MASTER STROKE

The Downfall Of Masters Home Improvement

images-4

On Monday 18th January, 2016, Woolworth’s Chairman, Gordon Cairns, issued a  statement  informing its shareholders of Woolworth’s pending exit from the failed Master’s Home Improvement venture. “Our recent review of 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,” Mr Cairns said in a statement.(ABC news P1, 2016)

After opening its first store in September 2011, Woolworth’s lost more than $600 million in its first 4 years of trading, in an effort to steal some of Bunnings market share.

So what went wrong?

images-5.jpeg

Perhaps Masters made the assumption that just offering an alternative would be enough to lure customers to its blue sails. In consumer behavior analysis, once a potential customer has determined their need and want and its associated considerations, they will then determine their preferred retail channel. Beyond the initial intrigue of being a new store, the alternative business must be able to offer something as good or better than the original option when it comes to satisfying the customer’s needs and wants. If the alternative business fails to do so,  the consumer will retreat to his/her known destination. Masters clearly didn’t place enough thought into what its customers would need and want.

A disappointment to tradies

As the pioneer in the DIY home improvement space in Australia, Bunnings has a long established brand, with reputable products filling out their vast warehouse-scale retail outlets. A working tradesperson who is considering a specialised purchase  knows he/she can pop in to their local Bunnings and purchase an industrial drill, for example, made by industry leaders such as Makita, Bosch, Dewalt, etc. Not only are these brands recognised for their quality, but they also have a certain cache on a building site.

The same tradie may venture into Masters and only find one or two recognisable product lines – Bunnings allegedly put significant pressure on wholesalers to not supply Masters with their products, leaving Masters to seek out lesser known brands.  Uncertain about unfamiliar brands, tradies may have preferred to go back to their usual retailer.

Masters was also disappointing in terms of the range of shopping and convenience products it stocked. Tradespeople might have found that they were unable to source the correct raw materials and convenience items they required to complete a job. The chances of that same tradesperson trying Masters again in the future would have diminished rapidly with each negative experience, whether they were looking for a  specialised purchase such as a drill, shopping purchases such as timber supplies and paint, or smaller convenience items like screws. A consumer may try a new store, however, if they are not able to find the same service, range or brand, they will revert to the retailer they know and trust.

No point of difference for the DIY warrior

The home handyperson may lean toward no name brands for specialised purchases and items of convenience, where their is a low-cost incentive. Masters attempted to capitalise on this, but failed in this area as well.

Initially, Masters was modelled after its American parent company, Lowes Home Improvements, and was stocked with a range of low-cost brands that were successful in the American chain. Masters employed consumer marketing techniques to try and drive the sales of these unknown brands, such as stocking products that had a similar colour scheme to other well-known brands (see example 1) and setting aggressive price points, or selling product below cost as a ‘loss leader’ in order to sell ancillary items with strong margin (see example 2).

Ultimately, however, it was an unsuccessful strategy. Bunnings already provided alternative low-cost product lines (eg Ozito, Craftright) in addition to their higher end product, and Bunnings was first to market. The overarching Bunnings brand was better-trusted and benefitted from extensive above the line marketing including highly visible TV advertising and huge direct marketing (catalogue) campaigns. Masters represented the unknown, they had few trusted brands to reassure the customer and they did not provide enough point of difference in their pricing strategy to overcome Bunnings’ many advantages.

 

Unknown-2.jpegUnknown-1.jpeg

Example 1: Quality Makita high impact drill on the left, and no name inexpensive brand with similar design and color on the right.

 

images-7.jpeg
Example 2. Ryobi Cordless One + range, will market the initial item at a cost effective price, knowing the consumer will continue to purchase their brand as the batteries can be interchanged with each additional tool.

 

 

 

A painful lesson

Masters inability to be seen as a credible destination for trades, as well as not capturing the weekend warrior and renovator market, has cost them dearly. Parent company Woolworths has been under enormous shareholder pressure to stop the financial bleed, with it’s 7000 staff and 58 stores losing an average of $78,000 per week , (smh, 2015 p1). Masters has been a costly mistake for Woolworths. Its impending demise is sigh of relief for Bunnings and an important lesson for any budding marketing student.

 

References:

Masters hardware: Woolworths to sell or close; Wesfarmers buys into UK Homebase – ABC News (Australian Broadcasting Corporation). 2016. Masters hardware: Woolworths to sell or close; Wesfarmers buys into UK Homebase – ABC News (Australian Broadcasting Corporation). [ONLINE] Available at: http://www.abc.net.au/news/2016-01-18/woolworths-to-exit-masters-hardware/7094858. [Accessed 21 March 2016].

Masters sees losses widen, intensifying talk of a Woolworths exit . 2016. Masters sees losses widen, intensifying talk of a Woolworths exit . [ONLINE] Available at:http://www.smh.com.au/business/retail/masters-sees-losses-widen-shortening-odds-of-a-woolworths-exit-20151118-gl2in3.html. [Accessed 21 March 2016].

3 thoughts on “MASTER STROKE

  1. My first try in blogging. 🙂
    What a cost for an unsuccessful strategy! A copied strategy without a realistic SWOT in a different context in Australia caused the disaster. This was emphasized by (1) ignorance to a powerful competitor that has already occupied a big market share and (2) the failure to develop and exploit its own strength that can differentiate and advantage itself from the competitor.

    Like

  2. A really interesting analysis of the role that consumer behavior played in the demise of Masters – a very costly strategic error for Woolworths shareholders! I note your comment that Bunnings put pressure on other suppliers not to supply to Masters, I wonder if that behavior was in breach of anti competition laws? I also read that Gordon Cairns had difficulty finding a new CEO at Woolworths and that a few prominent names turned him down, I suspect that the difficulties at Woolworths go beyond Masters. Many years ago Gordon Cairns was the CEO at the beer company for which I worked (Lion), he is a tough operator in the retail space and I am sure he will leave his mark at Woollies. BTW Congrats on being the first brave person to post their blog (I have followed in your footsteps!).

    Like

  3. Thanks for the feedback Cnorto. Yes any sort of ‘no-supply’ pressure would absolutely be in breach of ACCC laws, but my understanding is that nothing was documented. Distributors turning over millions of dollars were reluctant to upset the Bunnings apple cart by supplying a new competitor. Bunnings cut off Masters’ blood supply before they could even get going. Will be interesting to see what happens with those sites now.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s