Who wins from the $3 billion Masters loss?

 

Bunnings isn’t the only winner from Woolworths’ colossal Masters failure – it could be a lifeline for Metcash’s Mitre 10 chain.

Metcash has had plenty of problems of its own as the IGA brand tries desperately to compete with the Coles and Woolworths giants, plus the increasing presence of Aldi. At least with Masters being closed, it will only have to deal with one gorilla in the hardware space.

But there could be more upside. Masters has “enjoyed” all of the headlines, as you’d expect a $3 billion failure to do, but Woolworths also is bailing from its 40-store Home Timber and Hardware chain.

Also read: Why Masters failed and what Woolies must do next

The less ambitious Home Timber and Hardware operation is a much more viable proposition, especially if it was teamed up with Mitre 10.

There was already speculation last year about Metcash making Woolworths an offer for HTH but the bigger Masters decision had to be made first. Now offers are being warmly sought.

DGC Advisory’s Geoff Dart thinks a combined Mitre 10/HTH would have particular strength in the trade sales side of hardware, estimating the combined entity would have trade sales of about $800 million. 

That compares with Bunnings’ trade business of about $1.5 billion out of total revenue of $8 billion. Retail is where it’s at for Bunnings.

There’s certainly room in the overall Australian market for competition in hardware and home improvement, but Bunnings now has the retail warehouse end pretty much to itself.

And Bunnings is tipped to be interested in acquiring some of the 63 Masters sites, though certainly not the shops sited to go head-to-head with the established player.

Bunnings’ owner, Wesfarmers, is the real winner from the Woolworths failure. As previously reported in this space, Woolworths didn’t just want part of the hardware market when it launched Masters – it wanted to hurt Bunnings which was providing Wesfarmers with plenty of cash to help underwrite Coles’ attack on Woolworths supermarkets. 

Also read: Woolies winds up Masters

Bunnings proved more than capable of dispatching Masters, increasing its profit despite the competition.

Now, without that distraction, Bunnings/Wesfarmers should find it easier to concentrate on its billion-dollar expansion into the UK market.

The losers from the Masters closure are the employees and consumers.

Personally, I liked the Masters stores I visited – but not enough other people did. The competition forced Bunnings to lift its act as well and helped keep pressure on prices.

 

Michael Pascoe is one of Australia's most respected finance and economics commentators with over four decades in newspaper, radio, television and on-line journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.