Masters Home Improvement: Nice Retail Channel – Failing Business Strategy

Masters_Home_Improvement_Logo

With some fanfare in 2011 Woolworths announced its plans to enter into the Australian hardware market in direct competition with the well-known and established Bunnings chain of stores which dominated the home hardware and home improvement market.

Woolworths entered into a joint venture arrangement with US hardware retailer Lowe’s and developed the Masters Home Improvement Brand and began an aggressive rollout of stores across Australia. Woolworths and many analysts were confident that with its own retail experience and that of its US partner it would take slice of the $42-43 billion Australian hardware and home improvement market – primarily from Bunnings.

More attractive stores, a focus on home design rather than hardware and better service levels were touted a points of difference that establish Masters as a legitimate competitor to Bunnings.images

Many of you would have seen the big bright blue branded stores pop up across the country especially in Victoria. But how many of you have been inside and how many have bought their product.

It seems not many of you have as the Masters Brand is losing money hand over fist and is significantly hurting Woolworth’s bottom line.

Early this year Woolworths announced a profit downgrade that resulted in around $6 billion being wiped from its market value associated with 13% fall in its share price.

The lack of profitably of Masters is a key source of this downgrade with the hardware chain losing $112.2 million in the first half of the financial year up from $71.9m the year before. It has been reported that almost $3 billion has been invested in the chain since 2009 and it is yet to make a profit. Total losses to date are estimated to be over $500 million.

Bunnings are said to capture 18% of the market and Masters only 2%.   Despite the entry of Masters, Bunnings have reportedly grown their revenue by over 10% with earnings over $900million over the 2013/14 financial year alone.

Many reasons are given for what has gone wrong. A failure of business strategy, and underestimation of Bunnings, poor store location, poor stock lines, workplace culture and shopping experience have all be cited as contributing to the lack of success.

Whilst much seems to have gone wrong and been poorly executed I find it interesting that in contrast Masters have been lauded for execution of their online presence. Presumably influenced by Lowe’s who have embarked on a similar approach in the US, Masters has endeavoured to establish itself as a multichannel retail chain.

From all accounts they have done this part of the business well. In 2013 the online retail industry awarded Masters an award as the best new online retailer.   In 2014 they redesigned their website to make it Tablet friendly and provide a totally integrated website that meets the needs all types of consumers who may engage online -from education, research products or purchase.   This is further complemented with apps for Apple and Android.  Can  you recall this ad?

Masters seem very proud of their online channel and it seems to position them well to compete for the multichannel DIY shopper. Bunnings in contrast have done very little. There is no app apart from a very basic store finder. The Bunnings website is limited and almost old fashioned in comparison and does not incorporated an e-commerce facility. No shopping cart on the Bunnings website.

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Despite this obvious lack of emphasis on the internet as a retail channel Bunnings have gone from strength to strength and Masters seems to be going in the opposite direction.

It seems the market presence and loyalty to the Bunnings brand has prevented Masters from growing its market share and its significantly better online presence has not attracted a new following of online shoppers. Certainly not at level that shows in revenue and profits.

What lessons can be learned from a retail channel perspective?

Retail channels should be about making it easier to for customers to access your product. Unfortunately for Masters, people need to want to purchase it from you first.

This takes as back for the basic premise of marketing – you need to know you’re your customers want.

It’s important to understand your customers buying behaviour. Are all products suited to a multi-channel approach? Are hardware customers likely to favour an online mode of purchase? Bunnings had established themselves well before Masters and continued a successful model of in store purchase for hardware which has probably become the entrenched expectation of hardware consumers. Rightly or wrongly Bunnings have become the benchmark of how hardware is sold in Australia.

Was it a step too far to expect consumers to both switch brands (stores) as well as how the mode of purchase? My observation is that Masters in their rush to both compete and be different to Bunnings lost sight of who their customer was.

Finally a no matter how well planned and executed your channels are they will not cover up or compensate for flaws and business strategy.   Maybe if people don’t want to buy from you in store they are probably not going to buy from you on line either.

