Masters Home Improvement (or just Masters) was Woolworths Group Limited’s attempt to grab some of the hardware retail space in Australia away from market leader Bunnings (owned by Wesfarmers).
I have long hoped for a book that details the specifics of how Masters so supremely failed to read the market, but a quick search of book sellers’ sites reveals none presently written. So I thought I'd try a ham-fisted attempt to at least collate much of the past news reports and associated annual reports etc about the failure of the business into a timeline and summary.
2009
Masters began as something called 'Project Oxygen', supposedly because their new venture was going to steal the oxygen from the other hardware players in the market. The earliest reference to 'oxygen' regarding Woolworths is in their 2009 annual report, under the list of subsidiaries there is 'Oxygen Nominees Pty Ltd'.
The first mention of hardware from Woolworths is a press release dated 25th August 2009 under 'Strategic rationale' which I would take to be the 'why are we doing this' they cite:
The existing category for home improvement in Australia is under-serviced and Woolworths believes there is a genuine opportunity to bring competition and grow the sector with an enhanced offer.
This is in fact the only real statement about hardware, the rest is mostly fluff about growing the sector and category expansion, it's a lot of nothing that seems to be saying 'we want to grab a bit of the Bunnings pie'. Included in this section are several quotes from Chief Executive Michael Luscombe including:
“The Australian love of property and high levels of home ownership mean that maintaining and improving homes is an important part of everyday life."
Then seems to both speak to the American partnership with Lowe's in the language used, and is also the closest he comes to mentioning Bunnings:
"We’re interested in adding choice to the industry and we believe we can improve the pricing, product range and experience for customers. At the moment, the sector is dominated by one major big box player, so there is a real opportunity for increased competition in that part of the sector."
There isn't much in their annual report for 2009 beyond what is in their press release, aside from their recommended purchase of Danks (a hardware wholesaler) and several mentions of the $42 billion hardware and home improvement sector. This is a figure that will get thrown around a lot by Woolworths.
However prior to the press release being released to the media, Woolworths was already scouting for locations for their (then) unnamed stores. Including a site on McIvor Road in Strathdale (a suburb of Bendigo). In June 2009 Grant O'Brien who was the person who was originally in charge of Masters, and then became CEO of Woolworths in 2015, along with him was Woolworth's senior development manager, Tim Macmillan, and head of property Richard Champion. [Source: SMH - Bendigo 2009] A lease was signed for this location, however the situation between the landlord and Woolworths turned sour and five years later Woolworths were taken to the Supreme Court and ordered to pay $10.9 million. [Source: ABC - Bendigo 2016], [Source: SMH - 2015 Dumped Deal]
Grant O'Brien ended up leaving the company in 2015 shortly after this payout. [Source: ABC - Woolworth Chief departs 2015]
Looking back on this 'first year' of Project Oxygen/Masters and trying to chart where the interest in the hardware market might have come from for Woolworths, it might be from Danks. As according to a Sydney Morning Herald article in August 2009 Michael Luscombe had a close friend who had worked at Danks for decades.
2010
In 2010, there wasn't a lot of interesting news concerning Masters, or more likely it was still 'Oxygen' at this point. Woolworths' annual report doesn't mention Masters although it doesn't mention 'Oxygen' in a project sense either. The 2010 annual report does mention that Woolworths have completed their acquisition of "Danks Holdings Limited, Australia’s second largest hardware distributor, supplying 581 Home Timber & Hardware, Thrifty-Link Hardware and Plants Plus Garden Centre stores and over 900 independent hardware stores.", this acquisition was completed late in 2009 (11th November 2009).
Beyond this, I assume that Woolworths were acquiring land and building locations for the Masters stores, as I've not found very much information regarding Woolworths' explorations into hardware in 2010.
2011
In an AFR article dated 2 May 2011 it states that "The Masters chain will compete not only with market leader Bunnings and Metcash’s Mitre 10 but a range of homewares, appliance and specialist retailers such as Harvey Norman, The Good Guys, Reece, Tradelink and Ikea." This article is perhaps one of the better articles because it's written before the first Masters store opened in Braybrook, Victoria on 31st August 2011. It contains a lot of predictions about what Masters will do to the hardware retail space and how it will affect the market. A lot of the things promised such as high stock levels and higher levels of service from staff never really were achieved, or if they were it was only in the initial opening period and then very quickly went down hill.
In Woolworths' annual report for 2011 the Managing Director and Chief Executive Officer Michael Luscombe predicts that "Masters will roll out between 15 and 20 stores a year".
