Woolworths Closes the Door on Masters 1

Tuesday, January 19th, 2016
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Retail giant Woolworths is finally abandoning its loss-making local home improvement venture, leaving 8500 staff in limbo.

Woolworths will either sell or wind up its struggling home improvement arm, which includes the Masters and Home Timber & Hardware chains following an extensive review.

Chairman Gordon Cairns says the review indicated that it will take several years for Masters, which was established in 2011, to become profitable.

“We as a board have determined that we cannot sustain, or continue to sustain these losses,” Mr Cairns told analysts.

Masters booked $717.1 million of losses before interest and tax over four years to June 2015.

Woolworths’ initial forecast was for Masters to break even after five years of trading.

The widely expected decision to exit the home improvement business was applauded by investors and retail analysts.

Woolworths shares jumped 99 cents, or 4.4 per cent, higher at $23.65.

Mr Cairns said Woolworths will now focus on strengthening its core supermarket chain, which is battling competition from rivals Coles and Aldi.

Before Woolworths can exit its home improvement business it plans to buy out its US-based joint venture partner Lowe’s, which holds a 33.3 per cent stake.

The deal will take at least two months to resolve.

Mr Cairns said the home improvement business will continue to trade through the period.

In the meantime, 7000 workers at Masters’ 63 stores and the 1500 employees at 275 Home Timber & Hardware outlets face an uncertain future.

“Our top priority is to do the right thing by our shareholders, employees, suppliers, customers, and we will act quickly and openly to minimise the impact of this decision,” Mr Cairns said.

“Our aim is to provide all of these stakeholders as much certainly as we can over the future, and as soon as we can.”

Gerard Dwyer, the national secretary of retail workers union SDA, said it will work with Woolworths to “minimise the impact on individuals”.

Woolworths is reviewing the value of its 66.7 per cent stake in the home improvement business, which has been under intense pressure from rival Wesfarmers’ hardware chain Bunnings.

The value of the Masters business was $2.8 billion at the end of June 2015, but that figure is expected to drop given the tough trading environment.

Macquarie Group said Woolworths would free up capital by exiting the home improvement business, giving it a “a chance to turn the supermarkets business around”.

It also sees Bunnings as a “key beneficiary of a Masters wind-up, or sale of a smaller Masters network”, while the Metcash-owned Mitre 10 hardware chain could buy Home Timber & Hardware stores as well as cherry pick some Masters sites.

Wesfarmers chief executive Richard Goyder was coy about the impact Woolworths’ decision would have on Bunnings.

“It’s clearly very sad news for their team. We don’t think it’s appropriate to make any further comment at this time,” he said.

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  1. Bruce Christopher

    I think there is a flawed logic in considering this as a loss of 7000 jobs. Australians were not going to suddenly spend another 50% on hardware because a new chain started so long term any significant growth for Masters would have relied on gaining market share from the other chains. Long term the net employment would have been along the lines of just moderate growth in spending. Most of the jobs were temporary, even if Masters succeeded.

    I can't agree with the excuse and premise that Bunnings was applying 'intense pressure' on Masters. I stuck with Bunnings due to them having all the hardware I need and continuing good service and pricing. I did not notice a change after Masters turned up so I expect Bunnings could also see that it was poorly thought out strategy to try and emulate what they had built steadily over decades, within just a few years.