Bunnings

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22 thoughts on “Masters Home Improvement: Nice Retail Channel – Failing Business Strategy

  1. Thanks for the post.
    For me, I prefer to go to Bunnings for three reasons. Frist, Bunnings are everywhere. Second, they have a wide range of products. Third, they have longer opening hours. My friend is in Tasmania, she told me that a lot of home hardware stores don’t even open on weekends, and the ones that do close early on Saturday, and don’t open on Sunday, whereas Bunnings is open 7 days a week, till at least 7pm during the week. Also, I think the atmosphere in Bunnings are female-friendly, easy and stress free.
    I’ve done a bit research on the war between Bunnings and Masters and would like to share with you. Compared to Bunnings (324 stores), Masters currently has 53 stores and it has now slowed down its ambitious plans to roll out 150 stores in 5 years. The quick pace of rollout gives Masters a presence in markets across Australia particularly in Victoria as we have seen lots of stores. But I think Masters has kind of cannibalised themselves. The reason behind this is that a retailer can choose quality sites, good value sites, or do it fast, but no one can do all three at once. Masters has only focused on their rapid rollout but has chosen inferior locations, including some already rejected by Bunnings and is rumoured in the property sector to be paying big prices.
    Masters had also failed to grasp the seasonality of hardware because its ties with Lowes US meant stock was out of season in Australia. And they don’t have a deep enough range in some of their core categories such as garden care and power tools.

    http://www.abc.net.au/news/2015-05-06/five-reasons-woolworths-is-being-hammered

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    • Thanks for your comments. Yes there a numerous reasons for Masters lackluster performance. I agree with your observation of the lack of product depth in their stores. It is interesting to note that Masters management have discussed putting emphasis on stocking Hardware items as part of refreshing its strategy. I also find interesting your experience that Bunnings is female friendly. Focussing on women was part of the Masters Strategy which was behind the look and feel of the stores, staffing levels and product range. Seems they may have go that part wrong as well.

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  2. I have some shopping experiences with Masters where the store located in middleborough road in Box Hill, it is just beside Bunnings Warehouse. Generally I have satisfied with Masters, the store is clean, the service is good, the price is not expensive. But every time when I drive pass Masters, the parking is all but empty, so the question will appear to me: Why Master chose this site which is next to Bunnings? Is that a good choice? The hardware and building supplies market is growing at about 4 per cent a year, so whoever Masters or Bunnings believes it’s good time to boost the sales in the market if undertake a appropriate strategy. Bunnings is Australia’s largest household hardware retailer, the first ‘big-box’ store opened 20 years ago and it has first taken advantages and has occupied most of the top sites. The first Masters store opened in 2011 in north-west Melbourne and they planed to open up to 90 stores by 2016 but it has slowed its expansion because Masters lost $169 million in 2014 and it may continue to lose in the next few years. They need to resolve the problem which includes expanding the Masters product range, improving layouts to make stores easier to navigate, and increasing floor space for categories that drive customer visits, such as bathrooms, gardening and hardware. However, choosing high quality sites in metropolitan area would be a focus of the new strategy. Furthermore, the internet is the important channel still.

    (http://www.smh.com.au/business/retail/woolworths-masters-to-take-100m-shot-at-bunnings-in-western-sydney-20141209-123l2u.html)

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    • Thanks for your comments. Do you think the internet is relevant to Hardware. It doesn’t seem a necessary part of Bunning’s growth.

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  3. Great blog. I have been very curious to know how and why Master’s has been failing. I must admit that I would never purchase hardware online, it just seems to be one of those product categories where you need to interact with the product before purchasing. Maybe Bunnings know this and that’s why their web presence is so poor. I also have a Masters near by but have never stepped foot in the store as the thought of becoming familiar with another store layout seems rather dauting. After many years of shopping at Bunnings I can be in and out very quickly which is a good thing when you have a renovation waiting.

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    • Your right – sometimes you just need to see and feel the product to know if it is what you want or need. Sometimes its just looking to see what’s available to fix or do what you need to at home.

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  4. From a consumer perspective, I think the beauty of Bunnings is that I can go in not knowing what it is that I need and walk feeling a little empowered with the education I was given and the product I need in hand. Inacobucci (2013) notes that the internet is good for searching, but if you don’t know what you are looking for that becomes very difficult and a waste of time. So even if Bunnings improved their online offer I wouldn’t use it… because I wouldn’t know what it is I am looking for! If the key to marketing is knowing your customer- then I think that is where Masters went wrong!

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    • I hadn’t thought about that aspect of shopping on line for hardware. When you need ‘ a thingy’ to go on the end this (which you then bring into the store) can’t be done online – well not yet anyway. That’s a key part of the DIY process. Great insight , thanks

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      • Was thinking of this post when I read @enorton328 piece on the role of Live Chat in online sales… struck me that maybe there’s a place for this in the online hardware world.. assist customers to find what they’re looking for, provide some DIY adivce, swap pics of the reno project.. generally engage, etc.

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  5. Great blog! Personally, i spend most of the time shopping at Bunnings, and maybe only once had a trial at Masters. The reason was there were too many cars at the car park of Bunnings… as most of the stores of Masters are located near Bunnings.