Interestingly under 'Outlook' the amount the hardware and home improvement figure has dropped $2 billion to become $40 billion in only 2 years from their last pronouncement of this figure.
"As Woolworths plans for future growth, through expansion into the circa $40 billion home improvement market, we anticipate start-up costs for Masters of up to $100 million (net of Danks operating profit and before tax and minority interest), which will impact our overall earnings in FY12. The amount of these start up costs is dependent upon a range of factors, particularly the pace of our new store."
2012
In just Master's second year of operation there was already an article talking about its layout and marketing demographic.
A Smart Company article from September 2012 cited a report from Madison Cross (a retail consultancy company) that Masters was "using a model that is suited towards female buyers, giving off a 'premium' vibe with polished [concrete] floors and bright lights. But they point out women aren’t usually the ones who make purchases in hardware stores."
This article also states that "the construction of the stores, with their bright lights and air-conditioned atmospheres, differ wildly from a store like Bunnings, which is more suited to tradesmen and people who are used to its simple, low-gloss atmosphere."
In a comment on a reddit thread from 2015 a user who said they worked at Masters seemed to also support this idea mentioning that managers of Masters would never refer to the Masters stores as "hardware stores" they were "DIY stores" – they were selling DIY ready to go, and were trying to cater to those who didn't like the current "hardware stores".
These observations are some that will be observed and repeated throughout Masters' short time in the retail space. That, for want of a better term the 'vibe' of Masters was wildly different from Bunnings.
They were, very different experiences, walking into a Masters vs Bunnings, and it wasn't just the weird vest things that the Masters staff wore. Masters had an Ikea-esque layout with separate entrance and exit doors with the former being an airlock style entrance with a vestibule area before entering the building proper. Masters also had quite uneven lighting, there was a lot of bright lighting, but that led to some portions of the stores being...not gloomy, but certainly having pronounced shadows. The flooring looked like it had never had anything hardware near it.
Again it's a return to Woolworths' annual report for 2012 to garner some information about what happened. Perhaps the most interesting thing in the annual report is again from the 'Capital Improvement and Outlook' section "Planning to secure 150 Masters sites in five years (from announcement of JV). Plan to open 15-20 Masters stores per annum with approximately 100 stores opened by the end of 2016". This prediction is interesting simply because by the end of 2016 Woolworths was looking to get rid of Masters.
In other hardware circles Metcash completed its 100% purchase of Mitre 10 in June 2012. [Source: ABC News - Metcash completes Mitre 10] Metcash is also the supplier for IGA, which means at this point there are essentially 3 hardware chains; Bunnings, Mitre 10 and Masters being owned/supplied by the largest supermarket chains Coles (Bunnings), Metcash [IGA suppliers] (Mitre 10), Masters (Woolworths).
2013
In 2013, according to Roy Morgan research in the September quarter Bunnings had 84.2 million purchases in the past 12 months, with Mitre 10 14.6 million and Masters not quite half that at 6.6 million.
According to the article "Around two-thirds of Bunnings’ customers visited (and bought) from the store four or more times during the year—including around 1 in 5 who made at least 13 separate shopping trips." Masters wasn't as good "around two-thirds of Masters’ customers only go once, twice or three times annually, for an average of around 3.5 visits per customer," however it did report that this figure was "up from under three per customer in 2012."
So, in 2013 things should have been looking up for Masters?
Well, no.
Supposedly they "didn’t know a lot about this business when we set the budget for financial 2013," CEO Melinda Smith said in July 2013. "We didn’t know a lot about the seasonal curves," she added. "We didn’t have the right stock in some instances." [Source: SMH - 2013 Woolworths failed to understand]
This statement comes up cited in a few places, which I find pretty amazing. Woolworths might not have something like Coles' Flybuys card to grab data from, but they have their own 'Woolworths Rewards' card which should have given them some data, along with just regular purchasing data. Some of that should have helped them figure out that there are seasonal curves, while it might be for their supermarket chain, some of it should have transferred to their attempt at hardware. Even sending some of their team to a Bunnings / Mitre 10 throughout the year prior to opening up Masters should have yielded some data for them.
Smith is quoted later in the article that having Lowe's as a joint venture partner was helpful, but "when it's Christmas time over there it's also winter, our Christmas time lines up with Spring and Fathers Day so its quite a different seasonal curve."
Again...I can't help but wonder how no one picked up on this, that of course, the seasons are different between Australia and the United States of America. We're in different hemispheres. This seems like really simple stuff if you're getting into a joint partnership with a company that operates in a different seasonal and retail environment to Australia that you might need to think about this stuff.
