May 19, 2015

Woolworths bid to beat Bunnings laid bare in court

The highly confidential strategies and inner-workings of Woolworths’ ambitious push into the $40 billion hardware market were laid bare in court yesterday when it was revealed that senior executives, including current boss Grant O’Brien, rushed after sites for its new Masters chain before proper planning just in an effort to thwart arch rival Bunnings.
It shows the intense competition between entrenched market leader Bunnings and Masters, fighting it out for land and sites across the country.
It has also led to Woolworths being accused of deceptive behaviour when it wiggled out of a contract that would have seen an empty patch of land in the Victorian regional town of Bendigo developed into a glistening new Masters store in 2009, and which could see Mr O’Brien front court to give evidence about the soured land deal.
Claims of dumped property contracts, incomplete store designs, secret meetings and even a fake email address named after a pet dog to hold talks between the owner of an independent hardware store in Bendigo and Mr O’Brien were all aired in the ­Supreme Court in Melbourne yesterday.
Meanwhile, Masters, the still struggling hardware arm owned by Woolworths and its US joint venture partner Lowe’s, is likely to ring up losses of $500 million for the past three years as its ­format continues to misfire.
A court was told yesterday that Mr O’Brien, who six years ago was leading the Masters charge, was so intent to beat Bunnings to the punch that Woolworths sped through land deals just to enter the market quickly and hit its stated target of 150 stores in five years.
The opening day of the trial also aired private emails between Woolworths executives, including one from Mr O’Brien to then Woolworths head of property Richard Champion, which showed the urgency to which the now Woolworths CEO wanted to roll out Masters — even before the proper designs were created for the store layout.
Investors and analysts would argue that with Masters still dripping in red ink — it is likely to make a loss of more than $200m this financial year — the spluttering chain was possibly ill-conceived at the very early stages of its creation.
A civil case brought by property developer and Maxi Foods founder Brendan Blake claims Woolworths, which back in May 2009 was still months away from surprising the market with a billion-dollar push into home improvement, had walked away from a contract for him to build and lease a new Masters store in Bendigo. Mr Blake’s North East Solutions would have gained a 42-year lease from Woolworths if the deal had gone ahead, and the businessman is claiming loss of that rental income and other costs, which combined could be up to $16m.
Woolworths walked away from the deal a year after contracts it has signed because it heard rival Bunnings was circling local independent hardware store Hume & Iser and it wanted to grab the business first, denying Bunnings a second store in the town. Woolworths then engaged on a “deceptive course and feigned negotiations’’ over its contribution to the construction of the store on Mr Blake’s land only to walk away from the site, the court was told.
Peter Bick QC, acting for North East Solutions, told judge Clyde Croft yesterday in submissions that the contracts stated Woolworths had to negotiate in good faith when a deal couldn’t be reached on the retailer’s bill to help develop the site.
Woolies had agreed to fund the difference between the cost of building a Masters store and a similar Bunnings store. This was an inducement to bind landlords to agreements. The court was told the Masters store, with its better lighting and store layout, would cost about $12.3m against $8.3m for a Bunnings store.
Mr Bick QC said the decision was made by Woolies to enter into binding agreements in the first place to secure critical sites for Masters before Bunnings could secure them, even if it meant Woolworths had to assume the risks of unknown building costs at the time of entering deals with property developers.
Mr O’Brien, the court was told, wanted Masters “kits” — the design and fitout plans for all Masters stores — ready as soon as possible as construction was imminent, no matter the risk. “Even if we expose ourselves to the cost of the unknown,” Mr O’Brien wrote in the email to Mr Champion, “Bunnings have a kit and could, as a result beat us to the punch.”
Mr O’Brien said the Masters kits needed to be ready “tomorrow/ASAP/pronto/NOW!”.

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