Posts Tagged ‘bunnings’

Competition isn’t always black (and decker) and white (goods)

May 6, 2010

As more rumours spread about what exactly Woolworths’ new hardware business will look like, we can see that perhaps it isn’t just Bunnings (and therefore Coles’ parent Wesfarmers) who should be worried about a shift in their competitive environment.

According to this story, the new entrant (which might be called Masters) –  a joint venture between Woolies and US giant Lowes – may not just be selling the usual hardware merchandise.  Also on the cards are whitegoods (i.e. fridges, washing machines, dishwashers etc).  That would certainly be a challenge to some of the big players in that retail segment, such as Harvey Norman and The Good Guys.

This isn’t just a random diversification choice either, as Lowes has extensive experience with this market, and presumably can suitably integrate the offerings into the retail mix.  It will be intriguing to see whether this upsets the likely co-located store mix for the firm, as some homemaker-type centres may find this new challenger upsets their tenant mix.

Another interesting titbit in the story is the possibility that WooliesWareHouse (I’ve decided to grant them that brandname) will go down an explicit ‘Do It For You’ path, which would be a neat differentiation position in the hardware space.

This case in progress serves to demonstrate the blurry lines between markets and the scope for competitors to slip across from adjacent markets (among many other strategic lessons).

Danks a lot Woolworths

August 25, 2009

The executives at Wesfarmers, the parent company of Australia’s largest hardware retailer Bunnings, have a new headache as of today.

ladderA favourite of this blog – Woolworths – has announced its long awaited move into the hardware market. It is all a little complicated, and demonstrates various options in a firm’s strategic arsenal. The strategic choice here was an acquisition, via international joint venture, of a significant local player.

The acquisition is of Danks, the nation’s second biggest hardware distributor. Now that last term is important. The firm doesn’t own hardware stores, it just provides all the back office support, including branding and advertising. This has lead to a network of over 1000 independently-owned “buyers” of their services, including several hundred who have adopted common branding such as Home Timber & Hardware, Thrifty-Link Hardware and Plants Plus Garden Centres.

So what will Woolworths do with them? They’ll tap into all of the supply relationships Danks has in place (with producers of ladders, paint, nails etc), and presumably all of the sales data and broader knowledge of Danks staff.

The current claim is that they’ll retain the existing brands and continue to support Danks’ “customers” (i.e. the existing stores). At the same time, they are aiming to launch new (company-owned?) stores to go head to head with Bunnings (and their own “buyers”).

That’s where the joint venture comes into the mix. Woollies are taken 2/3 ownership of Danks, with the rest going to the world’s 15th largest retailer, US hardware chain Lowe’s. This is a pretty conventional model for expansion in Australia. The old Coles and Myer grounds (some of which are now owned by Wesfarmers) undertook similar hook ups to launch K-Mart, Target (amongst other) marques in the 1970s.

WheelBarrowIt remains to be seen with Lowe’s brand will be adopted (as it has been in Canada). What is most significant is Lowe’s experience in competition with the firm of which Bunnings is an unashamed copy – Home Depot. These capabilities will be crucial in transitioning Woolworths into this new space. Alongside that will no doubt come access to Lowe’s extensive range of private branded products, and huge buying power (Lowe’s annual revenues are around 6 times larger than Bunnings – that adds up to some serious bargaining power with suppliers).

So, what’s the upshot?

  1. Australia adds a very large foreign retailer to the mix (although one with little international experience). Costco and Aldi are the only larger retailers operating down under.
  2. Bunnings will finally have a competitor with (potentially) similar buying power, resources and capabilities. The major hurdle to high rivalry may be access to real estate, but big-box hardware stores are more “destination” than most retailing (i.e. folks will bear a journey), and also Woolworths carries some serious clout.
  3. Consumers will get lower prices and more choice.
  4. Smaller scale hardware chains will face even more competition and more pressure to adapt or die…

So where the bloody hell are the global retailers?

January 28, 2009

In 2006, Australia ran an ill-fated tourism campaign with the tag line “So where the bloody hell are you?”

The latest list of the 250 largest retailers in the world has just come out from Deloitte, and we could be asking the same question of international retailers with respect to the Australian market.