Later in this article it cites that Masters for "2012-13 [will have] a loss of $119 million but that should now blow out to a pre-tax loss of $157 million" and "Woolworths is still forecasting that Masters will break even during financial 2016, assuming more moderate growth in sales per store and improvements in gross margins.".
Later in the year in October 2013 it was reported that 'Infinity Cable' a Chinese-made electrical cable which did not meet Australian standards had been sold. Electrical Safety Office boss Brian Richardson says in the article that he believed it was mainly sold in Masters.
A year later in 2014 it was reported that Masters was "asking victims of the $80 million Infinity Cable scandal to sign away rights as a condition of removing potentially deadly wiring sold by the hardware chain."
Additionally in 2013 Dulux pulled its premium brand products which included the Dulux and Cabot brands from Masters, returning to Bunnings. [Source: SMH - Dulux denies retail price war in the cheap paint]
To round off research into this year I returned to Woolworths' own annual report for 2013. They opened 16 Masters (and 34 supermarkets in Australia, six BIG W stores, 16 Dan Murphy stores and a net additional 14 BWS stores) however the number of Masters is only one above the lowest cited in the previous year which was 15-20 per annum.
Masters Mornington October 2013, note the hand-written signs lining the entrance driveway
There's lots of promises of Masters being a "long term profit contributor to the group", and the oft-quoted $42 billion in hardware and home improvement sector figure is back up at $42 billion.
The report notes that Masters were the first hardware chain to launch online and mobile shopping, and that customers could check availability of stock online.
This is something I remember thinking was useful, especially as it's something that Bunnings didn't launch until several years later.
Page 35 of the report gives this forecast (bold my emphasis):
"Home Improvement losses before interest and tax of $138.9 million were more than initially anticipated mainly due to optimistic sales budgets for Masters and Danks, relatively higher wage costs for new store openings, and lower gross margins due to the Masters’ sales mix and the highly competitive trade segment in which Danks operates. Masters’ losses per store have declined...Based on our planned store rollout profile and current forecasts (targeting approximately 90 stores opened by the end of FY16), we expect Masters to break even during FY16...Given the greenfields nature of the Masters business, short term results will continue to vary. However, we expect the losses for FY14 not to exceed this year’s level."
2014
In early 2014 Marketing Magazine was spruiking Masters' new website and mobile-focused website and platform.
August 2014 the Herald Sun reported that Masters had "bled $169 million over the financial year — 22 per cent more than the previous year" and $12 million more than forecast the previous year.
In an AFR article also from August Woolworths chief executive Grant O’Brien a vehement defender of the Masters home improvement strategy "revealed that the Masters big-box stores had lost $176 million in 2014 – $20 million more than in 2013 – taking losses in the last three years to almost $450 million."
Also stated in this AFR article:
"Woolworths has tried to differentiate Masters from Bunnings by adding low-margin whitegoods and home decor products, making the stores lighter and brighter to appeal to women, and stocking a large number of private label brands sourced through its US joint venture partner Lowe’s. However, the “squeaky clean" Masters stores have deterred trade customers and have failed to resonate with DIYers and home renovators."
Shiny floors in Masters Mornington - May 2013
Which seems like another failure of Woolworths and Masters to read the market and understand who it was that they wanted at their stories and who they were appealing to.
That tradies, Bunnings' biggest market didn't want squeaky clean floors and whitegoods when they were shopping.
I recall whenever I went into Masters' stores I always heard my shoes squeak on their floors, admittedly I was wearing sneakers, but their stores did not have the well trodden concrete floors of Bunnings, looking at the handful of photos I have from within a Masters store there seems to be a large amount of reflection on the concrete there.
Woolworths' annual report for 2014 doesn't yield anything interesting. The most notable part stating:
"Sales were lower than expected and were impacted by a highly competitive market and lower consumer confidence. Losses before interest and tax were higher than anticipated."
2015
One of my favourite facts regarding Masters reflects on the management-heavy culture at the retailer and that it was the written policy of "tail to the curb" parking for staff – meaning that staff have to reverse their cars into the car parks. I had enjoyed knowing this fact, as it seemed to wrap up the Masters culture. But reading into it, it comes from this article and it's cited as being from retail analyst Rob Lake.
According to this post on reddit in 2015 from someone who worked at Masters there was never this requirement.
