvious cost/institutional competitive advantages, China is expected to continue to strengthen its core position in the power tool industry chain. considers various aspects such as labor costs/technical facilities, even in the context of the 25% tariff imposed by the United States, China's advantages in comprehensive costs are still relatively obvious. According to our survey of Superstar Technology, the cost of tool production in China is only 65% of that in the United States, Mexico 74% and 80% of that in India.Only Vietnam, Thailand, , Cambodia, and other Southeast Asian countries have slightly lower production costs than China, but considering their infrastructure supporting limitations and limited capacity capacity, there are problems with short-term rapid transfer costs and long-term transfer upper limits. Therefore, we judge that 1) Southeast Asia may become an option for Chinese industry spillover, but cannot undertake the main functions; 2) A few high-end categories may return to the US local manufacturing through process automation, but their overall proportion may be small, so China may continue to maintain its core position in its power tool industry chain.
2. The proportion of real estate-related industries dominates the downstream, and sales channels are concentrated in building materials supermarkets
2.1 North American real estate boom is on the rise, which is expected to support the strong demand for power tools
4 downstream power tools are mainly concentrated in real estate-related industries. In 2020, about 62% of its downstream tool business accounted for housing construction, home repair and DIY, 21% were commercial construction, and a total of 83% were related to real estate. In 2019, 41.8% of its power tool business terminal market was housing construction, home repair and DIY related needs, while commercial and industrial construction accounted for 30.2%, totaling 72% were related to real estate.
North America real estate is in an upward trend, with new home sales and existing home sales hitting record highs since 2006. data shows that Q1, the United States is expected to continue its high prosperity. According to statistics from the National Association of Real Estate Brokers (NAR), the total annualized number of existing home sales in 2020 was 5.64 million, a record high since 2006. Meanwhile, both stocks for sale and sold-out days in December hit record lows since 1982. According to the U.S. Department of Commerce, the start of new homes in December increased by 5.8% month-on-month, far exceeding the 1.2% increase in value 11 months ago, with an annualized total of 1.669 million households, rising to a high since September 2006. After seasonal adjustment, residential building permits, which are the weather vane for future housing construction, increased by 22.8% and 16.79% year-on-year in January-2. Residential building permits usually lead to the start of new homes and new home sales for 1-2 months, which may indicate that the high prosperity of the US real estate market is expected to continue in Q1.
regression data shows that the year-on-year growth rate of tool business revenue of Stanley Baide and Chuangke Industrial has a certain positive correlation with the year-on-year new housing sales in the United States. Considering that the construction/repair/renovation of residential houses is an important application area downstream of power tools, it accounted for about 62% of Stanley Tools' business revenue in 2020 and about 42% of TTI's revenue in 2019. Therefore, the sales of new housing should have a certain positive correlation with the revenue of tool business. According to our regression calculations, the year-on-year correlation coefficient of Stanley Tools' business in North America and the sales of newly built housing in the United States was about 0.33, which is a weak positive correlation.
2.2 The proportion of building materials supermarkets channels continues to increase, and the importance of KA customers is becoming increasingly prominent
The sales channels of power tools mainly include building materials supermarkets or large stores, dealers, manufacturers direct sales, online sales and exhibitions. 1) Global large chain supermarkets are the core channel for power tool sales. Power tool manufacturers and chain supermarkets determine product wholesale prices, and building materials supermarkets determine product retail prices themselves and are responsible for product sales and logistics distribution. Some building materials supermarkets will also sell their own brand products. 2) Dealers are intermediate traders engaged in instrument trading business, connecting manufacturers and subordinate distributors or end consumers. They are the backbone of traditional channels. They distribute through store + warehouse methods using logistics and urban delivery methods. 3) Direct sales of manufacturers mainly refer to the manufacturer selling tools directly to industrial enterprises, or supplying them to consumers through the manufacturer's own sales channels. 4) Online sales are an emerging sales channel that has flourished in recent years and are an important supplement to traditional sales channels. Large global building materials supermarkets have also opened online platforms. As brand power tools have entered major e-commerce platforms, the brand's online sales revenue has grown strongly.
In recent years, the proportion of large retailers such as building materials merchants and supermarkets in the channels has been increasing. According to Statistia, 80% of the sales of electric tools in the United States in 2020 were generated through dealers/agents and large terminal merchants (hardware supermarkets, building materials markets, department stores, etc.).Home Depot and Lowes, as the main representatives of building materials supermarkets, had a compound growth rate of tool business revenue from 2010 to 2019, exceeding the endogenous growth rate of , Stanley, and Stanley.
Main KA customers continue to increase in the revenue share of power tool brands, and the importance of KA customers is increasingly prominent in . Since 2011, the proportion of building materials supermarket customers represented by Home Depot has shown an increase in their revenue. We believe that the main reasons are 1) The proportion of large retailers such as supermarkets in the tool market is gradually increasing; 2) The industry concentration of supermarkets is also gradually concentrating on leading companies such as Home Depot and Lowes. Therefore, the importance of top supermarket customers is becoming increasingly prominent.
