A new face for big box retailing
Madness or sheer genius?
None of us can know how the move by Woolworths and US hardware chain Lowes to enter the big-box hardware market in Australia under the banner of their new brand ‘Masters’ will turn out. What does seem evident, however, is that this kind of shake-up is long overdue, and whether the investors in Masters directly benefit or not, the hardware industry as a whole is going to benefit in the long term.
This isn’t just about ‘big retail’. The clash between Bunnings, Masters and the other major players will set the ground rules for all the other market participants – smaller retailers, manufacturers and distributors – through the next decade and beyond.
What does happen will come down to how actual customers decide to react and behave. For that alone – connecting the big box hardware store segment to more direct influence from the market itself – Masters deserves credit. The entire consumer hardware market could shrink drastically through the coming post-crash decade, as declining house prices cause customers to spend more on activities other than home improvement and renovation. Market development in these circumstances is vital, and one competitor is worth any number of marketing studies when it comes to aligning what is sold to market demand. The cash that goes through the till simply doesn’t lie.
Second mover advantage
Masters has both advantages and disadvantages from being the ‘second mover’ in the market. The primary advantage is that it is entering a market already ‘educated’ in the type of retail experience it offers, so that it can skip the expensive consumer education phase Bunnings went through. Masters also has the advantage of being able to study how Bunnings has perfected its market approach over the years, and so avoid some costly beginner’s mistakes.
The primary disadvantage the new venture faces is that Bunnings has built a loyal customer base, nurtured a great staff, and acquired some prime real estate that was available for its stores. These advantages are so great, in fact, that Masters is not really trying to compete directly with Bunnings in any of these areas. Instead, Masters has tweaked the big-box model so that, while it checks many of the same retail boxes Bunnings does, its overall focus is quite different.
And, of course, then there is the involvement of Lowe’s, the US-based hardware retail company that itself entered the market after Home Depot was established. Aside from Lowe’s strategic knowledge, there are also many practical advantages in the partnership, according to Smith. ‘We’ve been able to leverage [Lowe’s] 1700 store network, which gives us great buying power. They have also given us great insight into the factories we can go to for sourcing,’ she says.
Better trade from tradies…
The first big surprise about the Masters model is the retailer’s focus on tradespeople. However Smith insists the Masters brand wasn’t chosen specifically to target the trade. ‘In terms of the strategy, we thought it was strong and had associations with apprentices and the building industry,’ she explains. ‘It’s a happy coincidence. We think it appeals to all markets.’
At the same time, tradespeople were targeted by market research activities from the brand’s inception. ‘Clearly trades will be a big part of our business and we held a lot of focus groups with tradespeople to get feedback on what they like and don’t like. We have integrated many of these findings into our plans.’
The result is not just the odd ‘professional’ tool scattered amongst the $29.99 specials. The entire store layout, the product offerings and the services provided have been modified for the trade market. Smith notes the drive-through area at the store, specifically designed to make it easy for a ute and trailer combination to navigate, the dedicated trade office, toilets and parking as being key features of this strategy.
One key ingredient in this mix is the Masters Trade Charge Card. ‘It doesn’t have a minimum spend so if you’re a tradesperson, it’s January so you’re on holidays and your purchases don’t exceed $5,000, then we are not going to cut you off. You are an important customer to us so things like that are really important.’
Smith states that research into the needs of tradespeople was also indirectly behind what is one of the true Masters masterstrokes: the inclusion of a McDonalds outlet in some locations. ‘Research from tradies told us that they wanted to get a decent coffee and the same thing came up from DIYers – there is obviously a real coffee culture in Melbourne. And they often come in with their kids so they were very receptive being able to have something the kids would enjoy without it costing a fortune. And that’s the trick, you don’t want to have some fancy café that’s charging $8 for a sandwich where none of us can afford to eat.’
While this is all very good, Smith has a clear understanding of what in the end really counts for tradespeople. ‘Number one on the tradies’ list of priorities was good pricing,’ she states.
‘And McDonalds have been terrific partners with us. They understand the format because they have done this throughout the US so they know how to make little footprints work hard. They completely appreciate the fact we can’t allow them to have a drive through, we need to open during all the store hours and it’s been working extremely well.’
…but not just tradies
Alongside the products and services targeted at tradespeople, Masters dedicates a good deal of retail space to the most earnest of retail customers, those who are embarking on a set improvement project rather than routine home maintenance. Masters is more defined by ‘solution selling’ rather than simply ‘product selling’, and they provide pre-packaged project sets which make it easy for a customer to walk in and buy exactly what they need. However, this kind of marketing comes at a cost, as it means closely tracking the changing tastes of consumers, something Smith says Masters is doing.
