• Losses now total $333 million for past two financial years while total sales is up 42 per cent year-on-year.
  • New and experienced managing director appointed to turnaround business and he is already making changes.
  • 10-to-15 new outlets per year to be opened.

Woolworths has revealed that its Masters business lost $176 million during the 2014 financial year, bringing its total loss for the past two financial years to just under $333 million. CEO Grant O'Brien said the supermarket giant's venture into home improvement, in partnership with US retailer Lowe's, will not meet forecasts and will not break even until at least the 2017 financial year.

Despite this dire announcement, O'Brien said Woolworths remains committed to the DIY market, as does Lowe's, and that it makes sense to persist in the category, which is valued at $45 billion and dominated by Bunnings, which has 17 per cent share, and is ripe for disrupting, according to the Woolworths chief.

"We are disappointed not to reach [previous market] guidance," the company said in a statement. "However, we were right to set challenging targets for the business and will continue to set stringent internal hurdles for the Home Improvement business."

Woolworths entered the home improvement category three years ago and has since opened 49 Masters outlets in Queensland, New South Wales, Victoria, Western Australia and the Australian Capital Territory. Reasons offered for the poor financial performance focus on the immaturity of the business, with uneven store coverage leading to warehouses cannibalising nearby locations, logistics efficiencies remaining unexploited and low foot traffic.

On the plus side, Woolworths reports that Masters now has much improved brand awareness (75 per cent unprompted, apparently), total sales have increased by 42 per cent year-on-year to $752 million and Matt Tyson, an experienced big box retailer, has been recruited to be the managing director of Woolworths' home improvement division, which also includes Home Timer & Hardware, which is marginally profitable ($7 million EBIT off $775 million in sales in FY2014).

Matt Tyson spent 28 years at Kingfisher, a British multinational hardware chain publicly traded on the London Stock Exchange. Woolworths says he has an "extensive home improvement background in retail operations and format development". He has been charged with bringing Masters to maturity — its "next phase", according to Grant O'Brien — and Tyson says he will learn from consumers and adapt to the Australian market to help Masters achieve profitability.

A large component of this will be continued and targeted expansion, which is seen as essential in extracting logistical and operational scale advantages. Masters will soon be expanding into Adelaide, with two stores earmarked for opening in the coming months, while the longterm strategy is to open 10-t0-15 warehouses per year until the previously announced target of 90 nationwide outlets is achieved. Sources say that Masters, along with similar warehouse style retailers like Costco, has struggled to find suitable, metropolitan locations for its stores, which have enormous footprints, especially in high density regions, like Western Sydney.