Masters: Expansion continues despite mounting losses

STRUGGLING hardware chain Masters is continuing its expansion despite haemorrhaging cash from parent company Woolworths, leaving investors and analysts reeling.

With pressure mounting ahead of Woolworths’ full-year financial results announcement next Friday, speculation is rife that the supermarket giant may close down or sell off the chain.

The company looks to be years away from making a profit, with losses of $200 million forecast for the financial year including $51 million in the three months to July 31, according to The Australian.

The business is understood to have already notched up at least $500 million in losses, but Masters is pushing on with plans to open new stores. Construction is under way at two new sites in Sydney and Melbourne, which will bring the national tally to 63 stores.

The new outlet scheduled to open in October at Penrith in Sydney’s western suburbs has been identified as a “strategic and high potential location”.

Another new store is scheduled to open in Cranbourne North, on Melbourne’s south-eastern fringe, in November.

It’s business as usual for the thousands of staff members at Masters outlets around the country, with hopes that a new strategic approach could stem the flow of losses, estimated at an average $75,000 a week per store.

“As recently as its market update in June, Woolworths confirmed its commitment to Masters,” a spokeswoman told news.com.au.

“As per the strategy, we are rolling our new format stores with new ranges. We have also refocused our new store openings to strategic and high potential locations.”

Chairman Ralph Waters said in June that the overhauled store design being trialled across 20 per cent of Masters outlets was showing good results.

“While it is still early days, we are very pleased with the performance of these stores,” Mr Waters said in a shareholder update.

An investor strategy meeting in May heard that the company had “scaled down” its rollout plan for the coming years and would “focus primarily on high-potential locations”, and those already under construction or subject to a binding lease.

Investors were told that the move into the $45 billion home improvement industry was sound and that “Masters will be a long-term profit contributor” to Woolworths.

The manager of the new Rouse Hill store in Sydney’s west, Sean D’Cruz, said the new store design included a large paint department, tool shop and more than 10,000 hardware products, with an extensive bathroom and kitchen display area.

“A drive-through trade area will cater to the needs of local tradies, offering outstanding value, service and quality,” Mr D’Cruz said.

“Trade customers will find familiar brands as well as exclusive products from the world’s best trade suppliers.”

Launched in 2011 as a joint venture between Woolworths and US-based Lowe’s, Masters was a major strategic play to take on the popular Wesfarmers-owned Bunnings chain, but it has failed to achieve the goal of breaking even by 2015.

Woolworths executive Grant O’Brien fell on his sword in June after presiding over sluggish sales across the group, culminating in 1200 job cuts.

The business lost $176 million last year, a blowout of 12.4 per cent on its $156.6 million loss in the 2013 financial year.

Outspoken retail analyst David Errington criticised Woolworths back in 2011 for its decision to move into the highly competitive hardware space, predicting that Masters would be an annual loss maker. The Merrill Lynch analyst warned in a report: “We are concerned with Woolworths’ entry into the hardware market … particularly as it starts [from scratch] against well established and powerful competitors.”

But Masters’ expansion has pushed on at lightning speed, earning its self-proclaimed title of
Australia’s “fastest-growing home improvement offer”.

An outlet in Northmead, in Sydney’s west, had its grand opening on August 15, while stores opened in Coffs Harbour and Albion Park, on the north and south coasts of NSW, in recent weeks.

Western Australia’s Lansdale got a Masters store last month, and outlets were opened in Queensland’s Everton Park and Bundall, plus Sydney’s Marsden Park, in May and June.

New outlets also opened this year at Adelaide Airport, Lismore on the NSW north coast, Mandurah, Western Australia, and Sydney’s Rouse Hill.

Independent retail analyst Peter Ryan recently told news.com.au that Woolworths was robust enough to sustain big losses from Masters, but faced a big challenge in convincing the market its long-term strategy was sound.

Source : News.com.au
www.news.com.au/finance/business/woolies-under-siege-in-hardware-wars-with-masters-losing-whopping-700-million/story-fnkgdftz-1227493455474