Woolies pulls the plug on Masters

WOOLWORTHS is finally ditching its failed Masters experiment, saying it cannot sustain the business’s “ongoing losses”.

WOOLWORTHS is finally pulling the plug on its failed Masters experiment.

The retail giant said in a statement on Monday it was looking to either sell or wind up its home improvement business, which includes Masters and Home Timber & Hardware, after sustaining heavy losses.

Chairman Gordon Cairns said the retailer’s recent review of the business indicated it would take many years for Masters to become profitable.

“We have determined we cannot continue to sustain ongoing losses from this business,” he said. “We intend to pursue an orderly prospective sale or windup of the business.”

The fate of more than 7000 employees at Masters’ 63 stores across Victoria, News South Wales, Queensland, South Australia, Western Australia and the ACT now hangs in the balance.

Mr Cairns said “while we can’t guarantee jobs” the company would try to roll them into the 200,000 Woolworths workforce, the Herald Sun reports.

“The 7000 masters staff have done an outstanding job. We as a responsible and caring employer will make every effort to ensure to effect a trade sale or try to find employment where possible within the wider Woolworths group.”

The move comes after join venture partner Lowe’s, the US home improvement chain, exercised its put option to sell back its one third share.

“As a result of our engagement with Lowe’s, it has advised that it intends to exercise the put option which is available to it under the joint venture agreement,” Mr Cairns said.

The entire process is expected to take several months, with the business to continue trading in this period. “Our top priority is to do the right thing by shareholders, staff, suppliers and customers and we will act quickly and openly to minimise the impact of this decision,” he said.

Masters has racked up losses of more than $700 million since 2011, causing a significant drag on the overall profitability of the Woolworths group.

Mr Cairns said the decision will allow the company to focus on strengthening its core businesses, including its supermarket chain which is battling competition from rivals Coles and Aldi.

Retail analyst Geoff Dart told news.com.au in October the part of the problem was Woolworths had severely miscalculated the store design.

With an average size per store of 13,500sqm and sales of about $19 million, Mr Dart estimated Masters would need to lift sales to $28 million per store simply to cover operating costs.

Bunnings, by comparison, has an average store size of 8000sqm and sales of about $30 million. It comes as the rival Wesfarmers-owned home improvement chain launches a $705 million play for the UK market.

Wesfarmers confirmed this morning that it expects to complete the $705 million acquisition of 265 Homebase stores in the first quarter of this year.

Asked at an analyst briefing whether the business could have been sustainable in the long term, Mr Cairns said: “I’ve got no idea whether this business [would be sustainable] under alternative ownership. All I can tell you is the Woolworths board determined it wasn’t sustainable under our ownership.”

Investors have cheered the decision. Woolworths shares surged more than 7.5 per cent in early trade to hit a high of $24.45.

In October, Woolworths reported that Masters had enjoyed a 23.5 per cent rise in quarterly revenue after slowing down the pace of store openings and focusing on a revamp of the brand.