Bunnings braces for battle

We are now seeing the emergence of some basic differences in strategies between Australia's largest retailers. Today's KGB TV with the chief of Bunnings, John Gillam, underlines the basis strategic differences between Wesfarmers' Bunnings business and Woolworths. Meanwhile, in a different retail space the activities of Wesfarmer's K-Mart are challenging the players in the lower end of the department store space.

And in the looming hardware wars, Lowe's, the US partner for the Woolworths hardware venture, has encouraged its US paint-making partner Valspar to bid for local outfit Wattyl. As Stephen Bartholomeusz explained (Wattyl's WOW factor, May 26) the bid underlines the intensity of the battle preparations and that the price of paint will be an important customer draw-card.

Speaking to KGB TV in early April, the chief executive of Woolworths Michael Luscombe said that the Woolworths-Lowe's joint venture would offer a much wider range of merchandise than Bunnings and would challenge the likes of Harvey Norman and other retailers.

In the looming fight with Bunnings, Luscombe believes that by linking with Lowe's, Woolworths will gain buying power in China that Bunnings will not be able to match and that the Woolworths stock distribution system is much more efficient that the Bunnings system which is dominated by customers supplying direct to stores. (Woolworths' weapons of war, April 1.)

Now Bunnings chief John Gillam has presented the other side. He believes that the Bunnings stock system is better than the Woolworths system which was shown to be the case when Bunnings was battling BigW. He questions whether American-scale buying will give Woolworths an advantage because so many of the American products are different to Australian products.

And while Gillam will not rule out a longer thrust into appliances in competition with the existing players he says that they are so competitive and run efficient operations that he was wary of taking them on.

Supporting the Bunnings argument is the fact that in the US Lowe's and Home Depot lost the "lowest price point" argument to Wal-Mart. Almost certainly Bunnings will stick with its "lowest price" claims which it justifies by extensive rival store monitoring. The ACCC watches carefully to make sure Bunnings delivers on its claims.

Bunnings will be monitoring the new Woolworths-Lowe's stores just as carefully and will reduce prices to whatever level is required to justify the Bunnings "lowest price" advertising claims. But Bunnings' ability to sustain that claim over the long term depends on Gillam being right that the Bunnings systems and buying power will be at least equal to Woolworths. Bunning's biggest advantage is its goodwill and store spread.

We have seen the success of JB Hi-Fi, Good Guys and Retravision push Clive Peeters into official administration. Getting it wrong is very costly. Currently we are seeing K-Mart offer unprecedented discounts on certain items of stock so as to establish its "lowest price" credentials and hopefully also sell those customers better-margined goods. It's a very old strategy that is being taken to extreme.