Can Woolworths master the tools of Bunnings’ trade?

Woolworths’ Masters chain is set to challenge Bunnings’ market dominance. Flickr/beeep

Woolworths has unveiled details of its plan to launch an assault on the $42 billion Australian hardware and home improvement market with its Masters store brand, raising the prospect of a new chapter in the battle between Australian’s two big retailers.

Woolworths has partnered with number-two US Hardware retailer Lowes in its ambitious strategy to bring a new face – and a new force – to the home-improvement sector.

The first Masters store is due to open in the Melbourne suburb Braybrook in October or September.

Debate has centred on the need for greater competition in the hardware market, with Bunnings Warehouse clearly dominating. The Wesfarmers-owned chain has no significant competitor – a unique position in Australia’s retail sector.

In the US, Lowes is a very credible competitor to Home Depot, with a softer, more home-centred position – although it’s fair to say that Home Depot’s leadership issues, poor sales and recent store closures have worked to Lowes’ advantage.

In Australia, however, things are different. Bunnings is strong financially, well-liked, well-positioned, offer a huge range of brands, products and services and have a no-nonsense pricing and marketing approach, which seems to strike a chord with the target consumer.

In addition, they are well regarded as an employer of choice with an open and positive working culture. The key question is therefore is how will Masters attract both customers (and employees) to jump ship and switch brands, at least in the core product categories?

Lowes chief executive Don Sterling has alluded to using Lowes buying power to bring in lower cost product from overseas. But will that translate to significantly lower prices at the till or just higher margins?

Will Masters try to “out-Bunnings Bunnings” on price and range?

Will a softer home design as opposed to hardware focus and a stronger promotional agenda be enough to appeal to the softer side of the market in the same way that Mitre 10 Mega sought to differentiate?

Will more attractive store environments and better service levels (more expensive) seal the deal?

Despite the advantages of the Lowes joint venture in terms of sector expertise and the competitive experience of trading against Home Depot in the US, it is important to acknowledge that this venture is stepping into the ring with a formidable adversary, and one who seemingly has the crowd on its side.

Just because there is no “significant other” sector competitor doesn’t necessarily mean it’s open season for the DIY shopper for the Woolworths-Lowes partnership.

The key will not just be getting customers to visit new format stores out of curiosity, but to develop loyalty in tangible ways by serving customer, product and service needs not currently adequately addressed in the marketplace to drive repeat business.

Interestingly, this move will undoubtedly raise questions within Bunnings about how to respond and evolve to arguably their greatest business challenge of the decade, either through proactively managing loyalty or capitalising on the currently underserved multi-channel or online DIY shopper.

This is something that Lowes does have considerable experience with in the US.

I wish Woolworths well in their venture as formidable world-class retailers, but like many people I do have a soft spot for Bunnings that will take some shifting.