Woolworths’ foray into the hardware sector continues to rack up substantial losses and drag on the retailer’s results. In sharp contrast to the rampaging Bunnings Warehouse chain, Masters Home Improvement stores are generating, on average, little more than half of the estimated $30 million the stores need to break even. Each Masters Home Improvement store is losing around $54,000 a week, and despite some changes to the business and a slowdown in the store rollout program, pre tax and interes
st losses ballooned by 56 per cent in the first half of the 2015 financial year.
Despite a 28.5 per cent lift in sales in the latest half from $393 million to $505 million, losses jumped from $71.9 million in the comparable period in 2014 to $112 million this year.
The sales increase includes the cycling in of 18 stores opened in the full 2014 financial year, a figure that effectively doubled the size of the network.
In a telling comparison, Masters is being outpointed on sales and earnings growth by its Home Timber and Hardware independent retailer network and Metcash-owned Mitre 10, as well as Bunnings Warehouse.
On mature store networks, Bunnings Warehouse posted an 11.8 per cent lift in sales to $5 billion and a 9.8 per cent increase in earnings before interest and tax to $686 million for the first half of the 2015 financial year.
In the same half, Woolworths Home Timber and Hardware lifted sales by 19.9 per cent and pre tax and interest earnings by 20 per cent while Mitre 10’s most recent half year sales increase was 17.4 per cent with earnings up 5.7 per cent.
Despite the dismal half year performance, Woolworths remains bullish about the hardware venture and believes it will provide a significant earnings contribution in the longer term.
Matt Tyson, the British hardware retailer recruited last year to rejig the loss making venture, claims the chain is delivering against a plan adopted in August last year.
He concedes that sales continue to be impacted by clearance activity as Masters adjusts store formats and merchandise ranges, but customer traffic levels have increased.
Range improvement has been the major challenge for Masters, with the Lowe’s joint venture global buying strategies delivering too many unrecognisable brands into stores, compared with the ranging of more familiar brands by Bunnings Warehouse.
Woolworths has also admitted that its store rollout program was flawed, opening some stores in secondary locations, while the design of stores, which was criticised as being too female friendly for a hardware store, has also been revised at two new outlets in Adelaide and Brisbane.
A decision to slow down new store development in the short term is premised on both a re-evaluation of locations that were acquired or optioned for stores, and on a redirection of capital investment into a refit and refurbishment of existing stores.
A key objective of the refit is to improve category adjacencies within the stores, which trade suppliers argue were illogical and confusing to customers.
In a bid to lure more customers, Masters has adopted a disruptive pricing policy, promoting certain loss leader products to drive traffic in stores.