Battle of the hardware giants

Until recently, Woolworths was the undisputed king of Australian retail. But this year its share price have fallen 30%, its CEO has resigned and the group has a real fight on its hands in the $45 billion home improvement market. 

Five years ago, the launch of Masters looked like a stroke of genius for joint owners Woolworths and American retailer Lowes. But to date, Masters’ $3 billion investment in super stores has struggled, garnering just 2% of industry sales and chalking up half a billion dollars in losses, with retail analysts warning the venture won’t break even until 2019.

So why is Masters struggling while its rival, Wesfarmers’ Bunnings, leaps from one success to another?

Bunnings vs Masters

Well for one thing, Bunnings used the last decade to position itself as something of a cultural icon. The no-nonsense interiors, deep stocking ranges of tools, timber and garden products, knowledgeable staff and Saturday sausage sizzles made it a regular feature in the typical suburbanite’s weekend round of chores.

Bunnings has brought its big-box format to inner city locations

Bunnings used the last decade to position itself as a cultural icon.

And for another, Masters’ clean-white brand look and emphasis on interior decoration hasn’t quite gelled with male customers, the dominant buyers in categories like tools and timber. Masters also decided to source their merchandise directly from Lowes in the US, meaning hardware for northern hemisphere seasons was hitting Australian shelves at exactly the wrong time of year.

The other factor has been the speed of the rollout. In four and half years, Masters went from one to 49 stores, but that pace has resulted in many stores in subprime locations and industry rumours of over the top prices being paid for some of these.

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What about the rest?

With UK retail specialist Matt Tyson now at the helm, many of these mistakes are likely to be sorted over time, but the expansion of big box retailers is hitting hardest amongst the thousands of independent stores.

The expansion of big box retailers is hitting independent stores hard.

Most of these independents are small, based in suburban strips and finding themselves unable to compete on price or customer experience. And their competition is getting closer with Bunnings bringing its big box format to inner-city locations like Subiaco in Perth’s inner west and Hawthorn in Melbourne’s inner east.

The hardware giants are present at all major shopping centres.

The other competitor making life difficult for independents is Mitre 10, owned by the Metcash group. Mitre 10 has both big and small format stores and is likely to pursue growth through joint ventures with independents, similar to the strategy Metcash followed with IGA supermarkets.

Mitre 10 is likely to pursue growth through joint ventures with independents.

Industry analysts GDC Advisory predicts the independents’ pain will escalate, with revenues falling 2% per year to just $990 million over the next decade and the number of stores dropping by 30%.

By contrast, they estimate spending at specialists, such as plumbing supplies or paint and wallpaper, will jump from $20.8 billion to $28 billion over the same period. Big box retailers will do even better, with sales doubling to $22 billion, and online sales also growing from $252 million to $670 million.

For Masters and the independents alike, the time for a major renovation of the business model has arrived.

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