2.3 The rise of e-commerce channels may give birth to new customer groups, and new brands may have the opportunity to increase awareness
The epidemic has catalyzed the rapid growth of e-commerce channels in North America, and the development of online purchasing habits may help the trend continue. According to the U.S. Department of Commerce, U.S. e-commerce sales increased by 32% year-on-year to US$790 billion in 2020, accounting for about 16.1% of the total retail sales. The proportion of retail sales in e-commerce channels has steadily increased in the past 10 years, indicating that users are gradually developing the habit of online purchasing. The epidemic has accelerated the popularity of user groups and the frequency of use, and strengthened the habit of online purchasing. We believe that the trend of the rise of e-commerce channels is expected to continue.
e-commerce channel is expected to directly connect with end consumers and collect information related to users' purchase preferences/habits. In 2019, its e-commerce business revenue exceeded US$1 billion, mainly in the field of tool sales. The tool sales revenue in the same year was US$10.3 billion, and the e-commerce business revenue accounted for about 10%. According to Stanley Investor Presentation, the company's development of e-commerce business is expected to directly connect with end consumers, collect information about users' purchasing preferences/habits through big data, so as to better understand consumption trends and serve KA customers. As of 2019, Stanley has more than 150 e-commerce channel experts around the world to guide the company's e-commerce business development.
We believe that the purchasing power of electric tools connected to by e-commerce is generally lower than that of building materials malls and other channels, and has certain user group differences. takes cordless drills and corded round mills as examples. Amazon and Home Depot’s Best Seller have a significant price difference, and Home Depot’s hot-selling products are priced at about 2.6 times that of Amazon. Amazon’s hot products are mainly DIY-grade products, while Home Depot is mainly professional-grade products. We believe that since the demand for e-commerce docking is relatively primary, consumers do not have strong brand preferences, and new brands may have opportunities to increase their awareness. For example, Aoji International's TACKLIFE is a brand cultivated by Amazon's east wind. Its electric circular saws and laser remote measuring instrument products are both ranked in the category of Amazon in the second half of 2020.
3. Leading brands have a high awareness, product innovation is the core competitiveness
3.1 Long-term product innovation iteration has created high brand barriers
4. There are many brands in the tool industry, and each brand positioning is different. large tool brands usually adopt a multi-brand strategy to gain awareness among the audience by targeting a single large category and a single user group. For example, the IRWIN brand is Stanley Berkeley's hand tool brand for the technician group (Tradesman), and is famous for its locking pliers. The Milwaukee brand is a power tool brand for Chuangke Industry for professional/industrial groups.
Long-term product innovation and iteration creates high brand barriers. Take the Milwaukee brand of Chuangke Industrial as an example. After being acquired by Chuangke Industrial in 2005, Milwaukee has continuously iterated and launched new battery platforms every year, and at the same time, it has continuously achieved breakthroughs in key technologies such as brushless motors, lithium battery technology, and heat treatment technology, and launched new products leading the industry. The company's goal is to maintain the growth rate of Milwaukee's brand revenue by 20% year-on-year, and exceed the target from 2014 to 2020, making Milwaukee the world's largest professional power tool brand in 2020.
3.2 Multi-adaptive shared battery platform within the brand effectively improves user stickiness
In the process of cordless power tools, the creation of battery platform is expected to help brands seize the market share of cordless power tools. On the one hand, the battery platform is one of the core components of cordless power tools, and the technology is still in the process of iteration. The compatibility of the battery platform allows users to achieve a higher performance experience just by replacing the battery. For example, the RYOBI ONE+ platform equipped with nickel-cadmium battery was launched in 1996 and upgraded to a lithium battery in 2007. The new lithium battery can still be used on old tools, and the old nickel-cadmium battery can also be used on newly launched products. On the other hand, the creation of a battery platform allows users to adapt to a large number of tools by carrying a small amount of batteries, providing convenience for effective weight loss and large amounts of carrying out. These two advantages allow customers to increase the cost of brand conversion. If you choose a battery platform, you are expected to purchase tools based on the consideration of adapting to the platform.
By launching several core battery platforms and increasing the compatibility of each platform’s products to seize market share, we believe that the formation of this market share has relatively high stability and is difficult to change immediately in the short term. Take Chuangke Industry as an example. The company was committed to developing core battery platforms and improving product compatibility between the first half of 2015 and 2020. The company developed the new Milwaukee MXFuel platform in 2019, which revolutionized the cordless electrification of tools in the construction industry. According to the official websites of each company, the professional brands of each company are adapted to more than 3 core battery platforms and are compatible with more than 20-100 tools on average.
3.3 is precisely positioned in multiple brands in a hierarchical manner, targeting differentiated user groups
Most mainstream power tool brands have multiple brands with different price segments. Take the power tool brand as an example. Stanley Bert's price positioning has from low to high. It has brands such as Black+Decker, Porter Cable, Craftsman, DeWalt, MacTools, etc. Black+Decker is positioned at DIY level, Porter Cable, Craftsman is between consumer and professional level, DeWalt is between professional and industrial level, and MacTools is industrial level. Chuangke Industry also has brands ranging from DIY to professional industrial grades: Homelite, Roybi, AEG and Milwaukee.
Different brand positioning emphasizes differentiated performance, is easier to shape brand characteristics, and is more targeted to the target group. Let’s take electric drills as an example. Professional/industrial grade electric drills have higher performance and stability requirements and are slightly lower in price sensitivity. Therefore, industrial/professional grade electric drills have higher speed/torque, longer warranty/design life, so the unit price is relatively higher, and even the price is several times that of consumer-grade products. Consumer-grade products emphasize cost-effectiveness, and you can obtain more normal tool usage functions at a relatively lower price. Therefore, differentiated brand positioning helps highlight the distinctive characteristics of the brand and better serve the target consumer group.
see the original report.
(This article is for reference only and does not represent any of our investment advice. If you need to use relevant information, please refer to the original text of the report.)
selected report source: [Future Think Tank Official Website].
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