Australia / Analyst Insights
Competition Between Masters And Bunnings

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by Media Team
Nov 24 2015

Woolworths launched Masters Home Improvement in 2011, through a joint venture with American hardware chain Lowe’s, as a big-box hardware chain to compete with Bunnings. However, while Bunnings’ market share has contracted marginally, smaller retailers have been the ones to suffer. Enterprise numbers have declined in the hardware and building supplies retailing industry as increased competition has squeezed independent operators out of the market.

From Masters’ launch in September 2011 through to June 2015, the Woolworths-owned hardware chain grew to 58 stores. The entry of Masters led Bunnings to ramp up their store openings, with an additional 29 stores added in 2014-15 alone. Bunnings is also increasing the size of some of its current stores to expand its product range. On top of this aggressive expansion, the two big-box hardware operators have engaged in fierce price-based competition through wholesale bypass. Both Masters and Bunnings have been dealing directly with manufacturers to negotiate lower prices and attempt to undercut each other. Many small independent operators have been unable to compete on price as they do not have the same bargaining power, leading to many industry exits. Wholesale bypass has also constrained revenue in the hardware wholesaling industry, which both Masters and Bunnings participate in.

Masters has gained market share in the hardware and building supplies retailing industry since 2011, increasing from 2.0% to 8.8%. Bunnings’ share dropped by less than 2% during the same period, accounting for 38.4% in 2015-16. This marginal drop indicates that the majority of Masters’ growth has come at the expense of smaller retailers rather than Bunnings. Between 2010-11 and 2015-16, the industry is expected to have lost around 320 enterprises – mostly independent stores that could not compete with the fierce competition stirred up by the two largest players.

While Bunnings’ hardware and building supplies segment has maintained profit in excess of 10% in the past five years, Masters has struggled with profitability. This has led to discussions about whether the chain will exit the industry over the next year, although nothing has been decided yet. Woolworths is refurbishing some of Masters’ original stores to boost sales, but sales would have to rise significantly to curb losses. Masters is the only major player in the online hardware retailing industry, but this has not generated enough revenue to counteract the company’s difficulties. If Masters does exit, Bunnings has indicated that it would be interested in purchasing about 15 of Masters’ currently owned sites. This would result in Bunnings’ market share bouncing back, potentially higher than before Masters entered the industry. However, the independent operators that exited due to increased competition will not return. Whether or not Masters is liquidated, it has permanently changed the structure of the hardware and building supplies industry.

Relevant industries:

G4231 Hardware and Building Supplies Retailing

F3339 Hardware Wholesaling in Australia