Masters faces property upheaval

The decision by Woolworths to exit its hardware business, Masters, could result in significant property costs through the ending of leases and closure of its 63 stores.

More News Videos

Masters dumped by Woolworths

The dumping of Masters, Woolworths' household hardware chain, may make 10,000 employees jobless. We asked shoppers their opinion of the troubled chain.

The group owns about 60 per cent of the sites across the country and leases the remainder.

According to property agents, the well-located suburban stores such as in Toorak Road, Melbourne, would be easily released to other hardware chains, such as Mitre 10, while rival Bunnings is said to be already targeting at least nine Masters sites in NSW and Victoria.

Woolworths decided it could not continue to sustain continuing losses after a performance review of the home improvement ...
Woolworths decided it could not continue to sustain continuing losses after a performance review of the home improvement chain.  Photo: Glenn Hunt

The average store is about 13,000 square metres.

Chris Parry, director of large format retail for CBRE says demand will be high for the well-located sites.

Advertisement

"The NSW market is undersupplied and this will provide the opportunity for other specialty large format retailers of Masters choose to vacate the stores," Mr Parry said.

Other agents said Masters downfall was by targeting female shoppers to be a point of difference from Bunnings, "where the tradies shop".

Total sales for the last year were $1.9 billion and Woolworths opened 11 new Masters sites across the country. It has been focussed on expanding in NSW with new sites in Chullora and Northmead in Sydney's expanding western suburbs. 

One said the chain's demise would be negative for consumers as they would lose confidence in the business, but it would provide opportunity for other chains to enter the market as the stores become available.

A Woolworths spokesman said: "Masters is committed to doing the right thing by our landlords and developers and we will be dealing with sites where construction is planned or underway on a case-by-case basis".

One agent commented that the property sector had seen how the closure might flow through stores with the demise of Dick Smith.

"We have seen these situations in the past and in general, well-located stores will be snapped up," the agent said.

But he said there are expectations that Woolworths will suffer some losses from breaking leases. Most retail leases are for five years with an option to extend a further five years.

According to Woolworths chairman, Gordon Cairns, while it will endeavour to move quickly, the process from here will take several months and the business will continue to trade normally through this period.

"Our recent review of our operating performance indicates it will take many years for Masters to become profitable. We have determined we cannot continue to sustain ongoing losses from this business," Woolworths said.

Hardware and do-it-yourself home maintenance have been a battleground for the major retailers as they scramble to get a foothold into the booming housing market, as well as find the right location.

Bunnings was the the first to snare as many sites as possible and has been on a spending spree for development-grade land for many years.

Like its food and fashion retail counterparts, the group has sold some warehouses and leased them back, and used the cash for future expansion.

But as the penchant has risen for home repairs and renovations, thanks to many television shows, led by the popular Kevin McCloud's​ Grand Designs, more market players have arrived.

Land grabs are now the main game for Woolworths' Masters Home Improvement and Wesfarmers' Bunnings, the two biggest in the sector.

Masters has been the main sponsor of Channel Seven's House Rules, and, while there is increasing awareness of the brand on the back of the deal, the translation to sales and the cost of sponsoring the program is unclear, say brokers at Macquarie.

Part of the growth cycle of the hardware business was the takeover of the suburban hardware store, but as the demand for tools and paint has grown, so has the size of the stores.

The potential demise of Masters also comes as Wesfarmers has made a conditional offer to acquire Homebase, one of the brands operated by Home Retail Group in the UK.

According to Deutsche Bank, due diligence reportedly began in October 2015, and is now complete. Wesfarmers states that transaction documentation is advanced and in the process of being finalised, but there is no certainty the offer will lead to an agreed transaction. If successful, this would represent Wesfarmers' foray into the UK home improvement market.