Back in a 2007 chapter (for a book called The Internationalisation Strategies of Small-Country Firms: The Australian Experience of Globalisation), I highlighted the limited presence of retail’s big international players in the Aussie market. The list back then was 13 foreign-owned firms from the Deloitte’s 2006 Top 250, plus 3 Australian firms who were big enough to make the list.

shop pleaseLooking at the 2009 list, there has been a slight decline in this international presence in the intervening three years. There are now only 14 firms from the list operating bricks and mortar stores in Australia. They are (with global ranking, and new arrivals in green):

10. German discount supermarket giant Aldi who operate in 15 countries
22. Aussie behemoth Woolworths (3 countries)
29. Wesfarmers, owner of the Coles, Target, K-Mart and Bunnings brands in Australia (2 countries)
32. Swedish furniture kings Ikea (36 countries)
42. French conglomerate PPR (Gucci, Puma etc) who have a very minor retail presence down under (48 countries)
59. Toys “R” Us from US (36 countries)
68. French luxury goods firm LVMH (15 countries)
113. Gamestop from US, who poerate as EB Games in Australia (16 countries)
129. South African supermarket chain, Pick’n’Pay, who own Franklins (6 countries)
146. Blockbuster video stores from US (22 countries)
150. Sports chain Footlocker from US (20 countries)
174. Italian spectacles seller Luxottica (OPSM, Sunglass Hut) (20 countries)
214. French firm Lagardére (formerly Hachette) who operate Newslink, Relay, Bijioux Terner and various other shops in airports and train stations (30 countries)

eb games storeThe 2009 list also included book retailer Borders who have recently exited Australia. Also gone since 2006 are Gus/Burberry (UK) due to a de-merger and Metcash (South Africa) via an Australian management buyout. (I, like Deloitte, also had erroneously included 7-Eleven which it turns out is run by a licensee in Australia). The Wesfarmers acquisition of Coles shrunk the Aussie-owned presence (as Bunnings will thus leave the list now). The most substantial new kid on the block is EB Games with almost 200 stores in Australia.

So, why the reluctance to head down under? I have argued this about the impact of Australia’s history and location:

As the nation was geographically distant and disconnected, and local suppliers were protected by high tariff walls, domestic retailers quickly built considerable location-bound advantages over any potential inward FDI. Entrepreneurial locals and later powerful incumbents were able to ‘cherry pick’ concepts from overseas and introduce them to Australian consumers confident of their likely success.

Most of the international firms who have broken through have typically had very strong firm-specific advantages (usually in specialist retail formats), and have been pretty aggressive in their internationalisation. It is worth noting that the average firm in the Top 250 operates in 6.8 countries. All but one of the international players in Australia exceeds that average substantially (while the Aussie pair are underperformers).

Is it the case that only experienced internationalisers can make the leap to Australia? Or do they only bother once they’ve exhausted more rewarding locales?

One of the big boys is heading our way – #9 Costco is building in Melbourne right now. Can we really expect too many more from the list on Australian shores in the near future?

The International BS Book Club II – Wal-Mart

November 28, 2008

One of my missions on this Blog is to draw your attention to books that might offer insights into strategic management and international business (see my earlier Travels of a T-shirt discussion). I just stumbled across some notes I’d scribbled down after finishing off Charles Fishman’s The Wal-Mart Effect last year.

This was both an insightful and frustrating read. Wal-Mart are clearly a fascinating case study in terms of their growth over a few decades from a fairly inconsequential retailer in the US mid-west to (perhaps) the world’s largest firm.

Fishman presents a series of examples of businesses and industries that have been substantially affected by the practices of Wal-Mart. He presents a viable and reasonably well-balanced thesis that the influences that Wal-Mart has wrought across the US economy and society are multi-faceted. Several of these influences were quite eye-opening, in terms of the extent to which product prices have been driven downwards, and the willingness of Wal-Mart to share savings with consumers. His discussion of various supplier firms reveals Porter-style bargaining power of a buyer writ very, very large. Not surprisingly some of these firms have been driven to the wall, but others seem to have prospered, and consumers have consistently been rewarded with cheaper products (and often products that are more efficiently designed and packaged). Of course, other retailers have usually suffered in the battle for customers. Fishman provides little recognition that the surviving chains are also beneficiaries of the new efficiencies in their pool of suppliers.

Photo by Neato Coolville

Photo by Neato Coolville

I find the actual structure of the book somewhat tiresome however. There was a strong tendency to repeat and repeat the same points in slightly different ways. It was even more frustrating that the internationalisation of Wal-Mart was given such short shrift. As IB scholars have (often gleefully) observed, Wal-Mart has had some considerable failures in its offshore retail efforts (especially in Germany and Japan), and is yet to substantially translate its business model beyond familiar environs. Of course, on the supply side, Wal-Mart is a very big player, benefiting considerably from the emergence of suppliers in Asia (China particularly).

Turning to the Australian retail scene, one issue warrants consideration: Wal-Mart only captures around 10 percent of the retail dollar in the US market. On my calculations, Woolworths and Wesfarmers (as owner of Coles, Bunnings etc) each account for around 21 percent of the Australian retail market. Shouldn’t there be a lot more fuss made about their collective effect on consumers, suppliers etc down here (beyond gutless government reviews)? Where’s the Fishman-style examination of the Woolies Effect?

To get a further taste of the Fishman book, check out these excerpts.