YOU should empty your shed, because it is time to fill your shed. Masters Hardware is closing all its stores by December 11, and the next few months are going to be an absolute hardware bonanza.
Everything on Masters’ shelves will be cleared by the time they close the stores, so Masters will be cutting prices hard and heavy. Bunnings will probably have to match them. You can expect serious discounts, if the nervous tone coming from Bunnings is anything to go by.
Bunnings CEO John Gillam spoke to the big investment banks last week and told them the Masters avalanche hadn’t started yet, but he was pretty sure it was about to.
“What we are dealing with is probably an unprecedented quantity of stock that is likely to be liquidated,” he said. “That is going to create short-term trading market challenges. And we will just have to navigate our way through that the best we can.”
Masters is serious about selling off every last item in its big blue stores — and has engaged a US company called Great American Group to help handle the sell-off.
Great American Group describes itself as “the leading provider of successful store closing programs.” It has an Australian branch that will sell off Masters’ unwanted items and its boss has said customers can expect “significant” savings.
“Every item in every department will be discounted until all the merchandise is sold,” he said.
WHY MASTERS BOMBED
The Masters experiment was a giant disaster for its owner, Woolworths (the company that also owns the supermarket chain). They burned through billions of dollars and got nothing back but a bad reputation.
From the start Masters tried to do its own thing rather than simply beat Bunnings at their own game. They tried to be a hardware store for women, but Australians didn’t want that. They tried to sell white goods, but Australia didn’t really want that at a hardware store either. And Masters was never quite as cheap as Bunnings.
Imitation is the sincerest form of flattery, but Masters was too proud to flatter Bunnings like that. Their pride came before a fall.
HAIL KING BUNNINGS
The demise of Masters is not good news for the Australian hardware market long term. If Bunnings rises into the ascendancy, it will have unrivalled market power.
Bunnings already has high margins (over 10 per cent compared to under 5 per cent at Coles). It operates a range of tricky strategies designed to protect those margins. Like their Lowest Price Guarantee. They offer to beat any advertised price, but that simply discourages other hardware stores from discounting, because they know Bunnings will beat them anyway.
It’s a clever way of making sure there is never debilitating price competition.
Bunnings does more to make you believe it is screwing down prices as low as they can go. They use very simple advertisements for example. The brochures are often hand-drawn, and the TV spots use their own staff.
That is all designed to makes you feel like it is running on the smell of an oily rag, rather than a giant enterprise that makes well over $1 billion in profit every year (while paying its CEO a $1.5 million salary plus other little bits and bobs that round it up to $4.8 million.) And it is working, with more Aussies shopping there than ever. Sales keep going up — revenue went up a whopping 21 per cent last year.
Bunnings is reportedly buying up at least 15 Masters sites and after December 11, it will have more power to set prices as it wants. Things could get expensive.
A CHALLENGE TO THE KING?
The end of Masters and the ascendancy of Bunnings comes at an interesting time. Masters owner Woolworths owns Home Timber and Hardware too. When it opted to close Masters it also decided to sell off Home, to the company that owns Mitre 10.
The combined firepower of Mitre 10 and Home might be the only thing that saves Aussies from a Bunnings with total domination of the hardware market.
But merging those two stores into a force potent enough to take on Bunnings could take time.
You’d be wise to stock up on hardware in the cheap months that are about to come.