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.
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.
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.