Toilet seat range - Masters Mornington August 2014
According to this same post, stock control seemed to have been one of the larger problems for Masters, somewhat ironic considering in their initial press release in 2009 they were leveraging their stock management as Woolworths and their purchase of Danks as a distinct advantage. Perhaps related to their stock control issues was the departure of Julie Coates in 2014, she left Woolworths after only 10 months, she had been director of business transformation and was leading a "10-year task of transforming the company’s entire supply chain and logistics operation." [Source: SMH - 2014 Woolworths logistics]
On stock however, one of the things that seemed to pull Masters down was its ties to its American partner Lowe's, the oft cited 'gun cabinets for Australians' seems to have the most detail in this AFR article from 2015 which specifies at an "inner Melbourne [Masters], consumers can buy a gun safe. It holds five rifles and has a locked box for ammo." The article points out that Bunnings also sells gun safes, but in regional/rural areas, where there is more likely to be customers for such an item.
Masters Mornington - Inside whitegoods area - February 2013
The same article mentions that you could purchase various whitegoods such as fridges, washing machines, vacuum cleaners at Masters, which further diluted the 'hardware' offering of the shop and alienated tradies from the store. I can attest to the huge range of whitegoods, it was one of the reasons I went to Masters in 2013 as the small amount of photos I have of my local Masters attests. I went there because they had a large range of large capacity washing machines. I didn't end up purchasing then as life things got in the way, and when I did end up needing a new washing machine and dryer, I went to The Good Guys. Another article claims that Masters' 'squeaky clean' appearance made people think they were more expensive. That Bunnings' big, slightly dusty appearance makes people think it's cheap. That Bunnings uses their staff in their adverts vs Masters which used actors, again made Bunnings seem more believable because they are cheap and cheerful. [Source: News.com.au - Masters vs Bunnings]
In early 2015 (February) Woolworths was showing some signs of needing to 'pause and rethink' as "deferred the previously advised construction start date of 2016", so a spokeswoman was quoted in the Daily Liberal regarding the proposed construction of a store in Dubbo. It was never built, and looking at Cobra Street in Dubbo, New South Wales there doesn't appear to be many locations it could have gone, like many locations where a Masters was built it's likely it would have sat opposite or just down the road from an already existing Bunnings.
In May 2015 the AFR reported that analysts thought that Masters wouldn't turn a profit until 2019. And that $3 billion had already been ploughed into Masters at that point.
$3 billion, chasing the $40-$42 billion hardware market, I guess would have been a good outcome, if they'd managed to pull it off.
Unfortunately according to one news site it estimates that Woolworths was loosing $75,000 a week on Masters. [Source: News.com.au - Masters screw up]
In June 2015, Woolworths' CEO Grant O'Brien left the company, raising the share price, but was likely one of the nails in Masters' coffin. [Source: ABC - Chief Executive departs]
In August 2015 it was reported that Masters' improved store layout raised their sales by 30 per cent. These 'improved layout' stores were barely 3 years old. According to analysts cited in the article the improvement would need to be 50 to 100 per cent to get Masters to break even.
Woolworth's 2015 annual report for this year cites that same 30% increase in sales, but also states that "Masters loss before interest and tax increased by 39.5% to $245.6m".
2016
2016 was the year when Woolworths announced that the Masters experiment was coming to an end. This was ironically the year according to their annual report in 2013 that they expected to break even.
Masters Mornington - Going Out Of Business - October 2016
Woolworths announced on 18th January 2016 that they would be exiting the home improvement business. Their media release states that it would take several months to wind operations up, and that to speed up the process they would be exercising their option to purchase 33.3% of the business held by Lowe's in the US.
Ten days later things didn't improve for Woolworths / Masters with the ABC reporting that the company would have to pay out $10.5 million for lease disagreements and loss of revenue relating to a site they had looked at in 2009 in Strathdale. [Source: ABC - Bendigo developer payout]
In March 2016 Woolworths began the sell off of Masters, supposedly codenamed "Project Miami", there's few sources I could find for this codename. It appears there that there was an email exchange published in The Australian in September 2016 (a PDF version here).
The Masters sell off began, despite disagreements between Woolworths and their US partner in Masters – Lowe's, who were in discussions (and heading towards the courts) concerning the value of the Masters business. [Source: Daily Telegraph - Masters sell-off] This wouldn't be resolved until April 2017 with arbitration in the Federal Court in Woolworths' favour. [Source: The West Australian - All clear to sell Masters sites]
Woolworths' next official statement came on 24th August 2016 when they released an online media statement further explaining Masters' exit from the market.