    Bunnings, as a bigger brother, is spending lots of money on the ads, and we all remember “lowest prices are just the beginning” from the TV ads. I understand Masters, as a new hardware retailer in Australia , must have something different to gain the attention of the customers. Online shopping can be a good idea, but need some offline show rooms for the customers to touch and try the products.

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  6. In my opinion Masters’ aggressive entrance into the market was predominantly ignored by most of Australia. I think we all saw the big blue building pop up around the country but weren’t given a reason to really need visit it. Most of us know Bunnings and have been loyal customers for years. There wasn’t any reason for us to betray that loyalty and try out a new retailer. It was also interesting that Master’s tried to differentiate itself by focusing on home design as opposed to home improvement, yet it located a lot of its stores directly across the road from Bunnings (in Victoria anyways). If they are targeting different market, then what’s the point of having the stores near by? Masters’ online channel may have been award winning but its important to consider the appropriateness of distribution channel. Most things I buy at a hardware store, are things such as paint, tools, plants and garden supplies for example require me to physically see, touch and compare before i buy.

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  7. Thanks for this great post! In my opinion, Masters only focus on the fast speed get into the hardware market but forgot to find out what their customers’ need first. To be honest, I feel warm and comfortable whenever I walk into any Bunnings. Friendly staffs there always say hello to you and ask ‘how can I help?’ But I feel cold when I walk into Masters. Not many customers and staffs there, and not really good customer services. Moreover, poor stock lines as you mentioned is another problem. I cannot find the brand I want in Masters, because some brands are exclusive in Bunnings. I bought a bottle of week killer in Masters last month. When I start to use it today, I am surprised that the expiry date is this month. Now we can imagine how many customers usually go shopping in Masters!

    It’s very nice to hear that Masters had an award as the best new online retailer in 2013. E-commerce as a distribution tool has become more and more popular nowadays, but I think customers still need to touch and try the hardware before purchase. Iacobucci (2013) points out that retailing is the most visible element to the end customer and could have the most direct impact on image, positioning and brand equity. Therefore, I hope Masters could more focus on the interaction with their customers in stores.

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  8. Thanks for the post. Agree with most of the comments above, and think that Woolworths had their work seriously cut out for them when entering the market and taking on Bunnings; established, strong brand equity, category defining shopper experience and a long history in the market (dating back to 1886 in WA before expanding in the East Coast over 20 years ago and experiencing strong organic growth as well as snapping up the competition around the country).

    First, to reaffirm some of the other comments above – hardware and DIY is such a significant part of the Australian psyche and the total experience of heading down to Bunnings, grabbing a hot dog / supporting the local charity, and going for a wander around the store on the weekend has been reinforced in their marketing communications and in-store experience. Combine this with their domination of the brand territory around price competitiveness and it’s a potent combination.
    So, who is most likely to disrupt Bunnings? Do we accept that hardware isn’t likely to be a great candidate for online / multichannel eCommerce? Possibly (probably in fact, for the foreseeable future), but when other options start to disrupt the traditional Bunnings ‘model’ is it going to be Woolworths – another 1000 pound gorilla of retailing – that is likely to knock them off their perch?

    Probably not.

    If a day does come when the hardware shopping experience can be executed well online, and there’s demand from a growing demographic of more online-savvy consumers, as Gen’s Y/Z etc purchasing power increases and they start renovating homes (if they can ever afford one) – maybe the overall demand for online hardware shopping will be significant. If that’s the case I doubt it will be Woolworths that change the game. Is there a niche for a social sharing platform for hardware, perhaps?

    In any case, I’d contend that in such a capital intensive industry as hardware retailing, and with Bunnings so far out in front, they’re unlikely to lose their position in the market any time soon. How did Woolworths get it wrong? Probably a bit too much internal navel gazing around ‘strategy’ and assuming that their adjacent market successes in grocery etc, would translate into this market. Can’t you just imagine the conversations in the marketing and strategy teams…? These big companies often make some spectacular mistakes .

    Others like David Jones and Harvey Norman have such spectacularly poor online experiences that they’ve been completely left behind by overseas and other more nimble competition. Up until 18 months ago David Jones was still saying that they didn’t see online as important!

    On the ‘award’ front… what can you say… on what basis are these awards even given!? Masters.com.au as best new online retailer? Surely there must have been some other online start ups that would have been more worthy winners (although may have had much smaller marketing budgets! – sorry that’s the cynic in me).

