Supermarkets at different ends of the screwdriver: Woolworths to sell Masters, Wesfarmers enters UK hardware market
Woolworths has made a major announcement confirming its plan to sell or close its failed Masters hardware chain.
By a strange twist of fate, the announcement has come at the same time as its competitor Wesfarmers has purchased UK-based hardware network Homebase. Wesfarmers is the parent company of Coles supermarkets and Bunnings Warehouse, which was the successful hardware business operation that Woolworths set out to emulate and compete with when it established Masters in 2011.
Lowe’s jumps out of Masters venture first
The Woolworths move starts with its buy-out of its US hardware partner Lowe’s (a subsidiary of the WDR Delaware Corporation) 33.3 per cent share in Masters back to Woolworths.
Woolworths’ Chairman Gordon Cairns said that a recent review of operating performance indicated that it would take many years for Masters to become profitable and that the overall Woolworths business cannot continue to sustain the ongoing losses.
“This important decision allows Woolworths to focus its energy and resources on strengthening and executing its plans in its core businesses,” Cairns said.
All of Masters stores will remain open during the period of the Lowe’s exit which is expected to take at least two months. The stores will continue to remain open whilst Woolworths then searches for a suitable purchaser. Stores will only close if a buyer cannot be found.
There are currently 58 Masters stores in operation across Australia. Over the past six years Masters has lost more than AUD$600 million and has been identified as the most significant contributor to the recent drop in financial performance of the Woolworths retail group. For the financial year ending on the 30 June 2015, Woolworths revealed a 12.5 per cent drop in profits on the previous year.
Wesfarmers purchases UK’s Homebase for AUD$705 million
Whilst Woolworths exits the hardware’s game, Wesfarmers seems to be going from strength to strength in the hardware game. The plan is for Wesfarmers’ successful Bunnings business model to be applied in the UK and Ireland.
There are currently 265 Homebase stores located across the UK and Ireland. Homebase reported revenues of £1, 461.2 million for the 12 months ending the 29 August 2015.
Managing Director of Wesfarmers Richard Goyder said the acquisition will provide a long-term value creation opportunity for Bunnings.
“Bunnings is well placed to unlock value from the Homebase business and has a proven track record in delivering growth both organically and through acquisition,” Mr Goyder said.
“Our offer provides significant execution certainty and an attractive cash consideration to Home Retail Group shareholders,” Goyder continued. “The £38 billion UK home improvement and garden market is a large and growing market with strong fundamentals. The opportunity to enter this attractive market through the acquisition of Homebase has been comprehensively researched and carefully considered by Wesfarmers and Bunnings. The Bunnings team has done a lot of work to make sure it understands the market and the opportunity, including having visited hundreds of stores, spending significant time researching the market and closely studying international retail expansions into the UK and other markets. Detailed due diligence has been completed and implementation and improvement planning is well advanced,” Goyder stated.
Acquisition will see Bunnings open in the UK
Bunnings Managing Director John Gillam said the acquisition represents a compelling opportunity to enter the attractive UK home improvement and garden market.
“Homebase has an established and scalable store platform with strong representation in high density areas,” Gillam said. “The stores are well-sized for the UK market and support warehouse merchandising and a low cost operating model. The acquisition is the first step in building a further growth platform for Bunnings with additional planned investment of approximately £500 million (A$1,037 million) in the Homebase team and assets to build a new Bunnings-branded business over three to five years. We will combine essential local elements with the best of Bunnings to bring customers in the UK and Ireland an exciting new home improvement and garden offer,” Gillam said.
Bunnings has been owned by Wesfarmers since 1994 and there are currently 324 of its stores located across Australia. In announcing its results for the financial year ending the 30 June 2015 Wesfarmers said it intended to open 15 – 18 new Bunnings stores in Australia over the next two years.
For the financial year ending the 30 June 2015 Wesfarmers reported a successful year for Bunnings with store-on-store profits up 8.8 per cent on the previous year. These results contributed to a AUD$1.78 billion total profit recorded by the Wesfarmers group for the financial year, a 6.6 per cent increase on the previous year’s profits.
It is expected that the Homebase acquisition will be complete by the end of the first quarter of the 2016 calendar year.
New management structure for Wesfarmers
Wesfarmers has announced a new management structure to help drive the growth of Bunnings locally and in the UK. The structure will be as follows:
Bunnings Australia and New Zealand
- Mike Schneider, Managing Director (currently Director of Store Operations)
- Clive Duncan, Chief Operating Officer (currently Director of Merchandising & Store Development)
- Justin Williams, Chief Financial Officer (currently General Manager Information Technology & Financial Services)
Bunnings UK and Ireland
- Peter (PJ) Davis, Managing Director (currently Chief Operating Officer)
- Rodney Boys, Finance Director (currently Chief Financial Officer)