A simple sentence sums up the illness at the heart of a disastrous hardware venture for the board and shareholders of Woolworths over seven long years.
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“Some of the last things we sold had been there since the store opened.”
The collapse of the Masters Home Improvement chain late last year was largely attributed to a David and Goliath struggle between the new hardware upstart and rival market behemoth Bunnings.
It was akin to marching on Moscow, said business analysts. There was no differentiation between the two brands, they were selling the wrong products or too many of them. The newcomer was fated to fail.
But a former marketing manager with Masters says the problem with the chain was as much the model of sales and ordering within the stores as it was competition without.
Combined with a top-heavy management model crushing individuality and choice at street level, the stores were trapped in a glacial financial model.
Some of the last things we sold had been there since the store opened.
- Cole Harris
Cole Harris was the merchandising manager at Masters in Ballarat throughout its existence. He says the business model itself was fatally flawed from the beginning.
Inflexible stock purchasing quotas and rules gave the individual stores no ability to cater to local demands or to discount stock that needed to be moved, said Mr Harris.
In fact, the way Woolworths disposed of the chain and redeployed the staff throughout their other stores was better handled than the original business, he says.
The plan
Masters was part of a strategy conceived by Woolworths and US hardware giant Lowes to compete with the Wesfarmers-owned Bunnings, which dominates the Australian retail hardware market.
Conceived in 2009, the first Masters opened in Braybrook, Victoria in 2011.
An ambitious and aggressive expansion policy was planned to deliver 30 stores across Australia each year for five years – a total of 150 new stores.
It reached fewer half that number.
At its height Masters employed 120 people in Ballarat. The number fell to around 100 before Woolworths announced the closure of their stores. It was a significant employer in the city.
Harris says the sales team in Ballarat was strong and committed to the success of the store. Masters Ballarat was consistently in the top three performing stores in Victoria ands in the top five nationally.
So what went wrong?
To Cole Harris’s eye, the inflexibility of the stock system and the imposition of an American-style layout and stocking had hamstrung the business from the outset.
“The stores were laid out similar to Lowes stores in America; they were kind of a clone,” he says.
“We had a complete lack of control in buying stock. The buyers of the stock had no idea what was needed on the floor; stock wasn’t field-tested. It was landing in the stores and we were forced to sell it.
We were telling them ‘we don’t want that sort of stock,’ and they would say, ‘well that’s unfortunate, you’re getting it.’
- Cole Harris
“If it didn't sell, then rather than discounting the stock to get it out the door, it was put into the overheads and would just sit there.
“We had no discretion to mark stock down. Some of the stuff that was sold when we closed – some of the last things we sold – had been there since the store opened. It was 2½ ,3-year-old stock,” Mr Harris said.
He says the buyers, appointed by the board of Woolworths, refused to mark down stock when they made a mistake because they didn’t want to affect the bottom line of the business.
Trade buyers stayed loyal to Bunnings, who had managed to retain a large number of their preferred brands exclusively.
In the face of rapidly declining sales new buyers were appointed, but they still refused to listen to the stores.
“We didn’t really discount discontinued stock. It wasn’t until the end that we started discounting stock. The buyers were still trying to protect their bottom line; whereas I, because I had come from a supermarket background, knew you had to discount to move stock.”
Mr Harris says these fundamental errors – the way stock was ordered, the lead times on the stock, and the kind of stock – crippled the business.
It wasn’t helped by a Woolworths’ board willing to tip shareholders’ money into the venture. By the end of 2015, $3 billion of capital investment had gone into Masters. It had lost more than $600 million.
The bitter end
Gordon Cairns, the notoriously hard-edged former CEO of Lion Nathan and chair of David Jones who embraced Buddhism as an attempt to curb the more abrasive sides of his personality, saw that the truth of the path that leads to the end of suffering, at least for Masters, was to cut off its cash flow.
As the new chair of Woolworths, he instigated a series of negotiations that saw the Masters stock inventory sold off and real estate either liquidated or assumed by Woolworths.
US venture partner Lowes attempted to thwart Woolworth’s sale process of the assets arguing they had been unfairly dealt with. This was rejected by the Federal Court.
In the end Woolworths’ sale of the businesses was more slightly profitable than expected.
Masters stock liquidation was handled by the Great American Group.
Cole Harris says it was obviously a stressful time for all the staff, both for themselves and watching their hard work being dismantled both literally and financially.
“They told us in January (2016) that Woolworths were looking to sell the business. Management at Masters didn’t really know what was going on.
Up until the day of the announcement of the closures we were still hopeful that they had sold the business, but the only offers they received were to buy the sites.
- Cole Harris
“Woolworths were really good insofar as telling all the staff. The store manager sat down with each staff member individually and we also addressed it as a team. Whatever information we got we passed onto the staff as quickly as possible to allay their fears.
Woolworths put an option to the employees: if they wanted to redeploy into another branch of the company, they could; if they were full-time they would remain full-time, if they were 30 hours part-time they would keep that.
Mr Harris says 40 to 50 per cent of staff chose to redeploy. He says the cost of wages decreased as the sales decreased towards the closure of Masters. Management reduced the numbers of hours of staff to control costs.
Masters Home Improvement closed on December 11, 2016. Its Ballarat site remains empty.
Woolworths was approached for comment on this story. They directed The Courier to their online media statement regarding the closure.