It stated that all Masters would cease trading on the 11 December 2016.
Metcash (owner of Mitre 10 and supplier to IGA) would be acquiring Home Timber & Hardware Group (HTHG) for a headline purchase price of $165 million, with the business continuing to trade.
Woolworths' annual report for 2016 still tried to spin the positives.
Masters' sales increased to 21.8% on the previous year, meaning their sales were $1.1 billion.
Masters' loss before interest and tax decreased by 4.9% to $233.5 million.
Most of the reporting around the end of 2016 concerned either Masters' fire sale of all its stock following the announcement of the close of business and articles on "why Masters failed" or other spins on this.
2017
At the start of 2017 reporting concerning Masters was mostly dominated by the aforementioned case concerning Lowe's stake in Masters, which was settled in Woolworths' favour.
At the end of 2017 Woolworths' annual report sort of states the obvious regarding their home improvement sales stating "Home Improvement sales declined in FY17 compared to the prior year following the closure of Masters stores in December 2016 and the sale of Home Timber & Hardware Group (HTHG) to Metcash in October 2016." which is sort of stating the obvious if they were ending Masters.
The only other vaguely interesting part of the annual report is the sale of 40 Masters freehold trading sites, 21 Masters freehold development sites and 20 Masters leasehold sites, with Woolworths obliged to acquire three Masters freehold sites and take assignment or assume responsibility for the liabilities associated with 11 Masters leases.
For those unfamiliar with these terms, freehold means they own the land.
Leasehold means it's a lease, they're renting, but it's a big (usually long) agreement.
Freehold development sites I believe means blocks of land that they haven't put anything on, but they were going to build a building on.
So:
40 Masters freehold trading sites = 40 sites which are a block of land with a Masters building on it.
21 Masters freehold development sites = 21 sites which are a block of land that might've been developed into a Masters.
20 Masters leasehold sites = 20 sites which they're leasing.
After the Masters sell off of stock, land, building and sites the most notable remaining feature of Masters were all the large blue buildings that were left at various locations around the country.
Some of these Home Consortium had a deal to buy 61 ex-Masters stores and 21 development sites. With the intent to turn them into large shopping centres with a few major lease holders within. [Source: SMH - Woolworths extricates from Masters mess]
While others were purchased by Bunnings. [Source: WA Today - Bunnings swoops on four old Masters stores]
2018
With the Masters sell off more or less complete any coverage concerning Masters was mostly related to the sell off of their freehold trading sites - those locations with a building on it.
Other hardware-related coverage concerned the quite disastrous foray into the hardware market that Bunnings made in the UK. [Source: SMH - Wesfarmers' British Bunnings nightmare deepens] With analysts in February 2018 saying that Bunnings UK & Ireland (or BUKI) wouldn't even break even until 2022. [Source: AFR - BUKI losses 'worse' than Woolworths' Masters] Which is about the same amount of time Masters was given (and then was would up within that time).
After what had happened here in Australia with Masters, Bunnings and Wesfarmers really should have known better than to try and expand, especially into an international market.
They didn't even wait the 5 years, in May 2018 Bunnings UK & Ireland (BUKI) was wound up, with Wesfarmers selling BUKI for £1. [Source: SMH: In for $705m, out for £1]
Beyond
Looking at the Masters legacy, the ones you can actually walk into; it's their physical buildings, which are quite poor as actual conversion for other retail endeavours.
The formerly Masters Mornington, now a HomeCo and the home of a gigantic Coles and quite large Super Cheap Auto reveals a site quite unsuited to anything, even a hardware or DIY store.
Large separated car park - HomeCo Mornington
A large separated car park, while the Masters separate exit and entrances have now been changed to a single entrance the layout of the car park is still poor with no disabled parking close to the entrance itself.
Inside the Coles seems to be riffing on the American format that Masters through its Lowe's partnership seemed to want to emulate. While this Coles is large and evenly lit, unlike the Masters that preceded it, it's too big to properly shop in if you're used to any regular-sized Coles.
It's almost weirdly fitting that this is Masters' legacy, an unworkable format, too big and awkwardly thought out that isn't in keeping with the established architecture and layouts in the Australian retail market.
Further reading
Business Insider - This is why the Masters hardware business failed - 25 August 2016
Self-inflicted wound: how Masters Home Improvement fell - The Courier - April 5 2017
Empty Masters store makes money for investors - The Sydney Morning Herald - 29 September 2018
New chapter for Australia’s first Masters store - Real Estate Source - 21 October 2018