‘We did what we call a ‘Category Incident Study’ where we surveyed Australians and we asked: ‘What projects have you undertaken in the last 12 months? Have you installed a deck and you put up a ceiling fan? And of those projects that you have undertaken, how much did you do yourself? Did you take on the whole project? Or did you take on parts?’’ Other measures to track customer needs are in place as well, Smith indicates. ‘Around the store we have seven service desks, so each department head runs their area like a small business. How hardware in general runs their business with an electrical area etc. And into those businesses, department managers have a ‘Want’ book so anything a customer asks for that we don’t have, they record in the ‘Want’ book. The books get circulated back to the buying team to make sure we include them in the store.
The merchandising edge
This is also an area where experience and knowledge garnered from Lowe’s plays a part, as Smith explains it. ‘The Lowe’s link has given us wonderful insight into what we call ‘operationally efficient merchandising’. This means making sure that when consumers buy your product, not only is it the right product but it also is merchandised in a way that the stores can maintain it. Because if you make it too hard for your stores to merchandise, you lose your disciplines and then you don’t end up with a place for everything and everything in its place.’
Not that Woolworths doesn’t have a vast fund of expertise to call on as well. Famous for stealing a march on Coles in the supermarket area by perfecting its logistics, Woolworths plans to extend those capabilities to Masters as well. ‘One thing Woolworths is really good at is running fulfillment,” Smith explains. ‘When you are running a big supermarket, being in stock is so crucial. So we apply the same technology to the ordering system we have in the Masters store. It basically triggers an order where your stock quantity gets below a certain ‘project quantity’. For example, it has been interesting to learn that it is no good having just one lamp available, because bedroom lamps are always bought in sets of two. So we have worked out and we are constantly refining what our minimum levels are, as products in each category are different.’
This intense focus on merchandising ties in neatly with Masters policy as regards the goods it sells. There is a greater emphasis on brands, and even off-brand products are sold on the basis of value for money, rather than pure price advantage, Smith says. ‘Our research told us that if you are bringing in private labels, don’t give Australians junk because they want to buy something they can use and use. They buy tools that will last.’
In addition, Masters is committed to ‘allowing the customer to buy what they like, what they want, when they want it and the way that they want it’, as Smith puts it. Smith says Masters is also working to offer consumers online, electronic ordering options in addition to in-store purchases. ‘We get the customer who may shop in different ways. We have a very clever team who work in the digital space. They are looking at how to make it easier for customers to place an electronic order. Woolworths has an app that can find products and we are busy learning from that.’
It’s clear from what Smith tells us that Masters is very keen to strike the perfect balance between catering to the needs of tradespeople and attracting retail customers. For example, when it comes to home decorating she suggests that the DIY and trade market can play nicely together. ‘We believe that no matter how tough the economy gets, the more people will do home improvement themselves – though they’ll still be bringing in tradies to help, of course. Instead of moving house…people might remodel.
‘I think you will find more people eating and entertaining at home, so purchases like this become more important, and they may not be spending on overseas holidays. These are the things we think will make the picture very rosy and we believe the best opportunity we’ve got is to help people do these projects.’
In other areas, it’s evident that there is some tension between the trade and retail areas. ‘What was really interesting from that research and something a bit frightening and something we don’t support is how many DIY people take on electrical work. That absolutely threw us. And we are making sure that in any media or advertising that we do that we make really clear what a tradesperson has to come in and do and what a DIYer can’t do.
‘If it’s your electrical aisle, what we’ve found is that tradespeople want to have everything they need to re-wire a house. They want to have the full gamut of products available. So in that aisle they are the main customer. But in a category like light bulbs which appeals to everyone, everyone is quite happy to help on energy savers and what’s the best way to approach it. Each category has its own customer segments, and their own needs and wants, and our job is making sure the store merchandising provides the right balance.’
Smart home category
One of the questions we’ve taken to asking hardware retailers is whether they have caught up with the trend to DIY ‘smart home’ renovations that is gradually gaining market share. Instead of changing a wall colour, or adding a bookshelf, more and more homeowners are opting to add some form of in-home digital networking so that they can watch movies in multiple rooms, or have their music follow them around the house. The key question we ask is whether they have any plans to stock CAT-5 cable, that (usually blue) cable that is the stock network connection.
Smith responds by saying, ‘We’ve got things like security cameras It’s important for us not to go down the path of an electrical store like Dick Smith. We don’t want to have to sell those sorts of categories. But what we need to do is make sure that anything you need to do like re-wiring to put out a radio system out to your pergola, we have to make sure we have all of those products. It is really important and I think it will become more of a growth category.’
A 25-year veteran of Woolworths with an MBA, Smith is well positioned in her senior role at Masters to help drive a retail group that is also openly courting a female demographic. With a multi-faceted roles in her life as a wife and mother, Smith makes a strong role model, something she takes quite seriously. We hope there will be more like her rising through ranks of other hardware companies.