Woolworths names new hardware chain, market competition tipped to hurt smaller players

After months of speculation, supermarket giant Woolworths has now confirmed its new multi-billion hardware chain will indeed be called Masters, with 14 big-box stores now under construction and 150 sites targeted within the next three years.

But one analyst warns while the move will increase competition in the sector as Woolworths goes head to head with Bunnings, there is some risk more independent hardware stores will begin to be blocked out of the industry.

“We can expect a lot more competition in the industry now,” IBISWorld senior analyst Ian MacGowan says. “But overall the industry has been concentrating for probably the last 15 or 20 years towards the major operators.”

“It has been quite difficult for a lot of smaller operators as a result.”

An IBISWorld report from January this year predicts the number of companies in the industry will fall by an average annual rate of 1.1%, although employment will increase because of Bunnings’ and Woolworths’ expansion.

MacGowan says this is because of the introduction of Woolworths and the expansion of Bunnings, which are more broad-based “big box” style stores.

But while this means traditional, smaller retailers have been pushed out of the market, he also says many have been able to adapt into niche markets by selling particular types of tools, or by focusing on providing equipment for certain types of tradesmen.

“The Bunnings and the new Masters format seems to be much more big-box format, a lot more lifestyle orientated, etc. They sell more than traditional hardware, it’s outdoor hardware, BBQs, etc.”

“As a result we’ve seen many more independent and smaller retailers head towards niche markets, and servicing those areas. They are finding it harder to compete and as a result the number of companies is falling.”

Woolworths said in its announcement yesterday the first Masters store will be opened in Melbourne’s west later this year, in the suburb of Braybrook, in a 13,500 square metre outlet.

“We are delighted to finally be able to reveal the Masters name and to pinpoint the first store location. With just a few months to go until opening, we’re putting the finishing touches to our plans and we are confident that our customers will be as excited as we are when they visit for the first time,” Masters chief executive Don Stallings said.

It’s a good time for Woolworths to be getting into the DIY market, MacGowan says. Although the industry has been in a state of cyclical “decline” for the past five years, he says the plateauing of home prices means more mortgage payers will be focused on improving their properties.

“The industry is in a cycle of decline but it’s certainly not dying. In most industries the cycle is around 40 years, but in hardware it’s about 10. We’ve seen a large demand for DIY and home renovation as a result of flat house prices.”

The IBISWorld report claims that while customers will enjoy lower prices as a result of Woolworths’ entry into the sector, the two companies may not necessarily compete against each other.

“The size of the Bunnings stores limits their ability to penetrate the higher density and built-up living districts, forcing store locations to outer suburbs,” the report claims.

However, MacGowan says there is no doubt Woolworths is attempting to make a big entry into the industry and there is no doubt they will attempt to steal some market share.

“We can expect a lot more competition. Bunnings has had the industry to themselves for quite awhile now. What we’re seeing is just Woolworths’ attempt to get into the market and chase the dollars that are there.”