The loss of “Masters”, is it just the beginning?

By Dulan Hapuarachchi – 216185419

Ever since I was a little boy, going to Bunnings with my dad had been one of my favourites. Now that craze has evolved into an obsession, we all love going to either Bunnings or Masters and spend hours browsing and getting inspired of all the wonderful things we could do/create around the house. So if you are like me, walking in for a pack of 40mm outdoor timber nails and walking out 2 hours later with the latest Ryobi compact drill is a normal Sunday ritual.

But Masters had all the good intentions?..

Masters_logo_social.jpg

Image – Masters.com.au

In August 29th 2009, Woolworths announced that they have the intention to join the $42 billion hardware market. By March 29th 2011, Woolworths announced that they’ll be joining forces with the US home improvement giant Lowe’s. Masters had 14 stores under constructions and 10 others with approval, they were targeting 150 stores in 5 years but more importantly they predicted to break even by 2015!!!!

The first Masters store was opened on 1st September 2011 in Braybrook, Victoria. Just under 2 years expected losses increased from $119 million to $157 million blaming high wages and bad sales. By another year increased to $169 million and now break even by 2017. From then onwards it was bad news galore – the group losing profit along with job cuts and analysts predicting bad luck until 2018 for Masters.

“Lowest prices are just the beginning” – Did Bunnings even raise a finger?

In original latin term the word “patience” meaning long suffering, Bunnings is far from all that. We could almost say that Wesfarmers did not wait patiently while Masters opened up

Bunnings1.jpg

Image – Bunnings.com.au

stores rapidly. Already being the market leader with 18 per cent market share of the hardware and home improvement sector, MD John Gillam have outlined their latest strategy to target more household disposable income and home improvements. Also targeting to open 15-18 warehouses in the next 2 years as well targeting more smaller “home centres”.

 

Slowly but effectively they have evolved over the past few years they have changed their strategies slightly. According to Bunnings their brand is built on 3 main pillars,

Lowest prices – if you can find a cheaper price elsewhere, Bunnings will beat it by 10%!!!

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Widest range – the stores stock around 45,000 products.

Best Service – employing over 40,000 employees where most of them have trade background also 80% of the staff on are permanent staff.

On top of all that Bunnings gives back to the community via local employments and other financials sponsorships to community groups. Allowing sausage stands in front of stores, working with schools and hospitals and free DIY workshops have definitely changed the customers’ paradigms.

 

So how does the numbers look?

Not to mention Bunnings clever pricing – rather than sticking with the traditional $x.99, they have implemented more odd figures for example $5.50, $10.80, $50.40 etc, making the customers think that prices have been reduced to maximum.

Revenue across the 2015 financial year totalled $9.5 billion. As at 31 December 2015 there were 240 warehouses, 67 smaller format stores, 32 trade centres and three frame and truss centres operating across Australia and New Zealand. At 31 December 2015 we employed over 40,000 team members. Bunnings revenue have grown year on year as most recent figurers show an EBIT growth of 11% from last year as well as return on capital (ROC) at 33.5%

 

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Image – Bunnings.com.au

 

The ugly truth

Dark days for the Woolworths group as on the 18th January 2016 the group Chairman, Gordon Cairns announced that they will exit this hardware market after a staggering $600 million loss, by shutting it down if cannot find a buyer, however still has not given a date as they would like to do this in an “orderly process” – watch the video.

 

References

Bunnings. (2016). About Us. [online] Available at: https://www.bunnings.com.au/about-us [Accessed 25 Jul. 2016].

CHEER, L. (2016). Woolworths to close Masters hardware stores after $600 million loss. [online] Mail Online. Available at: http://www.dailymail.co.uk/news/article-3404190/Woolworths-close-Masters-hardware-stores-600-million-loss.html [Accessed 23 Jul. 2016].

Greenblat, E. (2015). Bunnings outlines strategy to expand. [online] Theaustralian.com.au. Available at: http://www.theaustralian.com.au/business/companies/bunnings-outlines-its-strategy-to-expand-in-the-hardware-market/news-story/65edde52042942fc2515506d1d86af4e [Accessed 25 Jul. 2016].

Hyam, R. (2016). Masters’ collapse drags Woolworths into billion-dollar hole. [online] ABC News. Available at: http://www.abc.net.au/news/2016-02-26/woolworths-reports-almost-$1-billion-loss/7202004 [Accessed 24 Jul. 2016].

Iacobucci, D 2013, Marketing Management (MM4) Student Edition, South-Western Cengage Learning, Mason.

Murphy, J. (2015). Why Bunnings prices are so clever. [online] The New Daily. Available at: http://thenewdaily.com.au/news/national/2015/05/31/bunnings-prices-designed-nail-customers/ [Accessed 25 Jul. 2016].

Woolrich, N. (2015). Woolworths first-half profit falls to $1.3 billion. [online] ABC News. Available at: http://www.abc.net.au/news/2015-02-27/woolworths-first-half-profit-falls-to-$1.3-billion/6267930 [Accessed 23 Jul. 2016].

 

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