Management: Foundations & Applications, 1st edition
Strategic management
Woolworths and the hardware sector
Summary
The retail market for hardware in Australia was fundamentally altered by the introduction of
Bunnings in 1994. The entry of this company, with its ambition to provide customers with
the widest range of home improvement products at the lowest price, signalled the demise of
the local, privately-owned hardware store. Bunnings, now owned by the Wesfarmers Group,
has been a phenomenal success. In 2007-08, sales reached over $5.3 billion. Bunnings
employs over 26 000 employees, working in over 230 warehouses and stores.
At the same time, Woolworth’s senior management has been searching for a possible avenue
of growth in the retail sector in Australia. For some time, there has been discussion about the
possibility of Woolworth’s entering the retail hardware market. In August, 2009,
Woolworths announced its intention to enter the retail hardware market in Australia.
Woolworths will enter into a joint venture with the American hardware powerhouse, Lowes,
to compete against rival stores in the $20 billion retail hardware market. The joint venture
company will also look to acquire existing hardware retail chains, such as Danks.
Transcript
Ticky Fullerton, Presenter: Woolworths is making a long-awaited assault on Australia's $24
billion hardware market.
In a two-pronged attack, Woolies is teaming up with American hardware giant Lowes, to go
head-to-head with Bunnings in the 'big box' sector. Woolies and Lowes are also aiming at the
smaller end of the market, with a joint takeover bid for listed retailer, Danks.
Andrew Robertson reports.
Andrew Robertson, Reporter: With its dominant position in the Australian retail scene,
Woolworths has been struggling to find ways to expand. Hardware has been speculated for
some time, with big questions being "when?" and "how?”
Peter Ryan, Retail Analyst: When you think about the fact that Bunnings, as the dominant
player in the sector, still has less than 20 per cent market shares, it says to you already that
there's a lot of segmentation opportunity out there.
Andrew Robertson: Woolworths is trying to take advantage of that opportunity by attacking
the hardware market at both ends. It's formed a joint venture with America's second-biggest
hardware chain Lowes, in which Woolies have a two-third stake. Together, they are planning
to open 150 'big box' hardware stores in competition with Bunnings. They've also made an
$88 million takeover bid for listed hardware group Danks, which supplies the independentlyowned Home Hardware, Thrifty Link and Plants Plus.
Graeme Danks, Managing Director of Danks Holdings: With Danks and certainly with
Management: Foundations & Applications, 1st edition
Woolworths, being the largest retailer in the country, there's a lot of synergy there, with the
distribution, logistics, supply chain organisation that the Danks group has. There's a lot of
synergy there as well.
Andrew Robertson: It’s Lowes first move out of the North American continent and Don
Stallings says Australia is the ideal location for a company like his.
Graeme Danks: Australians are proud, proud of their homes, they take care of it. They put
money into maintaining them, and that's great for the home improvement industry in general.
Andrew Robertson: If the Woolworths/Lowes takeover of Danks is successful, they'll have an
immediate presence in the hardware market through the 1,500 stores supplied by Danks.
Danks today unveiled a record full-year profit of $7 million and says coming under the
Woolworths and Lowes banner will give it a competitive advantage in an industry where
small operators have 60 per cent of the market.
Don Stallings, President of Lowes Canada: Increased resources, expertise, sourcing from
local and overseas suppliers, and we're going to grow and develop our supply chain.
Andrew Robertson: Lowes will help Woolworths try to differentiate hardware offering from
Bunnings. While neither company will say how it will look, Peter Ryan believes it shouldn't
be too hard.
Peter Ryan: Simple things like moving further up the value-chain in terms of what delivered
to the householder. 'Done for you', as well as do-it-yourself options for the shopper. Moving
into soft goods and home furnishings as an additional part of the offer, is a way. A bettertrade offer, expanding the ranges...
Andrew Robertson: The stock market liked what it heard from Woolworths today, on a day
when the market as a whole was down, Woolworths were shares up more than 2 per cent.
Danks increased 71 per cent to close 50 cents above offer price of $13.50 a share, suggesting
joint venture partners may have to up their bid. While Wesfarmers down 6 per cent, much
more than the $0.60 dividend which came out of the stock today.
The reason is that Bunnings provide 22 per cent of Wesfarmers pre-tax earnings and today's
announcements from Woolworths has come as the Perth-based conglomerate is still grappling
with the turnaround of Coles.
Peter Ryan: It's going to make Wesfarmers rethink their allocation of capital across the group.
It's going to get them to rethink how they protect Bunnings against this onslaught from
Woolworths.
Andrew Robertson: Which inevitably is going to hurt the bottom line. But despite that,
Bunnings has responded to today's events by saying it relishes the opportunity to compete
with any new entrant in the hardware market.