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    • Thanks for your comments. I find it amazing that a company like Woolworths could get it so wrong. I have read somewhere about egos in the boardroom. I wonder if this is more of the case – getting so fixated on beating Coles that the lost sight of some of the fundamentals.

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  9. Hi there – was just reading a piece on Aldi in the context of @fmagee blog on Colesworths. Got me thinking back to what i thought might be a bridge too far in my original reply to your blog but I was going to suggest that perhaps a better strategy for Woolies in their battle against Bunnings might have been to try and leverage their existing distribution footprint (25% more stores than Coles) to create an in-store hardware proposition stocking high demand items as well as potentially some higher margin items as well. This idea resurfaced for me when i was reading about Aldi and the fact they are – believe it or not – also the biggest retailer of snow and ski gear in Oz! Their hugely successful annual sale in this space in particular has been instrumental in getting middle and higher income earners into their stores which has in turn seen them introduce more ‘fresh’ sales to their offering, and hence have the potential to grow their share of this more lucrative market.

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    • Nice thought – When I was researching the blog I also read their BigW discout department store is also struggling. I would see huge potential there to provide an expanded hardware opportunity especially as these stores are located in shopping centers not separately like Bunnings stores. You might not buy wood there but you certainly would buy smaller ites.

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  10. Good post and dear to my heart given my rant about ColesWorths (link below).

    I have experienced both stores personally and have been around long enough to remember local hardware stores. When Bunnings first came to Victoria it was a bit like Fawlty Towers, i.e. “I recommend the self service!” Unless you knew what you wanted you could just forget about buying at Bunnings. My first foray into a Masters store was similarly disappointing in that the staff had no idea what was stocked; let alone where it was located. I have noticed that in my latest visit to Bunnings the customer service has increased exponentially – perhaps in response to the Masters threat. I am sure that the customer service at Masters must also have improved.

    The evidence seems to suggest that Bunnings advantage lies in being “first-mover” so that not only does it have a distinct advantage over site selection (as in already securing the best), it has the customers who are repeat purchasers. They know where the store is, what aisle the thingamajigs are in and where the sausage sizzle is located on a Saturday. Conversely Masters is struggling to secure good sites and property players have reported that they are paying “overs” for average sites. I think the online presence and take-up for purchasing hardware may be immaterial for both entities – certainly neither are reporting it separately. If the supermarket and petrol strategies of Coles and Woolworths play out in this sector, then they will get closer in terms of performance – they really only copy each other in all other categories.

    Watch out – the smaller hardware stores will continue to disappear and “BunSters” channel partners may face some questionable behaviours!

    -https://mpk732.wordpress.com/2015/05/14/shopping-at-colesworths-whats-the-real-cost/comment-page-1/#comment-2109

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  11. I cannot agree with you more; this is so true that if consumers don’t want to buy from you, they won’t buy from you online wither. It is very important that the organizations have to understand the needs of the customers. By contrast, some of the shop location of Bunnings is quite inconvenience for customers who don’t have a car, their selling points are cheap and they can totally achieve the needs of consumers; it is still hard for Master to prevail the largest household hardware retailer Bunnings. Your blog clearly explained the reason why Master keeps falling in the market.

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  12. As of my view, customers choose a store where they get everything what they need. i had an experience in Masters, i have been to masters to buy some power tools but i found only few products that i wanted to buy and i bought them, then it made me to go to Bunnings for the remaining products and bought them there. I found all the products that i need to buy, in Bunnings. Then i realised that i wasted my time going to Masters. I don’t say that Masters is not at all recommended, but in few cases, Bunnings is better than Masters.
    I think, the main reason for the downfall of Masters is due to the lack of some products which their competitors have, the location of the warehouse, and the prices to some extent. The customer services provided in Masters are good and is very feasible to search the product we need.

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  13. Personally I love masters and just moving into my new house I have been there at least 10 times in the last month. The problems is for a real trady they are only interested in Bunnings. Ontop of this Bunnings always beats masters special of the week by a few dollars and usually provide a better product. For example 2 weeks ago masters were selling a shed for $139 which was a great price but only 1.2 metres tall!. Bunnings beat this by providing a full size shed for the same price. Since entering the market masters has had to deal with this and it has to be beating its bottom line. Ontop of the real estate costs for the large warehouses, masters are going to continue to struggle

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  14. Masters TV ad’s are very poor. The man actor does not look like a person who could lift a hammer, wrong actor for hardware he puts me off and he is not believable. I also do not like his red and grey beard .. Pathetic !! Masters needs one of the stars of one the TV Home improvement shows to have any credibility !

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