The three (3) lessons to be learnt from the fall of Masters Home Improvement
Reporting a loss of well over $3 billion, the Masters billion dollar disaster whilst unfortunate, have actually in fact, taught some valuable lessons relevant to entrepreneurs, businesses owners, and the employees and employers amongst all of us.
Founded in 2011 by the big cats in Woolworths Limited (2/3) and Lowe's (1/3), Masters Home Improvement was created as a way for Woolworths to dive into the hardware retail space, which have predominately been dominated by fellow rivals Bunnings Warehouse (owned by Wesfarmers).
Given the fact the two companies already compete with each other amongst everything else, like groceries (Coles vs Woolworths), department stores (Big W vs Kmart), fuel, liquor, Woolworths thought, why the hell not?
So what went wrong, and what made Masters fail?
Majority of articles I have read argue that Woolworths were a little too late to jumping the bandwagon when it came to selling hardware, and that the dominance of an existing player acted as a large entry barrier for Masters. Bunnings was well established, and they had gained an enormous advantage over Masters, well and truly before they even began.
However, whilst timing does play a part in all of this, over the last decade there have been countless numbers of other businesses and retailers, who have "jumped" onto a bandwagon "late", yet have blossomed and flourished against their rivals. The prime example? Sony MP3's vs the Apple iPod.
Masters failed because of these three (3) key reasons:
1. Too much, too fast
Having opened its first store in the Western suburbs of Melbourne, in 2011, Masters opened 60 outlets and placed its pin down on a further 21 sites for development within less than five years for operations. This aggressive and high risk approach left Masters management with no chance to test out the market or its product, leaving them absolutely head-locked into a model that did not work.
"You can do a lot of market research, but there is nothing better than real experience on the ground." Mr John Dahlsen, the former Woolworths chairman said in relation to the fall of Masters.
Masters stores were also enormous. Whilst the average Bunnings outlet covers 8000sqm, the average Masters store sprawls over 13,5000 sqm. Big land = a lot of money, and when you're starting out fresh in the industry, and you are yet to have people come through the door, this cost structure, along with Masters' aggressive expansion would have proved too high for the amount of sales they would have generated out of each store.
By rolling a concept out that had not been tested, Masters were forcing themselves to walk on thin strings against the best operator in the field, Bunnings. They were inevitably placing themselves on a massive loss before they opened their first stores.
2. Product confusion
To bring along even more confusion into the equation, Masters aspired to be a jack of all trades. They were never sure about what they wanted to stock or sell, and so wanted their hands in all kinds of pots by broadening their stocked goods.
The chain were selling items such as washing machines, fans, heaters, and fridges - items which Australian shoppers would not usually be used to buying in a "hardware" store.
Their lack of direction also did not help them attract and keep some of the best known and respected brands in the hardware market, such as Dulux, who withdrew their paint products from all Masters stores in 2013.
3. Wrong target audience
The Woolworths owned chain's point of difference was that as opposed to being conveyed as a "Hardware" store, they strived to become Australia's go-to when it came to "home DIY's" and "home improvement" and targeted the young, modern DIY couples, and more importantly, women as their primary consumers. As opposed to targeting tradies, like their rivals do at Bunnings, their primary target were your new-age couples who wanted to do all the hard yards themselves and live "The Block" life for themselves.
This is why if you have ever stepped your foot into a Masters store, you will notice its pristine bright white floorings, and clean and organised interior design. This was done intentionally to attract the Masters' target market: the young and the modern men and women. But this was a major image problem. Whilst we don't like being sexist around here, we got to be a little bit realistic. Although within the recent decade, women have developed an appetite for DIY projects and home improvement, when looking at the real figures and stats (from DGC Advisory) as to who were actually at the stores, most of their customers were men.
In placing their focus on taking Bunnings head on, Masters failed to place focus on doing some research on what the consumers really wanted. As a result, they had the wrong demographic model.
Compared to Bunnings, where the interior of the stores were made to "feel" and "look" like a warehouse, the environment which Masters have created for their stores were one which tradies (who would be their biggest consumers), would not have purchased their goods from.
Masters Home Improvement will close nation-wide by December 2016.