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Masters pain far from over for Woolworths

So Woolworths chairman Gordon Cairns is true to his word: in November he said Woolies couldn't continue to lose $200 million a year on Masters and that the board would make a decision in the New Year.

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Masters pain still building for Woolies

Shareholders and the workforce are in for a rough time as Woolworths pulls the plug on its hardware chain Masters.

Well, the year is new – and Woolworths is dumping Masters.

But after losing $600 million on the hardware joint venture with the American giant, Lowes, the pain is far from over for Woolworths shareholders.

The immediate suffering will be from buying Lowe's one-third stake in the failure – part of original joint venture deal. At least the independent valuation of that stake can't be very high.

The considerable secondary pain will be the sale and/or closure process.

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Who wants to buy a large format business that loses a fortune? And all those stores are still quite new – the lease agreements might prove interesting.

But that too will pass. What will continue to haunt Woolworths for years to come is that it is giving its key rival, Wesfarmers,  a clear run at the massive cash generator that is Australian hardware.

I've long thought a key part of Woolworths' original strategy for opening Masters wasn't to make money out of opening a toy shop for men, but to limit Wesfarmers' ability to make an increasing fortune at Bunnings – a fortune that was helping to fuel Coles' attack on Woolworths' core business.

As it turned out, Bunnings kept making more money despite Masters. With Masters out of the way and Coles capable of standing on its own feet - there's plenty of scope for further pain.

There's lots of analysis to suggest Woolworths really should just stick to food, booze and petrol – nothing else it's tried has eaten up capital and, at best, performed poorly.

Woolworths shares spiked on the news it would dump Masters.

Woolworths shares spiked on the news it would dump Masters. Photo: Bloomberg

Woolworths tried to run multiple power saws when it was still learning how to use a hammer.

The people responsible for the Masters misadventure have pretty much all gone or are going. But the pain will live on, not least for the Masters workforce.

It will be left to retail analysts to ponder why Masters couldn't make it.

The early mistakes have been acknowledged – the Lowes' American hardware expertise didn't extend to the Australian retail culture and Woolworths tried to run multiple power saws when it was still learning how to use a hammer.

Unfortunately, Masters continued to lose cash even while it was fixing its store problems.

Sadly, now that it is too late, the Masters stores themselves seemed to be nice shops. The three that I've visited have been at least as good if not better than the Bunnings alternative. Too bad they didn't make money.

The post mortem will be lengthy.

Michael Pascoe is a BusinessDay contributing editor. 

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