It seems that no matter what the scale, launching a new business is fraught. Woolworths Limited has just taken a very expensive bath with the announcement that everyone was expecting: the dumping of its shabby and and wobbly Masters Home Improvements chain.

So, what went wrong? Here are five key lessons that demonstrate the mistakes made by Woolworths since deciding to compete with Bunnings, the Wesfarmers behemoth, in 2008.

 

 

1. Timing

Woolworths and Coles/Wesfarmers compete as a duopoly across a large share of non-fashion and non-electrical retail spending. Eleven years ago, as home renovation shows on television rated through the roof and the property boom kicked in full-swing, the DIY market exploded. Woolworths took another four years to open their first Masters store, and many analysts consider that, by that time, the race had already been won.

 

 

2. Branding
Masters was always problematic. Very few people who are participating in the $46 billion dollar per annum market would consider themselves ‘masters’ of any weekend DIY activity they might be undertaking. Those who are experts – trade buyers – had already hitched their wagon to Bunnings through an existing accounts structure and established brand loyalty.

 

 

3. Size
Given that Masters bled over $250 million last year, we’re going to take it as a given that you’ve never been to one of their stores. However, it’s likely that you’ve been to Bunnings and were impressed by its scale and scope. Guess what? Masters was significantly bigger, with the average store of 13,500 square metres - 65% larger than Bunnings! Just how Woolworths expected to generate revenue to cover the running costs of that much floorspace is a key question of their business strategy.

 

 

4. Location
With twenty years in the market, Bunnings had a fantastic head-start in securing the key sites within suburbs not too far-flung from its customers. For Masters, all that was left were greenfields sites on the edge of the population which meant hardware shoppers might have to drive past at least one Bunning to find a Masters.

 

Outgoing Woolworths CEO, Gavin O'Brien.

 

5. Flexibility
The Masters model offered very little ability to try new ideas in smaller markets. As Australia trends towards urban infill, and the apartments built in the 70s and 80s are refitted for new dwellers, there was opportunity to follow the Coles Express model by building small, boutique stores with key items that mitigated the need for a trip to a warehouse in the suburbs. As mentioned by hardware-industry analyst, Geoff Dart, this allows for more interesting ideas to be quickly tested and expanded or discarded.

 

Bunnings' commercials present a friendly and non-threatening face.

___________________________________________

These five aspects – Timing, Branding, Size, Location and Flexibility - are essentially Business 101. Without carefully considering these aspects, you’re at risk at making a big mistake with your business. As Woolworths and Masters Home Improvements have amply demonstrated, even the biggest players in the country can get it very, very wrong.

(ABC Radio National Breakfast)