Masters is the screw up that could hammer Woolworths - and the rest of us

MASTERS is the huge Woolworth-owned hardware chain that was supposed to brawl with Bunnings. But it hasn’t landed a punch.

MASTERS is failing.

The big hardware chain that was supposed to brawl with Bunnings hasn’t landed a punch. Woolworths Limited – which owns Masters – may even decide to shut all 61 Masters stores.

Woolworths Limited also owns Woolworths supermarkets. So Masters problems could affect us even if we don’t buy hardware.

If Masters is losing money, it’s harder for Woolworths Limited to send its supermarkets into a price war with Coles and Aldi and still make big profits.

Could losses at Masters mean higher grocery prices for shoppers at Woolworths supermarkets? I asked the question of a Woolworths spokesman and he declined to answer. Make of that what you will.

But back to the hardware market. Bunnings is king. It made over $1 billion in profit for its parent company Wesfarmers last year. Wesfarmers will open 35-40 new Bunnings stores in the next two years. Every man and his kids are lining up there on the weekend for a sausage.

Masters, meanwhile, is losing money fast. One estimate is every store is losing $75,000 a week.

The Masters store in Rouse Hill, NSW.

That adds up. Woolworths Limited has invested $3 billion in the stores and made accumulated losses of over $500 million.

It might get some consolation - they are not suffering alone. American hardware giant Lowe’s owns a third of Masters. But if the Americans were supposed to bring a Midas touch to the hardware business, they’ve done the opposite.

Masters is what Americans might call a screw-up. In court earlier this year it was revealed how fast Masters rolled out. They allegedly bought land in order to prevent Bunnings opening stores, hoping to frustrate Bunnings and impede it from succeeding. The urgency of the rollout meant the CEO demanded designs be finalised “tomorrow/ASAP/pronto/NOW!”.

But the speedy execution now seems to have backfired. The biggest mistake Masters made is probably making their stores sparkle. Bunnings is big and dark and dusty for a reason. It gets people to believe Bunnings is cheap.

That’s the same reason Bunnings uses staff in the ads. They can afford actors, but using staff makes Bunnings seem cheap and cheerful. Their claim about lowest prices becomes more credible.

Bunnings staff members Jess Allanson and Kathy Williams. Having staff appear in Bunnings ads is a deliberate marketing strategy.

Bunnings uses other tactics, including having unusual numbers for pricing. They charge $12.68 for a set of drill bits because it makes them seem like they squeezed out every last drop of cheapness.

It’s not the case. Margins at Bunnings are 11.5 per cent. Compare that to the margins at Coles – 4.9 per cent. And Coles doesn’t have a reputation as a discount warehouse.

Masters has belatedly realised that its shiny face makes people think it’s expensive, and is changing its strategy to be more like Bunnings. They have a 10 per cent price-beat guarantee too.

But is it too late to save Masters? Woolworths has already slowed down the rate at which it is opening new Masters stores. If Masters closes then Bunnings will have even less competition and more ability to lift its prices.

A Woolworths spokesman said the big blue hardware store wasn’t going to give up. “Woolworths, as recently as in its market update in June, confirmed its commitment to Masters. As per the strategy, we are rolling out our new format stores with new ranges,” he said.

But the old CEO of Woolworths Limited – the one who oversaw Masters expansion – just quit. The first thing the new CEO might do is clean up his mess.

That’s how any good home improvement task starts. With a clean-out.