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Woolworths' flawed strategy of opening giant hardware stores with the wrong personnel is to blame for the failure of its Masters Home Improvement stores, the founder of an ACT hardware chain says.
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Shareholders and the workforce are in for a rough time as Woolworths pulls the plug on its hardware chain Masters.
The futures of Canberra's only Masters store at Majura Park and the five Home Timber and Hardware stores in the ACT and Queanbeyan will remain uncertain for at least two months while Woolworths tries to sell or wind-up the loss-making home improvement arm of its business.
Magnet Mart founder Paul Donaghue was unsurprised Masters had remained unprofitable, blaming Woolworths' decision to make large stores mirroring the model of American partner Lowe's.
Woolworths chairman Gordon Cairns announced plans to pull the plug on the home improvement business after it lost more than $600 million over the past four years.
Mr Donaghue's stores were rebranded to Home Timber and Hardware when he sold to Woolworths in 2010.
He said the chain ignored his advice on Masters' strategy and store type during the negotiations, choosing instead to make stores 20 to 30 per cent larger than Bunnings.
"We told them to go to about three-quarters the size of what Bunnings have and they could put more stores up around Australia," he said.
"Instead of having 25 hammers they'd have around 18 to 20 hammers and you'd still cover all the classifications of merchandise and also instead of paying $25 to $30 million for sites … you'd pay between $4 and $8 million … which is a hell of a difference."
Masters opened at Majura Park in 2012 with 150 staff. Nationwide the chain employs 7000.
"They said they wanted the hardware to develop its own culture, it didn't. In the end they just put the supermarket people in there with their ideas and it didn't work," Mr Donaghue said.
Mr Donaghue predicts the Masters stores will close and Metcash's Mitre 10 will take over the Home Hardware group.
"There is still an opening for a good number two, but with about a half to three-quarter sized hardware store," he said.
"But they are still inefficiently operated stores, Mitre 10 and Home, because they are mainly family-operated stores that have been kept small for so long it hasn't mattered."
In the ACT and Queanbeyan the Home Hardware group has included three Magnet Mart stores in Gungahlin, Phillip, and Queanbeyan since 2010, Home Hardware Karabar in Queanbeyan and FAW Home Timber and Hardware in Mitchell since 2014.
A Woolworths' spokeswoman said all stores would continue to trade during the potential sale and exit process, but would not say what would happen to staff.
Mr Cairns told analysts gift certificates and customer contracts would be honoured and if Woolworths was unable to sell the business it would seek to provide employment options within the wider Woolworths group.
He declined to put a timeline on how soon stores could close.
"Our preference would be a trade sale, it would be cleaner and quicker," he said.
"This was not me as a man of action, this was a board decision."
Mr Cairns said the "profitable and growing" Home Hardware arm of the business was "in a different position to Masters".
Housing Industry Association ACT and southern NSW executive director Neil Evans said he would be disappointed to see Masters close as the added competition was good for prices.
He was surprised the venture had remained unprofitable but blamed it on several downturns in the ACT's housing sector while nationally there had been a record number of new houses built.
"Renovation activity has dropped by about $80 million per annum [in the ACT] and that's all coming off the back of a hangover from the GFC and the public service cuts," he said.
Mr Donaghue said the shake-up to the industry was unlikely to affect consumers and hardware prices were likely to remain the same in Canberra.
Mr Evans said the "impressive" Masters chain was popular with sub-trades like plumbers and electricians but had failed to sway many builders.
"Builders do have a long-term relationship with suppliers and sometimes they don't want to fracture that on the offer of getting a deal here or there," he said.
Mr Donaghue said Masters had looked "too clinical and too expensive" to appeal to tradespeople.
"It wasn't too expensive at all but it looked that way and perception in retail is more important than reality and it was just too big," he said.